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UD offshore wind proposal has scary-high cost

From: Cape Gazette

A recent letter dismissed my analysis of a University of Delaware proposal to force Delaware electric customers to pay for a large offshore wind project. The writer correctly states my analysis concludes I found such a project would cost 3.5 to 5.7 times as much as other options that would have comparable environmental results. Left out was the conclusion the average annual cost to a residential electric customer could be as high as $400 to $545 a year over the 20- to 25-year life of the project.

The writer says, “These higher costs from a few scary examples may lead voters to toss the entire plan into a dumpster.” My so-called scary examples include price forecasts from the U.S. Energy Information Agency that many consider to be the gold standard of forecasts. EIA forecasts are levelized over the entire expected life of the projects. EIA forecasts solar power coming online in 2027 will produce power at $36.49/megawatt hour, onshore wind $40.23 and offshore wind $136.51. That is about the amount of power a typical residential customer uses in a month. 

I also quote consultants hired by the Maryland Public Service Commission that very recently approved Skipjack offshore wind projects to be built off our beaches, and from an ongoing utility commission case in Virginia. These sources can hardly be considered unreliable. 

In contrast, the UD study found there would be no price premium. What did they do differently? Maryland and Delaware both mandate the use of wind and solar electric generation in ever-increasing amounts. Public utilities must buy Renewable Energy Credits issued every time one megawatt hour is produced from these sources with the cost passed on to consumers. The RECs are sold separately and represent the premium cost of power.

Onshore wind and solar RECs are sold to utilities in competitive auctions, and are forecast to sell for about $10 to $15 each. Offshore wind RECs for the Skipjack project were set at fixed prices. While the price schedule was redacted, a starting price of $71.61 in 2012 dollars escalating automatically at 3% a year was published. Adjusting to current dollars, the RECs will start in 2026 at about $100 each and average about $137 over the 20-year project, or perhaps 10 times as much as onshore wind and solar RECs.

The UD forecast ignored the average lifetime cost and only used the first year cost. They also assumed offshore wind would replace carbon-based power, and there would be health and global-warming savings to offset the premium cost. However, both Maryland PSC consultants concluded offshore wind would simply replace onshore wind, and one concluded offshore wind would increase emissions because of longer transmission lines. The UD study also assumed offshore wind would be cheaper in the future, but a Virginia-based project facing higher materials costs just increased its cost estimate 25%, a wind turbine supplier just increased its prices 20%, and the EIA forecast is for 2027.

Finally, the UD study took federal tax credits into account as if it was free money. We pay for those tax credits in higher taxes, and onshore wind and solar also receive federal tax credits.

Sorry, UD, all your key assumptions are wrong, and your idea belongs in the dumpster.

David T. Stevenson
Director, Center for Energy & Environment
Caesar Rodney Institute