POWER July 2022 - 16

LEGAL & REGULATORY
J. Daniel
Skees
O
Robert
Goldfin
Understanding-
and Planning-for
Regulatory Challenges
to Offshore Wind
ffshore wind projects have been bolstered by federal and
state initiatives that support the technology to achieve
emissions-reduction goals. However, development and
grid integration of these projects requires careful planning to
navigate regulatory, environmental, and stakeholder hurdles
that could lead to costly delays. This should include both an
initial plan to address those hurdles, along with alternative approaches
should the initial plan prove unworkable. Here are key
points to consider to ensure that offshore wind projects are
developed in alignment with projected costs and schedules.
Interconnection. Offshore wind installations are no different
from other generation projects seeking to interconnect to
the grid. A project can fall either under state or Federal Energy
Regulatory Commission (FERC) jurisdiction, although most
will fall under FERC due to the expected large voltage level
of the interconnection. The process varies based on the relevant
transmission provider, including regional transmission
organizations and independent system operators, but generally
includes an initial application or request; coordination meetings
regarding scoping; one or more interconnection studies to
determine feasibility, impacts, and costs; and execution of an
interconnection agreement.
Throughout the interconnection process, a project must
meet deadlines, or risk delays or a complete withdrawal from
the interconnection queue. Without interconnection service, a
project cannot sell capacity, energy, or ancillary services-and
will be unable to generate income. This is also likely to be a
breach of assorted representations and warranties in project
financing agreements, which could result in a default and the
exercise of remedies by secured creditors.
Offshore Renewable Energy Credits (ORECs). Offshore
wind, like many onshore renewable energy projects, frequently
receives renewable energy certificates (RECs). These are assets
that represent the clean energy attributes of 1 MWh of
electric generation from a renewable source. ORECs are a
variation of RECs specific to offshore wind that a project may
sell in certain jurisdictions. Both types of credits can be sold
to comply with state-mandated renewable portfolio standards,
and can be a significant revenue source, providing a level of income
sufficient to support capital-intensive development. But
in order to receive these credits, a project needs to meet developmental
milestones, including energization and commercial
operation by certain dates specified in its OREC award. Not
meeting those milestones can result in the loss of those credits,
and may make the project uneconomic.
Power Purchase Agreements (PPAs). Renewable energy
projects, including offshore wind, also can receive revenue
under PPAs, contracts between a customer and a generation
company to buy a project's power for a predetermined period
at a predetermined price. PPAs benefit project developers by
16
giving a project cash-flow predictability. These benefits are
magnified by the typically long duration of the agreements,
usually from 10 to 25 years. Like ORECs, PPAs are often tied to
a project meeting a particular milestone. Missing these deadlines
could result in the inability to sell ORECs or a breach of a
PPA-making the project financially unviable.
Permitting. Even a well-planned and funded offshore wind
project may encounter regulatory hurdles during the permitting
process, which can be doubly challenging for projects that typically
need federal permits (covering the turbines themselves
and a portion of the lead line in federal waters), state approval
(covering the portion of the lead line passing through state waters),
and support from state/local government for the onshore
lead line and substation. Each process may include milestones
and deadlines that may be interrelated, requiring one permit
before another can be sought. Construction cannot start without
the necessary permits. The longer a delay in project construction,
the higher the risk that OREC, interconnection, or
other deadlines may be missed.
Planning for the Expected-and the Unexpected. Given
the many ways in which offshore wind development can be delayed,
it is important to (a) know what a project's deadlines may
be under interconnection requirements, PPAs, OREC awards,
and the like; (b) plan for meeting those deadlines; and (c) develop
contingent legal strategies in the event that the initial
plans go awry. Most developers are very good at (a) and (b),
but interesting and often time-sensitive issues arise with (c)-
when the unexpected happens.
But it's possible-and indeed critical-to plan for the unexpected.
Legal strategies can be developed in advance to
address risks to deadlines in the development process, thus
avoiding the need to scramble to identify legal tools, such as
contract extensions and tariff options.
Finally-know the other legal options that may exist and
whether they can be leveraged. Always keep in mind that significant
policy support for development of offshore power sources
at both the federal and state levels can mean more flexibility. The
unique nature of offshore wind and the policies supporting it may
make it more likely that state regulators will modify OREC requirements
and that FERC may grant waiver requests for tariff rules
or interconnection agreement requirements. Starting a legal process
may not ever provide a " sure thing, " but it can be a valuable
mechanism when other contractual or tariff options fail. ■
-J. Daniel Skees (daniel.skees@morganlewis.com) is a partner
with Morgan, Lewis & Bockius LLP, where he represents electric
utilities before FERC and other agencies on rate, regulatory, and
transaction matters. Robert Goldfin (robert.goldfin@morganlewis.
com) is an associate with Morgan, Lewis & Bockius LLP, where
he represents major energy industry participants in regulatory and
transactional matters.
www.powermag.com
POWER | July 2022
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POWER July 2022

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