March 19, 2011
Maryland

Despite lowered cost estimates, price tag could sink O’Malley energy plan

by Margie Hyslop, Staff Writer, www.gazette.net 18 March 2011

Cost concerns are jeopardizing Gov. Martin O’Malley’s proposal to subsidize development of offshore wind farms – even as advocates hoped new estimates would quell worries.

The Maryland Public Service Commission told the Senate Finance Committee on Tuesday that subsidizing a 500-watt wind farm for 25 years would add roughly 92 cents to $3 per month to residential electric bills.

That’s a far cry from earlier this month, when the PSC said household electric bills could increase as much as $8.70 per month under the Maryland Offshore Wind Energy Act, which O’Malley (D) is advocating as a way to help meet the goal of generating one-fifth of the state’s electricity from renewable sources by 2022.

O’Malley’s proposal could lead to construction of about 120 wind turbines roughly 11 miles off the Eastern Shore. Legislators have yet to vote on the plan, which asked lawmakers to mandate that Maryland’s four investor-owned utilities – Pepco, Delmarva Power, Baltimore Gas and Electric Co. and Allegheny Power – purchase 400 to 600 megawatts of offshore wind energy capacity for at least 20 years.

On Tuesday, the O’Malley administration sought to change the minimum contract length to 25 years, which reduced projected cost increases, but maybe not enough for many lawmakers.

“I support the notion of creating incentives for offshore wind, but there are a lot of concerns that people have raised because of cost,” House Majority Leader Kumar Barve (D-Dist. 17) of Gaithersburg said Thursday.

Barve is among more than 30 Democrats listed as co-sponsors of the House bill.

O’Malley spokesman Shaun Adamec said the administration still believes “the skepticism can be resolved” and the governor has had a lot of one-on-one meetings with lawmakers to do that.

“The biggest force against us are the utilities that exist today, which make a lot of money off the status quo,” Adamec said.

Although supporters of wind energy say it can help meet the nation’s energy needs while reducing dependence on foreign oil and polluting fossil fuels, not even the strongest advocates claim it will come cheaply anytime soon.

The projected cost of about 20 cents per kilowatt hour is well off the roughly 13-cent cost that the U.S. Department of Energy has set as a target.

Democrats and Republicans say they worry because O’Malley’s proposal does not insulate poor people and struggling small businesses from taking a financial hit.

“To enter into 20- to 25-year contracts now when it’s as costly as it’s ever going to be” does not make sense, Sen. Allan H. Kittleman said.

“We’ve already heaped a lot of costs on our ratepayers to promote renewable technology,” said Kittleman (R-Dist. 9) of West Friendship.

Requiring the four utilities to enter into a power purchase agreement might cost Maryland households an extra $1.44 per month in 2016, then decline as conventional energy costs rise, Adamec said, pointing to consultants’ estimates.

The Department of Legislative Services has estimated that the plan would add $3.61 per month to most households’ electric costs in the first year, and that the added cost would decline in subsequent years, based on a 500-megawatt commitment and a 25-year agreement.

State and local governments and most businesses also would pay more for electricity.

State analysts have not released estimates of how much more businesses would be charged, but they have said that in 2016 – when offshore wind power might be available – state spending for electricity could increase by $5 million and that Baltimore city government spending, for example, could increase by $1.5 million.

Problems pinning down costs underscore the uncertainty of building an offshore wind power industry that so far exists primarily in Europe and China. The wind industry currently has an operating capacity of about 3,200 megawatts worldwide.

Only three power purchase agreements have been signed in the U.S. between offshore generators and utilities, including one in Delaware. The size and price of the agreements vary widely, leading the legislative services analyst who examined O’Malley’s proposal to conclude that “actual costs may vary significantly depending on the bids submitted and ultimately approved.”

“I am not an expert, but a 20-year commitment in an area that has not been proven to be the most effective way of producing energy seems like a waste of valuable resources,” Del. Kelly M. Schulz (R-Dist. 4A) of Lake Linganore told constituents in her newsletter.

Utilities and business groups oppose the measure, saying they prefer less-costly energy alternatives.

