As renewable energy grows in popularity, offshore power generation has been bolstered by recent federal and state initiatives that support the development and integration of offshore renewables to achieve emission reduction goals. However, developing these projects requires careful planning to navigate regulatory, environmental, and stakeholder hurdles that potentially lead to long and costly delays.
Morgan Lewis lawyers discuss how developers can best plan for these challenges in order to maintain successful and timely project development:
- Despite being uniquely situated in the ocean, offshore wind generation projects are similar to other generation projects in that the facilities must be interconnected to the continental electric system. The interconnection of a project can either fall under state jurisdiction or Federal Energy Regulatory Commission (FERC) jurisdiction, although most will fall under FERC jurisdiction due to the expected voltage level of the interconnection. The interconnection process varies based on the relevant transmission provider, including regional transmission organizations and independent system operators. Failure to meet deadlines set by the transmission provider during a project’s interconnection process—which generally includes an application, scoping coordination, interconnection studies, and an interconnection agreement—could result in delays or a complete withdrawal from the interconnection queue.
- Various cost recovery mechanisms are used to finance projects, including selling offshore renewable energy certificates (RECs) or offshore renewable energy certificates (ORECs). Both can be sold to comply with renewable portfolio standards, and act as a significant revenue source that can also enable non-recourse financing. Projects can also obtain funding through power purchase agreements (PPAs), an agreement between a customer and their generator to buy a project’s power for a predetermined period at a predetermined price. ORECs and PPAs are often tied to a project meeting a particular milestone, so missing these deadlines could result in the inability to sell ORECs, or a breach of a PPA—making the development financially unviable.
- Early in the process it’s critical to know what a project’s deadlines may be under interconnection requirements, PPAs, OREC awards, and the like. Legal strategies can be developed in advance to address risks to these deadlines that arise in the development process. These strategies can form a “playbook” that can be used if needed and avoid a need to scramble to identify regulatory, contractual, and other legal tools that can be used to delay milestones.
- It’s also important to keep in mind that significant policy support for development of offshore power sources at both the federal and state levels can mean more flexibility. This may make it more likely that FERC may grant waiver requests for tariff rules or interconnection agreement requirements from FERC. This is especially true in cases where the waiver is of limited scope, addresses a concrete problem, or does not have an undesirable consequence, or if the applicant has acted in good faith.
For more information on regulatory challenges and best practices for siting and interconnection, permitting and environmental compliance strategies, and the necessity of local engagement and stakeholder cooperation, view the Laying the (Offshore) Groundwork presentation.