NRG, the owners of Bluewater Wind, will have to seek a significant rate increase to justify the investment in its’ Delaware offshore wind project. The attempt could fail bringing the project to an end. The good news is this will save Delaware electricity consumers hundreds of millions of dollars a year in avoided price increases and could save hundreds of jobs.
Delmarva Power was basically forced to sign a long term power supply contract with Bluewater Wind by the Delaware Public Service Commission (PSC). The deal was finalized after Bluewater reduced their price. The earliest start-up date for the offshore wind facility is now 2016 when the price will be $.142/Kilowatt-hour (KWh). Similar projects off the coasts of New England and Europe have set contract prices between $.19 and $.24/KWh. There is nothing magic about the waters off the coast of Delaware to justify the difference in price.
The higher prices in other locations already account for government construction subsidies which will come to $800 million for the Bluewater Wind project. However, the subsidies only extend to facilities built by the end of 2011. The US Congress, exhibiting symptoms of subsidy fatigue, may not extend the subsidies further for a mature industry that accounted for 39% of all new generating capacity in 2009. So an even higher price increase may be needed to sustain the project next year.
The wind project is expected to provide about 1.1 billion KWh of electricity a year. Wholesale power from conventional sources costs about $.06/KWH. The “Green Premium” for offshore wind power could range between $.08/KWH and $.20/KWh at full price with no government subsidies. This will cost Delaware consumers between $90 and $220 million a year. This does not include the built in contract price escalator of 2.5% a year. Power from conventional sources is expected to be quite stable over the next decade because of the huge increase in the proven reserves of natural gas and the resurgence of the nuclear power industry.
The offshore wind project is expected to add 170 permanent jobs in Delaware. A very sound study1 by Professor Edward Ratledge, at the University of Delaware, estimates the “Green Premium” could cost one to eight jobs elsewhere for every “Green” job created.
There was very little organized public opposition to forces pushing for offshore wind when the contract was finalized in 2007. That will not be the case this time. We need clean, affordable generating capacity in Delaware fired by nuclear power and natural gas!
David T. Stevenson
Director, Center for Energy Competitiveness
Caesar Rodney Institute
Note 1: The Impact of the Delmarva/Blue Ware Wind Power Purchase Agreement on the Delaware Economy, Edward C. Ratledge, Director, Center for Applied Demography & Survey Research at the University of Delaware
Thanks for helping to keep the Bluewater Boondoggle in front of the public.
I used to fill in at WDEL for Mascitti and Jensen. I spent a great deal of time on this issue from 2007 to 2009 there and in blog postings on ResoluteDetermination.com. I was critical due to the increase in consumer electric costs as well as the high cost of electricity making DE unattractive to manufacturing. Onshore wind is almost economically feasible if there were a good way to store the electricity; offshore is ludicrous on its face. I also made the argument that they would never build the thing unless they got other contracts at much higher prices to buy a lot more power than Delmarva was forced into.
I actually had Ed Ratledge as a guest on the radio to talk about the Bluewater Wind issue.
Given the renewable energy requirement that has been placed on Delmarva, I hope that they have back up sources or better yet that the requirement and the RGGI be abolished. I was hoping that when the deadline for Bluewater to bail out with no penalty came last summer, this would all be over. Unfortunately, all the dates were extended.
Delmarva agreed on June 23, 2008 to buy the output of a 200 MW facility. If that is all there is, at the negotiated price and volume, it will be a big money loser from the beginning. NRG Bluewater will have difficulty in getting capital to build the thing without government guarantees unless they fund it themselves.
The CEO of Deepwater Wind was actually quoted as saying that most people in the “industry” did not think that they [Bluewater] could pull it off.
There was also a side agreement, the terms of which have never been revealed, in which if Delmarva were made to sign an agreement, municipal governments agreed to buy some power. I guess that is still around. It was apparently at an advantageous price and designed to put additional pressure on Delmarva. There was also some story about the MD state government buying some of the power. I don’t remember what happened with that.
Thanks for your attention on this subject.
[…] Energy” blog published by the Caesar Rodney Institute. Recently they posted a blog RE: Prediction: Bluewater Wind Project Will Crash and Burn. The blog notes that 2016 is the earliest startup date and […]