Cost of being first in offshore wind is growing for New Jersey 

The bills for early adoption of offshore wind are starting to come in, and they are substantial.

Some people love to be early adopters, among the first to buy and use a new piece of technology. Getting the advantages of a new phone, diet drug or electric car before others may bring fun and status – almost inevitably at a higher cost than when the market is bigger and more developed.

New Jersey wasn’t the first East Coast state to commit to developing its major untapped clean energy resource, offshore wind power generation. But Gov. Phil Murphy and state Democrats have used their control of state government to spend whatever it takes to make New Jersey and its ratepayers the earliest adopters of offshore wind in the United States.

Even though Europe’s mature offshore wind industry was capable of producing electricity at a cost competitive to natural gas powered generating plants, the early U.S. wind farms were always going to be more expensive. A North American offshore wind industry needed to be developed first.

Now the bills for early adoption of offshore wind are starting to come in, and they are substantial.

At the beginning of this month, Murphy signed a partisan bill to give hundreds of millions of dollars more to Ørsted, the large Danish offshore wind company creating the nation’s first project in the ocean off Atlantic City.

Under the 2019 deal for the projected $1.6 billion wind farm, federal tax credits of up to a billion dollars were to go to electricity ratepayers in New Jersey. Now Ørsted will get them instead, except for $200 million it must put into escrow to help other offshore wind companies.

The six other East Coast states with offshore wind projects, including New York, had each let their developers have a share of the federal tax credits. Ørsted and state Democrats said inflation and supply-chain issues have increased costs, but provided no details.

Right on cue, the Atlantic Shores partnership of Shell and French firm EDF developing the next N.J. offshore wind farm said it too needs more money from the state. Without it, “tens of thousands of real, well-paid and unionized jobs are at risk,” the company said.

The wind energy industry has fallen far short of investor expectations, with materials and transportation costs dimming prospects for company profits anytime soon. Last year GE Renewable Energy lost $2.2 billion, Vestas $1.7 billion and Siemens Gamesa Renewable Energy nearly $1 billion.

Then last month Siemens, one of the industry’s biggest operators, disclosed quality control problems that could cut future profits significantly. Critical components such as bearings and blades in 15% to 30% its land-based wind turbines are wearing out faster than expected. That was found in newly installed and older turbines, whose average lifespan can be up to 20 years. Siemens estimated repairs could cost more than a billion dollars, about a third of the profit eventually expected from maintaining its turbines. Since turbine manufacturers share some suppliers, the unexpected wear could affect others too.

Leaps in technology often are accompanied by problems that must be overcome. Designs, materials and manufacturing processes can take decades to reach the optimum. New wind turbines are bigger and more powerful, pushing the technology’s limits. Ørsted plans to use the latest, biggest and most efficient turbine – the GE Haliade-X.

The costly development of a technology is no reason not to pursue it. Today’s incredibly capable mobile phone wouldn’t have been possible without early simplistic brick phones and a big erroneous bet on phones with physical keyboards. But paying more and getting immature technology are good reasons to avoid being an early adopter.

Electric vehicles are on the same path. Those on the road today will seem very expensive and substantially inferior to what’s available in a few years.

New Jersey and other states could have pursued regional development of offshore wind far more cost effectively. Instead their leaders prioritized political gains.

Governments aggravate the costs and problems of a new technology by providing subsidies that rush companies into it. By pressuring consumers to be early adopters of it, they ensure people will suffer costs and problems they otherwise would have avoided.