“Offshore wind is not cost-effective, and the forecasts of rapidly declining costs through increasing economies of scale are unrealistic. Absent continued subsidies … it is unlikely that any offshore wind facilities will be developed.”
“The experience with offshore wind projects in Europe over the last decade has demonstrated that newer, larger turbine technologies have been accompanied by significant reliability and maintenance issues, causing the amount of electricity that these turbines generate each year to decline by almost half over 10 years.”
This major study reviews the history of offshore wind, the subsidies to date in the Northeastern U.S., offshore projects and proposals to date, the cost of offshore generation versus its alternatives, and the environmental tradeoffs involved.
The bottom line: think of $0.12/kWh for offshore wind versus onshore natural gas at $0.04/kWh. Think triple–as in $6/gallon gasoline.
The study’s Executive Summary, Introduction, Conclusions, and Policy Recommendations follow:
The generation of electricity by onshore wind turbines has benefited from federal subsidies and state renewable energy mandates for decades. More than 100,000 megawatts (MW) of generating capacity have been constructed in the lower 48 states, 9,000 MW of which came online in 2019. Onshore wind capacity has now surpassed installed nuclear capacity (although because of its “always-on” nature, total electricity generated from nuclear plants far exceeds that of onshore wind) and is exceeded only by natural gas- and coal-fired generating capacity.
But from an economic perspective, the future of onshore wind is unfavorable. The federal production tax credit (PTC)—which was created in 1992 and today pays qualifying wind plant owners about $23 per MWh of electricity generated for 10 years—began to phase out in 2017. The PTC has decreased by 20% per year, and wind projects whose construction begins after January 1, 2021, will no longer be eligible.
The demise of the PTC is not, however, the source of onshore wind power’s troubling future. Instead, given the remote location of many wind farms, expensive transmission lines are necessary to bring the electricity to cities and towns; perhaps most significant, local opposition has intensified over the past few years and stymied the development of new projects.
In response to local pushback, some states are pushing back. In March of this year, for example, New York enacted legislation to overturn the state’s traditional “home rule” deference, which allows local governments to have final say over the types of facilities that can be built.
Now, under the Accelerated Renewable Energy Growth and Community Benefit Act, almost all renewable energy development in the Empire State will be approved by a new Office of Renewable Energy Siting. Locations will be denied only if there are valid and substantive reasons; local opposition, however, no longer will be considered a valid reason.
Nevertheless, the opposition to additional onshore wind turbines, as well as the decreasing availability of high-quality “windy” locations, has led politicians and policymakers to shift their focus to offshore projects. In January 2019, New York Governor Andrew Cuomo called for developing 9,000 MW of offshore wind capacity by 2035, up from his previous order that 2,400 MW be developed by 2030. In January 2018, New Jersey Governor Phil Murphy signed an executive order requiring 3,500 MW of offshore wind capacity by 2030.
A 2016 law in Massachusetts requires that the state’s electric distribution companies procure 1,600 MW of “cost-effective” offshore wind capacity by June 2027 and 3,200 MW by 2035. Similarly, Maryland’s Offshore Wind Energy Act of 2013 calls for 480 MW of offshore wind capacity to be developed.
Proponents of offshore wind energy tout its clean energy bona fides and rapidly decreasing costs (as evidenced by recent competitive solicitations), which will enable states to meet ambitious targets to eliminate greenhouse gas emissions and reliance on fossil fuel and nuclear power. Advocates also see offshore wind as an avenue to create a manufacturing and economic renaissance in their respective states, one that will create thousands of construction jobs and generate billions of dollars of new economic activity.
- Offshore wind is not cost-effective, and the forecasts of rapidly declining costs through increasing economies of scale are unrealistic. Absent continued subsidies—such as state mandates for offshore generation and renewable energy credits, which force electric utilities to sign long-term agreements with offshore wind developers at above-market prices—it is unlikely that any offshore wind facilities will be developed. These subsidies, along with the need for additional transmission infrastructure and backup sources of electricity, will increase the cost of electricity for consumers and reduce economic growth.
