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In the Northeast and Mid-Atlantic, a quiet reckoning over offshore wind 

Credit:  Jonathan Lesser | 12/9/22 | newsweek.com ~~

Crippling European electricity prices, soaring Northeastern heating bills, looming diesel-fuel shortages, and OPEC+ drama have captured headlines for months. More quietly, offshore-wind energy developers are discovering their projects’ economic infeasibility, undermining states’ offshore-wind goal of generating 40,000 MW by 2040. The Biden administration must recognize this is a pipe dream, or it will cost Americans billions trying to salvage an industry doomed to fail.

October brought the first sign of troubles, as Massachusetts’ Commonwealth Wind project claimed it was no longer economically viable under the terms of the power purchase agreement (PPA) negotiated with the state’s Department of Public Utilities. The developers asked the state to “pause” finalizing the agreements with the state’s electric utilities, a request seconded by the developers of the Mayflower Wind project, to be built nearby. Soon thereafter, a New Jersey utility told investors it was rethinking its Ocean Wind project, to be built off that state’s coast.

All three project developers originally negotiated prices far above wholesale market prices. All three qualified for a production tax credit and additional offshore-wind state tax credits. All three will qualify for a new 30 percent offshore wind investment tax credit which was not available when they made their initial bids.

Yet this federal and state largesse has still failed to keep the projects afloat.

After Massachusetts declined to renegotiate the Commonwealth Wind agreement, the developers walked back their initial claim about insufficient reimbursement, saying, in effect, “never mind.”

Whether pressured by the utility or state politicians, Commonwealth Wind quietly backed away from the uproar its filing created. However, despite the utility’s “no renegotiation” assertion, the project will almost certainly receive additional financing, either through a new PPA or cash subsidies. The result will be even higher electric rates and taxes.

Alas, no amount of public funding will be able to save offshore wind’s promises of reliable and low-cost green energy, millions of high-paying U.S. jobs, and an economic renaissance for states that embrace the industry.

As Commonwealth Wind admitted, construction costs are increasing rapidly. Not only have raw material costs soared—the costs of cement, steel, etc.—but so have financing costs. Last year, even before interest rates increased, Dominion Energy’s projected cost for its Coastal Virginia offshore-wind project was $10 billion, exceeding the original $8 billion estimate. With the interest rate hike, Dominion’s ratepayers can expect a much higher final bill, if the project is ever completed.

Most European offshore-wind projects were financed with historically low interest rates. Those days are over. The Federal Reserve intends to keep raising interest rates until it tames inflation. For a construction project like Commonwealth Wind’s, which will likely cost more than $6 billion, interest-rate increases alone will add several hundred million dollars to its costs each year, even after the 30 percent investment-tax credit.

Still another issue that will cripple Atlantic-coast offshore-wind projects, but which is rarely discussed, is insurance. Although Commonwealth Wind and most of the other proposed projects will be owned by European companies, they will be structured as limited-liability companies whose only assets are the turbines themselves. If the turbines fail, whether due to mechanical failures frequently seen in European offshore-wind turbines or the eastern seaboard’s powerful hurricanes, lenders will be handed the keys to a worthless clunker.

To eliminate that risk—or even the everyday risks of maritime wear and tear—lenders will demand that offshore projects be fully insured. But that cost, as well as the willingness of insurance companies to underwrite against catastrophic failures or everyday wear and tear, is unknown.

If private lenders and insurers insist on charging exorbitant premiums or simply refuse to insure the projects, then what? Financial realities will not torpedo the green vision of offshore wind’s boosters. We can expect states or the federal government to step in as guarantors, putting ratepayers and taxpayers on the hook for even more of these projects’ costs.

And for what? Even if all 40,000 MW of offshore wind power is developed and even if it replaced electricity generated solely from coal, the resulting “savings” in CO2 emissions would amount to less than half a percent of current world CO2 emissions, and less than half the average annual increase in world emissions.

But don’t expect American policymakers or world leaders to accept that reality, which was conspicuously ignored at the recent COP27 summit. With China—which now accounts for one-third of world CO2 emissions—planning hundreds of new coal plants, U.S. offshore wind is yet another energy boondoggle enriching its proponents at everyone else’s expense.

Jonathan Lesser is an adjunct fellow at the Manhattan Institute and the president of Continental Economics.

Source:  Jonathan Lesser | 12/9/22 | newsweek.com

This article is the work of the source indicated. Any opinions expressed in it are not necessarily those of National Wind Watch.

The copyright of this article resides with the author or publisher indicated. As part of its noncommercial educational effort to present the environmental, social, scientific, and economic issues of large-scale wind power development to a global audience seeking such information, National Wind Watch endeavors to observe “fair use” as provided for in section 107 of U.S. Copyright Law and similar “fair dealing” provisions of the copyright laws of other nations. Send requests to excerpt, general inquiries, and comments via e-mail.

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