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Joe Biden’s executive order on wind power is more hot air
Credit: Jonathan Lesser | The American Conservative | February 3, 2021 | www.theamericanconservative.com ~~
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There’s a lot of hot air in the news these days—including much ado about actual wind. President Biden signed an executive order last week aiming to “combat the climate crisis,” which included directions for the secretary of the interior to “identify steps that can be taken to double renewable energy production from offshore wind by 2030.” This comes on the heels of news earlier this week that New York has approved two new offshore wind developments: the 1,360 MW Empire Wind 2 project and the 1,330 MW Beacon Wind project, the largest such projects yet to be announced.
But the winds of change were in the air even as early as last December. It seems like decades ago that former president Trump balked before ultimately signing a 5,600-page omnibus spending bill just before Christmas—one with favors for the offshore-wind industry baked into the language. Before Americans are subjected to the new $1.9 trillion COVID-19 relief bill that President Biden is demanding Congress pass—not to mention the fruits of last week’s executive order—it’s worth reflecting on what’s already been mandated with respect to wind energy.
Not surprisingly, the omnibus spending bill passed last December, which was supposedly intended to provide relief to Americans struggling with the economic impacts of COVID-19, is a bipartisan, pork-loving politician’s dream. It’s stuffed with myriad giveaways to favored constituencies, ranging from the sublime (accelerated depreciation for that Kentucky racehorse you recently purchased) to the ridiculous (at least $10 million for “gender programs” in Pakistan).
Less noticed are the new subsidies for green energy. The bill extends the “temporary” wind-production tax credit, which began almost 30 years ago, yet again. In 2020, qualifying wind generators received an after-tax credit of $23 for every megawatt-hour of electricity generated. The bill also extends the 26 percent solar PV investment tax credit another year.
Most significantly, the bill offers a new 30 percent investment tax credit for offshore wind projects, almost all of which are being developed by large European companies. Although the new offshore wind tax credit is supposed to expire after 2025, don’t bet on it. Nothing, it seems, is so permanent as a “temporary” federal tax credit for the politically well-connected.
Despite proponents who claim offshore wind will soon be less costly than new gas-fired generators, the long-term—20 years or more—agreements that individual states previously “negotiated” with developers all come with sky-high prices. The new tax credit for the European companies constructing these projects—including Ørsted and Vestas (Denmark), Siemens (Germany), Equinor (Norway), and BP (Great Britain)—will extract even more money from American wallets as pure profit in favor of European corporatists.
Consider the 1,100 MW Ocean Wind project, to be built off the New Jersey coast by Orsted and completed by late 2025. The 20-year contract New Jersey utility regulators approved has a first-year price of $98 per megawatt-hour (MWh), which will increase to almost $150/MWh in its last year. By comparison, in 2020, wholesale power prices in PJM (the multi-state entity that oversees power generation and transmission in 13 mid-Atlantic states, including New Jersey, and the District of Columbia) averaged just under $21 per MWh. (The contract prices for Beacon Wind and Empire Wind 2 have yet to be negotiated with New York state regulators.)
Or consider the Long Island Power Authority’s 90 MW Southfork Wind project, which also will be built by Ørsted and is supposed to begin operation in December 2022. The agreement LIPA negotiated will force its already beleaguered ratepayers, who already pay over 50 percent above the national average price for electricity, to pay $160 per MWh in the first year of operation and, by the end of the 20-year contract, over $233 per MWh. By comparison, in 2020, wholesale energy prices on Long Island averaged just over $28 per MWh. Prices were even lower throughout the rest of New York.
Similar above-market contract prices can be found in all of the signed long-term contracts for over 6,000 MW of offshore wind slated for development along the Atlantic coast.
How much money are we talking about? According to the U.S. Energy Information Administration, the average construction cost for offshore wind is over $5.4 million per MW. For the 6,000 MW of signed contracts, that translates into a cost of over $32 billion and a taxpayer subsidy of almost $10 billion to European companies.
And those 6,000 MW are just the beginning of a planned orgy of offshore wind. For example, New York Governor Cuomo has mandated a minimum of 9,000 MW of offshore wind for his state by 2035. New Jersey’s Energy Master Plan calls for developing over 11,000 MW of offshore wind power by 2050. Massachusetts wants 3,500 MW of offshore wind by 2035. According to the American Wind Energy Association, states already have established targets for acquiring over 29,000 MW of offshore wind by 2035. At $5.4 million per MW, that translates into construction costs of over $150 billion and a tax credit of over $45 billion. Even if offshore wind construction costs fall by half—and despite the promises of advocates, there is no evidence that will take place—taxpayers would be forced to pay over $20 billion to these European companies.
Moreover, as I discussed in a recent Manhattan Institute report on offshore wind, the European developers have structured these new projects as limited-liability companies, whose only assets will be the turbines themselves. The problem with the limited liability nature of these companies is that, once they are no longer economic to operate, the owners can simply float away, leaving electric ratepayers and taxpayers to pay the decommissioning costs, which are not insignificant.
And the economics of offshore wind turbines are far less rosy than proponents claim. A detailed study of offshore wind turbines in Europe—the same types of turbines to be installed up and down the Atlantic coast—found that 80 percent suffered major mechanical failures causing prolonged outages in their first 10 years of operation. That same study found that maintenance costs are also far higher than claimed, further reducing their profitability, even with sky-high contract prices.
Green energy proponents often justify their subsidies by arguing that the U.S. has subsidized fossil fuel companies even more. But fossil fuel companies have never received direct production and investment tax credits. Nor has their use ever been mandated by U.S. states, 28 of which have implemented increasingly stringent renewable energy portfolio standards, most recently with mandates for 100 percent renewable energy by 2050 or sooner. Moreover, per unit of actual energy produced, subsidies for wind and solar power are hundreds of times larger than subsidies for fossil fuels.
The other justification proponents raise for green energy subsidies is that they will create new, high-paying jobs. Tell that to the thousands of workers who were going to build the Keystone XL Pipeline, which would have delivered crude oil from Alberta into the U.S. After having been resurrected by President Trump, on his first day in office, Joe Biden issued an executive order killing the project…again. The Alberta crude oil will still be extracted. Only instead of going to U.S. refineries via pipeline, some will be shipped by truck and rail car, while much will be shipped overseas, especially to China. The net result will be greater risks of oil spills and more greenhouse gas emissions. Only in an Alice in Wonderland world is that a “victory” for the environment.
The simple economic truth is that subsidies cannot enhance overall economic well-being, because someone must pay for them. So while the new offshore-wind tax credit will enrich a few large European companies, the tax credit will be shouldered by ordinary American consumers, already beleaguered by the economic impact of COVID-19. By pursuing high-cost offshore wind, electric rates in these states will keep rising, and impose still more economic harm on consumers and businesses.
The new offshore-wind tax credit is yet another slap in the face to U.S. consumers, as well as an interesting extension of a trend that irritated many Twitter users when the bill was first released: American households footing the bill for programs that will mostly benefit other nations in the midst of a pandemic that has devastated millions of U.S. businesses and individuals.
It’s good to know how much Washington’s political class cares about ordinary taxpayers. Under the new Biden administration, expect much more such “caring”—and consider last week’s executive order a teaser for what’s to come.
Jonathan Lesser is president of Continental Economics, an energy and economic consulting firm, and an adjunct fellow with the Manhattan Institute.
This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.
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