- The actual costs of offshore wind projects borne by electric ratepayers and taxpayers are likely to be greater than advertised. Experience in Europe over the previous decade demonstrates that the performance of offshore wind turbines degrades rapidly—on average, 4.5% per year. As output declines and maintenance costs increase, project developers will have a growing economic incentive to abandon their projects before the end of their contracts to supply power. In contrast to the strict requirements for nuclear power plants, it is unclear whether offshore wind project owners will be required to set aside sufficient funds to decommission their facilities. This will likely mean that electricity ratepayers and state taxpayers will pay to decommission offshore wind turbines or pay higher prices to keep the projects operating.
- The cumulative environmental impacts of multiple offshore wind projects along the Atlantic Coast—including on fisheries and endangered species—may be significant and irreversible. Also, mining the raw materials of offshore wind turbines, especially rare-earth minerals, has significant environmental impacts because those materials primarily are mined overseas, where environmental regulations are less stringent than in the United States. Dismissing environmental impacts that occur outside the U.S. while championing offshore wind’s alleged worldwide climate-change benefits is hypocritical.
- The justification of subsidies for offshore wind based on increased economic growth, new industries, and state job creation is an appeal to “free-lunch” economics. The subsidies will benefit the well-connected few while imposing economic costs on consumers and businesses at large.
As in the popular game show Jeopardy!, offshore wind is an “answer” in search of a policy question. The current projects slated to be built off the Atlantic Coast will raise the cost of electricity and reduce the grid’s reliability, forcing bulk power systems to invest additional resources in backup generation resources or high-cost battery storage.
Claims that offshore wind costs are declining rapidly, based on PPA prices, fail to consider that the winning bidders may be seriously underestimating their costs over time. The experience with offshore wind projects in Europe over the last decade has demonstrated that newer, larger turbine technologies have been accompanied by significant reliability and maintenance issues, causing the amount of electricity that these turbines generate each year to decline by almost half over 10 years.
The likely declines in output will reduce the revenues and profitability of these facilities over time. This may lead developers to abandon the facilities before the term of their PPAs, leaving ratepayers and taxpayers to pay for decommissioning and dismantling the units. Even if the units do operate for their full claimed economic lifetimes, it is unclear whether they will be required to set aside sufficient funds to pay for decommissioning.
Claimed environmental benefits from reduced pollution and reduced greenhouse gas emissions fail to account for offsetting impacts in wholesale electricity markets and fail to account for the increase in pollution from more inefficient use of gas-fired generators that will be required to provide backup power to compensate for the inherent intermittency of wind power. In any event, offshore wind development will make no meaningful contributions to reductions in U.S. emissions of greenhouse gases, nor will it have any measurable impacts on world climate.
The claimed economic development benefits of offshore wind are also overstated, as proponents ignore the adverse economic impacts on existing consumers and businesses from higher electricity costs. Forcing offshore wind developers to hire minimum numbers of workers and contribute to the construction of new manufacturing facilities, as Maryland has done, is absurd. Ultimately, the economic benefits of subsidized offshore wind development will accrue to the few, at the expense of the many.
In view of all the shortcomings, this report recommends that States:
- End subsidized development of offshore wind facilities, including the requirement that electric utilities purchase increasing quantities of offshore wind renewable energy credits. Developers that wish to construct and operate offshore wind facilities should bear the investment risks, rather than be allowed to transfer those risks to electricity consumers.
- Require offshore wind developers to provide full information to the public about anticipated decommissioning costs and post surety bonds that will fully fund those costs. As decommissioning cost estimates change over time, project developers should be required to adjust their contributions to decommissioning funds, as is done for nuclear power plants and for individual pipelines that are subject to asset retirement obligations.
- Require offshore wind developers to pay for the additional costs of backup generating resources needed to compensate for the inherent intermittency of their wind facilities. These developers should also be required to pay for the costs to interconnect their projects to the bulk power system, rather than having those costs be paid for by electricity customers.
- Focus on ensuring that electricity demand is met with the most efficient resources possible, rather than resources that will create set numbers of jobs. States that wish to emphasize clean energy resources should ensure that reliable nuclear power generating units can be constructed, especially new modular technologies that will reduce financial risks and use natural forces such as gravity to bring a reactor to a safe shutdown.
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September 10, 2020 at 01:16AM