February 18, 2013
Maryland, Opinions

O’Malley tilts at windmills

By Jillian Kay Melchior | National Review Online | February 18, 2013 | www.nationalreview.com

Maryland governor Martin O’Malley looks likely to get his hallmark offshore-wind-energy bill passed after two failed attempts. But even if the legislature finally capitulates, it doesn’t mean the project is a good idea.

Offshore wind would be astronomically expensive. Yet it would yield little energy.

“This is the dumbest idea ever,” says Maryland’s senate minority leader E. J. Pipkin. “Each year the governor brings it back, the economics get worse. Even if it passes the legislature, it doesn’t make it right.”

Maryland residents will be expected to subsidize the costs of the construction of the project to the tune of $1.73 billion over the next 20 years, according to the fiscal and policy note issued by the Department of Legislative Services. That’s $86 million a year.

Less obvious is the indirect subsidy: Maryland residents will pay higher energy bills. The governor’s office would like people to believe that “it’s not a subsidy if you’re getting something from it,” as one rep from the governor’s office told me.

The bill will essentially force electricity suppliers to use offshore wind, a more expensive source, which will result in higher prices for consumers. Maryland residents would end up paying as much as $1.04 billion for offshore wind over the next two decades through their utility bills, according to the fiscal and policy note. Proponents say the energy produced by the offshore wind will be sold to customers at “market value,” but if this were really an exercise in free markets, electricity suppliers certainly would use cheaper sources than wind to supply consumers with energy.

It will inevitably be expensive – offshore wind is the most expensive energy source in existence, outpacing even solar or hydropower. The levelized cost of offshore is $221.50 per megawatt hour on average, according to the Energy Information Administration. In comparison, onshore wind is $86.60. Natural gas costs as little as $65.60 per megawatt hour.

In a departure from O’Malley’s previous bills, utilities won’t be required to sign contracts committing themselves to offshore-wind-energy purchases. Instead, they’ll be required to comply with the state’s credit-based Renewable Portfolio Standard. The practical difference would be negligible – both policies essentially create an artificial market for offshore wind – but a compliance-based policy is arguably even worse than a contractually based one.

Electricity suppliers would be required to use a certain quota of offshore wind energy. But the amount of energy they’d have to purchase would be determined by the Public Service Commission, an unelected regulatory entity that would also determine penalties for failure to comply. Those could range from fines to administrative action for a civil violation. Furthermore, because both the usage and the penalty are determined each year, that would create considerable uncertainty about future electricity expenses. Any noncompliance costs will inevitably be passed down to consumers, too.

The offshore wind plant has a total construction cost of around $2.76 billion. That’s a lot of money for very little energy. The plant is likely to have a maximum capacity of 211 megawatts. But wind is sporadic and difficult to predict. Most wind plants run at around 30 to 35 percent of capacity. According to the governor’s office, the plant will supply, at best, 1 percent of Maryland’s energy.

“This is really too small of a project to make any real difference in Maryland’s greenness,” says Daniel Simmons, the director of state and regulatory affairs at the Institute for Energy Research. But “it sounds nice, and for people like Governor O’Malley, it’s much more important to appear that you’re doing something than to actually achieve any result in the real world.”

Even if the legislation does pass, there’s a chance the project will still fail, says Myron Ebell, the director of energy and global-warming policy at the Competitive Enterprise Institute. The project’s success depends not only on a bill’s passing but also on securing private financing. But private-sector developers and investors may not want to bet on such a risky endeavor.

“It’s unlikely to ever get built, and the reason is, it’s a huge investment for an incredibly small amount of power,” says Ebell.

O’Malley may be rushing in where the private sector fears to tread, but he’s no fool. For the notoriously ambitious governor, this project may well have little to do with economic or energy policy – and everything to do with politics.

“The governor wants to be president of the United States,” Senator Pipkin says. “He believes this needs to be in his portfolio of interests so he can win a Democratic primary. When he’s in Iowa, we’ll be paying for this project.”