By Gordon Hughes
In July, the US Department of the Interior gave the green light to offshore wind farms in New Jersey and Maryland. Once the financial agreement is in place, New Jersey’s Atlantic Shores and Maryland’s MarWin and Momentum will join two large wind farms in New York that were approved in June. These projects will receive huge, multibillion-dollar subsidies from the federal government and electricity ratepayers. What benefits will New Jersey and Maryland enjoy from this flood of money?
To answer this question, it is best to remember the classic warning from the legend of the Trojan Horse, “Beware of the Greeks who bring gifts” – in other words, the hidden danger of receiving something that looks so good. New York State ignored that danger when it agreed to pay exorbitant prices for electricity supplied from new offshore wind farms – Empire Wind 1 and Sunrise Wind – located off the coast of Long Island.
When announcing the final agreement, New York Governor Kathy Hochul successfully claimed that the new project will create more than 800 jobs during the construction phase and provide more than $6 billion in economic benefits to the state over 25 years.
Much less emphasis is given to the fact that New York will pay an average price of over $150 per MWh (megawatt hour) for electricity generated by Empire Wind 1 and Sunrise Wind. four multiple average wholesale price of electricity in New York during 2023–24, $36 per MWh. The total annual premium from the wholesale market price for power from these wind farms is estimated to be $520 million per year in 2024 prices. Over 25 years, New York ratepayers will pay about $13 billion for an estimated benefit of $6 billion.
Not only that. Thanks to tax credits, US taxpayers will cover at least 40% of the cost of building a wind farm. With a minimum cost of $5.5 million per MW (million watts) of capacity, the total federal subsidy for the two New York wind farms would be at least $3.8 billion.
What about jobs and other economic benefits? A study prepared for Equinor, owner of the Wind Empire 1, and submitted to the Federal Bureau of Ocean Energy Management (BOEM) said that it will directly generate 180 annual jobs in New York during the six-year construction phase. The study estimates another 60 annual jobs due to indirect employment effects, that is, extra labor in the supply chain for these projects.
A more reasonable estimate for both projects would be 515 annual jobs, not 800. The total contribution to New York State gross value added (equivalent to GDP at the state level) during the construction of both projects would be less than $450 million. , based on reports submitted to BOEM. A similar calculation for annual operation and maintenance (O&M) costs shows an annual contribution of about $24 million to gross value added or about $600 million over 25 years.
Instead of the benefits of $ 6 billion over 25 years that Governor Hochul called, the realistic assessment will be closer to $ 1.1 billion in the price of 2024. In any event, citizens will pay a cumulative premium of $ 13 billion for the electricity that will be generated by the project.
Additionally, the additional jobs claimed for the project are highly concentrated in the final year of construction—and the largest portion (47%) involves professional services. Generally, this is a job for someone who will be working on other tasks.
The economic benefits of the two offshore wind farms are lower than claimed by the governor and the projects are, for the most part, temporary assignments for professional service staff. Business promotion for the consulting company can be considered as the desired result of Ms. Hochul. However, a very high financial burden will be borne by almost the entire population of the country.
Stepping back from the New York project, the overall goal of the Biden administration is to reach a target of 30 GW (billion watts) of offshore power generation capacity by 2030 or sooner. That is equivalent to 17 times the capacity of the combined Empire Wind 1 and Sunrise Wind projects. Detailed costs and financial arrangements vary, but the figures above show that the recurring premium paid by electricity ratepayers in countries with offshore wind farms is about $9 billion per year. The benefits from new job creation and income from capital and O&M expenditures are likely to be less than $800 million per year.
In addition to the massive subsidies paid for by sky-high electricity bills, federal taxpayers will contribute about $65 billion through tax credits if the Biden administration’s offshore wind targets are met. While subsidies for individual projects may not seem daunting, the monetary commitment to subsidize offshore generation is about $870 for every member of the country’s population. This may be spread over 25 years, but it is a huge responsibility for one small element of the US program to support renewable energy.
Gordon Hughes is a Senior Fellow with the National Center for Energy Analysis.
This article was originally published by RealClearEnergy and is available via RealClearWire.
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