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New Maryland Legislation Will Drive Offshore Wind Energy Development

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Jesse is a researcher, consultant, and writer with ten years of experience in the energy sector and expertise in electric power systems, electricity regulation, energy and climate change policy...

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  • Mar 11, 2013 6:00 pm GMT

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At least 200 megawatts of offshore wind energy will soon be built off the shores of Maryland, thanks to new legislation passed this week by the state’s senate. The act is now on it’s way to the desk of Governor Martin O’Malley, who finally has the opportunity to sign into law legislation he has championed since 2011.

House Bill 226, known as the Maryland Offshore Wind Energy Act of 2013 will create a “carve-out” in the state’s existing renewable portfolio standard requiring that a certain percentage of the state’s electricity be supplied by offshore wind energy beginning in 2017. The exact percentage will be determined each year by regulators with the state’s Public Service Commission and cannot exceed 2.5 percent of total retail electricity sales in the state.

Governor Martin O’Malley has previously stated that the legislation will likely result in the construction of at least 40 turbines totallying 200 MW of capacity by 2017, creating an estimated 850 jobs.

Offshore wind turbine

Carve-outs in state RPS policies have successfully drive the growth of solar energy in several states, most notably in New Jersey. Like the solar renewable energy credits (S-RECs) that are a signature feature of New Jersey’s solar carve-out, the Maryland offshore wind carve-out will create specific “offshore renewable energy credits” or ORECs, tradeable certificates associated with the generation of offshore wind energy that will be used by utilities to comply with the legislation. The purchase of ORECs will act as a financial incentive (or subsidy) for offshore wind generators.

Previous efforts to pass the offshore wind legislation in 2011 and 2012 failed due to concerns about the potential impacts on electricity rates in the state. This time around, the 2013 act contains several provisions to safeguard consumers and industry against rate impacts.

The bill specifies that the purchase of ORECs may not increase the rates of industrial electricity customers by more than $1.65 per megawatt-hour (MWh) (or just 0.165 cents per kilowatt-hour).

The legislation similarly states that regulators will not approve any new offshore wind projects if the cumulative impact of all such projects would increase the average residential customer’s total bill by more than $1.50 per month. Non-residential customer bills may not increase by more than 1.5 percent.

Additionally, the price of each OREC cannot exceed $190 per MWh in 2012 dollars.

Notably, the new ORECs will differ from other renewable energy credits (RECs) under the state RPS. Normal Tier 1 RECs are generally “unbundled,” meaning that they represent only the environmental attributes of the renewable MWh and are sold seperately from the energy, capacity, and ancillary services associated with the actual electricity generated. ORECs in contrast will be a “bundled” certificate representing the energy, capacity, ancillary services and environmental attributes of the offshore wind generation. As such, the $190 per MWh cap on OREC prices represents a true maximum purchase price for electricity sold from any qualifying offshore wind facilities.

Wind energy advocates hope the legislation will succesfully kick-start the offshore wind industry in the mid-Atlantic region.

“This bill is to offshore wind power in the Mid-Atlantic what the early railroads were to American transportation,” said Mike Tidwell, executive director of the Chesapeake Climate Action Network. “It’s a driver of innovation that will create jobs, enhance our economy, improve public health, and protect the climate.”

As Silvio Marcacci notes, Maryland legislation follows Massachusetts recent final approval of Cape Wind’s power purchase agreement with local utility NSTAR as well as New Jersey being selected for the first Atlantic Wind Connection offshore transmission project phase.

After years of slow-going, offshore wind may finally be set to take root in the American Atlantic.

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