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Treading Water

With no guidance yet from FERC, Atlantic Wind is forced to wait.

Fortnightly Magazine - May 2011

the interstate grid network], the AWC project will facilitate offshore wind development on a larger scale and more quickly.” By separating the siting of interconnection lines from the siting of the actual wind farms, AWC would enable wind turbines to be built farther from shore.

Congestion Relief?

In its December application, Atlantic Wind sought financial incentives under Federal Power Act sec. 219, and FERC Order 679, which require either (a) prior project approval by the regional grid planner (PJM) or a state permitting agency, or (b) proof that the project is needed to ensure reliability or to reduce the cost of delivered power by reducing grid congestion.

And as AWC hasn’t even applied to be considered in PJM’s regional grid plan, and lacks state permitting approval or proof of any compelling reliability need, it has up to now tried to make a case that it will ease congestion and produce dollar benefits by enhancing regional grid transfer capabilities and lower spot market prices, known as LMPs (locational marginal prices). On this point, however, the returns are mixed.

With help in analysis from The Brattle Group, AWC contends that connecting 6,600 MW of offshore wind via the project would produce $17 billion (net present value) in LMP reductions in PJM over 20 years, as compared with a base case of no offshore wind development. Yet, as the incumbent transmission owners (TOs) in PJM have pointed out, that $17 billion in benefits requires a $35 billion outlay to produce: $5 billion for the project, and $30 billion for the generation (implying a capacity cost of about $4,500/kW).

And while AWC claims annual congestion cost savings of $147 million even without participation from offshore wind, that benefit (a 20-year net present value of about $1 billion) still wouldn’t match the $5 billion cost of the transmission project.

And these numbers don’t take into account that the injection of so much offshore wind could require costly AC system upgrades back on land, or that LMP effects could be offset by hedging deals using financial transmission rights (FTRs).

One group of stakeholders, led by Old Dominion Electric Cooperative, suggests that since project benefits, if any, will come from wind farm development, rather than the line itself, that Atlantic Wind is attempting to “transform the use of risk-reducing transmission incentives into a shield for would-be developers [of offshore wind farms] against the risk inherent in their projects.”

And AWC’s own expert witnesses Johannes Pfeifenberger and Samuel Newell (both Brattle Group principals) seemed to reinforce that point when they testified, “It is unlikely that the project would be constructed without the accompanying development of offshore wind generation.”

Will wind farm projects agree to sign on? One developer, Deepwater Wind Holdings, which plans to locate its Garden State Offshore Energy Project approximately 16 miles off the New Jersey coast, near the proposed path of Atlantic Wind, takes pains to point out that it won’t necessarily participate in the AWC project:

“Deepwater Wind is concerned that the AWC Project may increase the complexity of development of offshore wind.

“While Deepwater may