Still, O’Malley and federal officials seem sold on the potential of offshore wind farms to meet growing energy needs without air pollution, while reducing dependence on foreign resources and replacing lost manufacturing jobs.

Steelworkers and some environmental groups are lobbying together for O’Malley’s plan, heralding it as an opportunity to produce cleaner electricity closer to home and to build a new offshore wind turbine manufacturing and maintenance industry in Maryland that could grow if demand for wind farms picks up in states along the Atlantic coast.

Creating jobs and industry could offset the impact on electric bills for many hit hardest by the recession, and cleaner air could reduce the toll on their health, Adamec said.

The Maryland Energy Administration said a 500-megawatt offshore wind project could meet up to 15 percent of the renewable energy goal, meaning such a project from offshore could supply about 3 percent of Maryland’s electricity use, while reducing carbon emissions by 945,000 tons annually – about the equivalent of taking 157,500 cars off the road.

MEA also points to a U.S. Department of Energy report that a 500-megawatt offshore wind project would create 2,000 manufacturing and construction jobs during the five years expected to get it up and running, then 400 jobs to supply the project and keep it going.

And O’Malley is not floating the bait alone.

He is among 10 governors of Atlantic coast states – including neighboring Delaware, Virginia and nearby New Jersey – angling, with help from the U.S. Department of the Interior, to be among the first to put wind farms on the horizon off U.S. shores.

New Jersey has approved a $100 million tax credit for companies that develop and supply offshore wind farms.

Environmental assessments are being prepared for areas off the coasts of Maryland, Delaware, Virginia and New Jersey.

While offshore wind power development in the United States has lagged, electricity production from land-based wind turbines, which have much lower capital and operating costs than their offshore counterparts, has taken off.

Land-based, wind-generated electricity increased 61 percent from 2007 to 2008 and 28 percent from 2008 to 2009, according to the U.S. Energy Information Administration.

Although most onshore wind turbines are in the Plains states, more are sprouting up on windy mountain ridges on the East Coast, including in Western Maryland.

The 70-megawatt Criterion Wind Park, owned by Baltimore-based Constellation Energy, consists of 28 turbines spread over eight miles in three areas that the company leases along Backbone Ridge, the state’s highest elevation, near Oakland in Garrett County.

Constellation opposes subsidies for offshore wind, contending that its development “should be market-driven,” said Kevin Thornton, a spokesman for the company’s renewable energy portfolio.

Criterion Wind Park generates enough electricity to power 23,000 homes, but its output is sold to Old Dominion Electric Cooperative, under a 20-year purchasing agreement. ODEC transmits the power from Maryland’s mountains to its 11 member electric cooperatives in eastern and central Virginia, Delaware and one – Choptank – on Maryland’s Eastern Shore.

A high-voltage interstate transmission proposed by Pepco Holdings (parent company of Pepco and Delmarva Power, two of the state’s investor-owned utilities) could help bring offshore wind power across the Eastern Shore and to southern and central Maryland.

Adamec said the line, which is under review by the PSC and is known as the Mid-Atlantic Power Pathway, is not necessary for the offshore wind power project that O’Malley’s bill would support. Existing transmission lines are more than sufficient to carry wind power generated offshore north to Harford County, he said.

Proponents of offshore wind farms note that, although some construction and operating costs can be almost twice those for onshore farms, wind blows more reliably and widely over the ocean at levels conducive to generating electricity.

If O’Malley’s bill is approved, the PSC would be expected to issue a single Request for Proposals on behalf of Pepco, Delmarva Power, Baltimore Gas and Electric Co. and Allegheny Power, review responses and approve a power purchase agreement with generators by Dec. 31, 2012.

The Office of People’s Counsel wants the legislation amended to provide cost protections for consumers and to allow the PSC to reject proposals if they are not in the public interest. Appointed by the Attorney General, the People’s Counsel represents the interests of consumers in matters of rates and regulation for electricity, natural gas, telecommunications and some transportation matters before state and federal agencies.

Staff Writer Alan Brody contributed to this report.

URL to article:  https://www.wind-watch.org/news/2011/03/19/despite-lowered-cost-estimates-price-tag-could-sink-omalley-energy-plan/