Danish offshore wind champion Orsted has closed a deal to sell 25% in the 1.1GW Ocean Wind project, the second largest in the US, to New Jersey’s Public Service Enterprise Group (PSEG) for an undisclosed sum.
The New Jersey Board of Public Utilities (BPU) in mid-2019 selected Ocean Wind as the state's first large-scale offshore wind farm. It could provide first power in late 2024, subject to federal permitting timelines, other development and construction activities, and final investment decisions by Orsted and PSEG.
“I’m delighted to extend our partnership with PSEG and welcome them on Ocean Wind, which will contribute significantly to New Jersey’s target of achieving 100% renewable power by 2050,” Orsted chief executive Henrik Poulsen said.
Orsted said PSGE’s contribution will include both a conventional and tax equity investment in the project, but didn’t reveal a sale price.
The transaction aligns with PSEG's strategy to exit fossil generation and transition to a primarily regulated and contracted business, with a zero-carbon generation platform. That fleet will include nuclear, offshore wind and in-state solar, while distribution of imported natural gas would continue.
In July, the company announced it was exploring "strategic alternatives" for 6.75GW of fossil units located in Connecticut, Maryland, New Jersey and New York, as well as a small 467MW portfolio of merchant solar projects in 14 states.
PSEG said the move will reduce overall business risk and earnings volatility, and improve both its credit profile and market valuation which CEO Ralph Izzo contends does not fully reflect its "already compelling" environmental, social and governance (ESG) position.
The move also continues a trend over the last several years of growing participation by domestic investor-owned utilities in the US offshore wind sector whose early growth has been largely driven by their European counterparts and oil companies based there including Equinor and Shell.
PSEG, Dominion and Eversource Energy see offshore wind helping them meet increasingly stringent clean energy requirements set by states in which they operate and as an exciting new and potentially large revenue stream.
They also bring attributes as investors including strong balance sheets, decades of experience with large infrastructure projects and local utility regulators, established supply chains and ownership of transmission infrastructure on land that will provide critical interface with offshore arrays.
Earlier today, Norwegian oil firm Equinor and UK utility SSE said they will each receive around $227m to sell 10% each in the 2.4GW Dogger Bank A&B offshore projects in UK waters. But Dogger Bank and Ocean Wind cannot easily be compared as UK projects are likely to be cheaper due to the higher maturity of the offshore wind industry there, while Dogger Bank also is much larger in size.
Completion of the acquisition is expected in the first half of 2021, subject to approval by BPU and other customary closing conditions.
“We’re pleased to expand our partnership with Orsted, a global leader in the development of offshore wind,” Izzo said. “As New Jersey’s first offshore wind project, Ocean Wind will lead the way for a productive first step into this forward-leaning industry, bringing with it new skills, jobs, and carbon-free energy.”
Ocean Wind is located at 24 kilometres (15 miles) off the coast of Atlantic City, and will fly GE’s 12MW Haliade-X turbines.
The project will receive Offshore Wind Renewable Energy Certificates at a price of $98.10 per megawatt hour during the first year of operation, with a 2% increase per year during the 20-year term of the OREC.
PSEG eying more offshore wind
Izzo said PSEG is evaluating participation in additional offshore wind opportunities in New Jersey and other mid-Atlantic states. Orsted and PSEG are already joint venture partners in the 1GW Garden State Offshore Energy lease area in federal waters facing the state of Delaware.
That zone is also close to the coasts of New Jersey and Maryland, and all three states are part of regional grid operator PJM Interconnection. Last month, New Jersey became the first state to formally ask PJM to embed its offshore wind goal into transmission planning, in what was hailed as a statement of leadership by the US industry whose fast growth poses future power delivery challenges.
PSEG will also likely have additional opportunities to partner at home with Orsted if, as expected, it submitted bids in New Jersey's solicitation for 1.2-2.4GW offshore wind capacity set to close on Thursday.
Orsted's lease area south of Atlantic City has at least 2.4GW capacity remaining aside from what is committed for Ocean Wind.
Updates with PSEG's strategy to exit fossil generation, growing participation of domestic investor-owned utilities in US offshore wind and remaining Orsted lease area capacity