Offshore wind power is coming here! Maryland’s Clean Energy Jobs Act of 2019 (CEJA) mandates the procurement of at least 1,200 megawatts of in-state offshore wind by 2030. Because offshore wind is one of the most expensive forms of renewable energy, this requirement will increase the electric bills of Maryland’s residential and small-business electricity consumers (large consumers are exempt). Considering how expensive this energy is, wouldn’t the logical decision be to build just the minimum capacity required to comply with the CEJA? The Maryland Public Service Commission (MPSC) chose differently.
The MPSC approved two offshore wind projects totaling more than 1,600 megawatts of capacity – far more than the CEJA requires. Although the exact cost burden ultimately imposed on electricity consumers is uncertain, based on estimates produced by the MPSC’s own consultant, ICF, it will likely be about $4 billion in today’s dollars.
The CEJA conditioned its 1,200-megawatt target by limiting the increases in consumers’ electric bills. Those limits effectively determine the maximum subsidy authorized for the offshore wind projects, which is less than $1 billion in today’s dollars. So the MPSC’s decision effectively spent at least four times more than the CEJA authorized.
The contractual payments the MPSC approved are known with near-certainty and total about $8 billion in today’s dollars. In contrast, the revenue from selling the wind projects’ energy and capacity into the wholesale electricity markets, which will partially offset the contract payments, are highly uncertain because they largely depend on future natural gas prices. Forecasting natural gas prices up to 45 years into the future is speculative. In light of this asymmetric risk, one would expect the MPSC to take a conservative approach when valuing the offsetting revenue. It did not.
The US Wind project offered a price that is 32 percent lower than that offered by the Skipjack project. Given this huge price disparity, one would logically expect the MPSC to approve only the less expensive project, which satisfies the CEJA’s 2028 target, and to open a new proceeding to acquire the remaining capacity needed to meet the CEJA 2030 target. It did not.
In all fairness, the MPSC confronted a law that imposed two conflicting conditions with no guidance regarding how to reconcile them. Clearly, the legislature bears responsibility for enacting that flawed law. But that did not justify the MPSC making unrealistically optimistic assumptions in an effort to purportedly satisfy both conditions. Instead, it should have acquired only the cheaper project and informed the legislature of the irreconcilable conflict the CEJA created.
One objective of the CEJA is to create well-paying jobs within Maryland. But how much should the state spend to create a job? The approved offshore wind projects are projected to pay, on average, between $70,000 and $100,000 per year plus benefits for each full-time job. In stark contrast, each full-time-equivalent job the US Wind project creates will cost Maryland about $90,000. However, the Skipjack project will cost about $670,000 per full-time-equivalent job. Surely, the state can find cheaper, more cost-effective opportunities to create jobs.
This offshore wind award looks like a colossal, $4 billion boondoggle. To their credit, Maryland’s legislators effectively capped the subsidy for offshore wind. The MPSC then spent at least four times that legal limit. Guess who is going to pick up the tab? Not the five commissioners.
Robert Borlick is an energy consultant with more than 40 years of experience with the electric power industry and is the founder of Borlick Energy Consultancy.
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