Offshore wind is the renewable-energy industry’s shiny new toy. Led by New York, seven Atlantic-coast states have now imposed mandates to expand offshore wind use over the next decade, with the Empire State last week soliciting bids for an additional 2,500 megawatts of offshore power, on top of the 1,700 megawatts procured previously.
Advocates claim offshore wind will contribute to a low-carbon future, spur an economic renaissance and create thousands of jobs. Don’t buy it. The mandates are yet another boondoggle that will benefit a well-connected few, saddling everyone else with even higher power costs.
Consider Rhode Island’s 30-megawatt, six-turbine offshore wind project located off Block Island and operated by Deepwater Wind. A decade ago, Rhode Island’s public utility commission rejected the project, concluding that the sky-high prices it would charge the local electric utility would adversely affect consumers. Yet the Rhode Island legislature ignored consumer interests and forced the commission to approve a 20-year contract.
At the start, in 2016, the local utility paid $245 per megawatt-hour for the project’s electricity, with a guaranteed increase of 3.5 percent each year. In 2035, the last year of the contract, the price will be an eye-popping $470 per MWh. By contrast, the average price of wholesale electricity in New England last year was about $31/MWh. In New York, average prices ranged between $22 per MWh upstate to $51 per MWh in Gotham.
Elsewhere, the dozen offshore projects now under development have lower-priced contracts, but they are still far higher than market prices. In New York, the first-year prices for the 816 MW Empire Wind and 880 MW Sunrise Wind projects will be $99/MWh and $110/MWh, respectively. And that’s cheap compared to electricity from some other wind projects in the Atlantic, which range from $77.76/MWh to $202/MWh.
Yet these prices, which are already high, are understated — because offshore wind projects have two dirty secrets. First, a detailed analysis of similar European projects has shown that their output decreases by an average of 4.5 percent a year (almost half after 10 years), with newer, larger turbines tending to suffer the most failures. Operation and maintenance costs also have proved to be much higher than anticipated.
These operational realities lead to a second, even more pernicious impact: The higher-than-expected operating costs mean that the projects are likely to be abandoned prematurely, creating a cascade of costs that consumers and taxpayers will absorb.
Although the offshore projects will be developed by large, international firms headquartered in Europe, they are structured as single-purpose, limited-liability companies whose only assets are the turbines themselves. So when the projects are no longer profitable to operate, the owners of these LLCs can walk away, with virtually no financial consequences.
Offshore wind projects must be decommissioned at the end of their lives. But unlike nuclear power plants, which have strict requirements to fund their eventual decommissioning, there are no such requirements for offshore wind facilities.
And those decommissioning costs will add up. A 2017 decommissioning study in Britain pegged the cost at around $240,000 per MW. With New York aiming to build 9,500 MW of offshore wind projects, that translates into over $2 billion in eventual decommissioning costs.
All this is against a backdrop of staggering economic losses thanks to the lockdowns. According to New York’s Division of the Budget, the budget shortfall for fiscal year 2021 alone is expected to be north of $13 billion, and $61 billion through fiscal 2024. The state now wants to raise New Yorkers’ electricity costs — already 50 percent above the national average — to pursue a virtue-signaling policy that will have no measurable impact on world climate. That will encourage even more businesses and jobs to flee.
The situation is akin to states that promise lavish pensions, while failing to fund them. When the bill’s due, there are only two options: renege on the promises or collect the money from someone else.
In the case of offshore wind, expect the result of higher-than-anticipated operating costs and premature abandonment to either be “renegotiations” with state regulators to raise contract prices — or a green middle finger to taxpayers. Either way, the public will lose.
This piece originally appeared at the New York Post
Jonathan A. Lesser, PhD, is the president of Continental Economics, an economic consulting firm, and an adjunct fellow with the Manhattan Institute.
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