PSEG may cut offshore wind investment 

Public Service Enterprise Group is reviewing its option to invest a 25% stake in the Ocean Wind I offshore wind farm, a decision driven by the higher costs of the turbine components, supply chain costs and inflationary pressures.

The Newark-based energy company is approaching a “final investment decision” on retaining its equity in the state’s first offshore wind farm with Ørsted, a Danish developer that is seeking to build a 1,100-megawatt project off Atlantic City. PSEG also has an option for a 50% stake in Ørsted’s nearby Ocean Wind II project.

The hesitation over continuing its investment in the projects appears to be over whether the company would profit more from investing in building offshore wind transmission systems than spending money to produce electricity from offshore wind turbines. The power transmission part of the business is a regulated, more stable form of generating revenue and the power generation market is much more volatile.

The investment issue arose during PSEG’s third-quarter earnings call when the company announced its reconsideration of the offshore wind project. Last month, a developer of the Commonwealth Wind offshore wind project in Massachusetts asked regulatory authorities for changes in its Power Purchase Agreements, or long-term contracts for buying electricity by ratepayers.

In a statement by the developer, Avangrid blamed “unprecedented economic challenges facing all infrastructure projects, including historic price increases in interest rates, prolonged supply chain constraints, and persistent inflation” for the request.

Why the hesitation?

During the earnings call Monday, PSEG CEO Ralph LaRossa told analysts in response to a question, “what you have been seeing with others, we are seeing with our projects.” In its review, PSEG is looking at where the costs come in and the impact on its investment, said LaRossa, who was on his first earnings call as CEO and president.

Paul Patterson, an analyst with Glenrock Associates, called the company’s decision to reconsider its investment not surprising. “This is a company always flexible about deploying capital in what it perceives as the most favorable risk-adjusted rate of return,” he said.

PSEG’s LaRossa remains optimistic about the company’s prospects for building offshore wind transmission despite a decision by state regulatory authorities to only approve a more modest onshore transmission project to upgrade the power grid proposed by Jersey Central Power & Light and a partner.

PSEG was one of 13 developers who had submitted more ambitious offshore transmission projects, including to begin building ways to connect offshore wind farms to land. One of PSEG’s projects, offered in partnership with Ørsted, would have involved building three offshore wind substations and lines connecting to an onshore substation in Middlesex County at a cost of $7 billion.

In its decision, the state Board of Public Utilities decided to focus on onshore transmission needs, LaRossa said. The decision was the right thing to do from the perspective of New Jersey ratepayers, he added.

Still bullish on transmission project

The company is still hopeful its transmission project will move forward, he added, calling it the most robust and resilient of the proposed offshore backbone systems offered in the competitive proceeding.

In holding off selecting any of the offshore transmission backbone proposals, the BPU staff noted those projects do not qualify for lucrative tax credits available to offshore wind turbine projects, which would cost utility customers more. By delaying a decision, it also offers the state more time to win more regional cooperation among other states to help fund such a project.

Meanwhile, the BPU announced Friday it would establish a new proceeding to solicit input from developers on how it should build an offshore wind backbone transmission system, or so-called mesh network, as described by the agency.

The BPU staff is considering requiring offshore wind developers to include a mesh network as part of the state’s third solicitation for building wind farms off the Jersey coast. So far, the state has approved three offshore wind projects – Ocean I and Ocean II by Ørsted, and a third by Atlantic Shores.