United States

United States

Analysis: XEMC faces uphill battle for US offshore market

UNITED STATES: At first glance, New Jersey's rejection of a plan by Fishermen's Energy to build a 25MW demonstration offshore wind farm is a blow to the efforts of China's XEMC.

The project's turbine supplier and financial backer was planning to use the project to prove its technology and gain early entry to the fledgling US wind market.

But beyond this, the decision may ultimately force the state to clarify what it wants to accomplish with its offshore wind policy.

Fishermen's was attempting to become the first developer to be approved under the state's 2010 Offshore Wind Economic Development Act (OWEDA), which would have allowed the company access to New Jersey's offshore wind renewable energy credits (ORECs) to support its $188 million proposal.

The project, to be located 2.8 miles (4.5 kilometres) off the coast of Atlantic City, was slated to use five XEMC Darwind XD115/5MW turbines. XEMC also agreed to provide construction financing in return for a 70% stake in the project.

In a March decision, however, the New Jersey Board of Public Utilities (BPU) rejected Fishermen's application. The key question, said the panel in its decision, was whether consumers should shoulder the expense and risk of a pilot-scale project using a turbine with no commercial operating history.

The BPU was unequivocal in its response. "The answer is no. Ratepayers should not be asked to pay for a project that costs significantly more per kilowatt that commercial projects, yet produces only a fraction of the output," "Use of wind turbines that have not been commercially proven by a manufacturer new to the offshore wind market also presents significant risk."

Fishermen's also failed to provide information about XEMC's financial resources in a way that would allow for an independent assessment by the board, the decision said, even though the manufacturer has agreed to supply all construction and decommissioning funds up front.

XEMC has two operating prototypes of the XD115/5MW, one in China and one in the Netherlands, and in 2012 signed a 50MW offshore supply and installation agreement with German developer Windkraft FIT. But the BPU's concerns about technology risk point to hurdles companies such as XEMC face trying to carve out a place in the offshore supply sector.

"You get into this chicken-and-egg dynamic. People want to see that a technology works and is viable when it is out in the field, but nobody wants to be the guinea pig," said Matt DaPrato, a senior analyst at consultancy IHS Emerging Energy Research.

But it is not clear whether the BPU would be more open to Fishermen's proposal even if it used commercially proven turbines. "There is still the issue of even if you come back with a Siemens project or an Alstom project, it that going to be enough for the regulators? Or do they just say it is still too expensive?" said DaPrato.

Fishermen's has appealed the decision, arguing the board incorrectly based its decision on a $263/MWh OREC price. The company said the project can be built for a OREC price of $199.17/MWh, although that requires it to either tap into federal grant money and tax credits — which are not guaranteed — or settle for a below-market internal rate of return.

If the state wants offshore wind, said DaPrato, it will have to accept some level of subsidy. "They have this policy on the books, but they have yet to really implement it. The rate authorities seem hesitant about paying any sort of premium to get it going," he said.

"It will be interesting to see if New Jersey does evaluate its policy and maybe send a clearer signal about what types of projects it wants and how it is going to advance its policy. To the extent this decision moves them to do that, it could be a beneficial thing in the longer term. But it certainly is a setback to Fishermen's and XEMC."

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