Author: Gordon Hughes
In July, the U.S. Department of the Interior approved large offshore wind farms in New Jersey and Maryland. Atlantic Shores in New Jersey and MarWin and Momentum in Maryland will join two large New York wind farms approved in June once financial agreements are in place. These projects will receive billions of dollars in massive subsidies from the federal government and electricity ratepayers. What benefits will New Jersey and Maryland get from this huge amount of money?
To answer this question, it’s best to recall the classic warning from the Trojan legend: “Beware of gifts from the Greeks”—in other words, the dangers of accepting something that seems too good to be true. The state ignored the warning and agreed to pay very high prices for power from new offshore wind farms – Empire Winds 1 and Sunrise Winds – off the coast of Long Island.
When announcing the final agreement, New York Governor Kathy Hochul proudly claimed that the new project will create more than 800 jobs during the construction phase and bring more than $6 billion in economic benefits to New York State within 25 years.
What is less emphasized is that New York will pay an average price of more than $150 per MWh (megawatt hours) for Empire Wind 1 and Sunrise Wind power. Four Second-rate The average wholesale electricity price in New York in 2023-24 is $36 per megawatt hour. At 2024 prices, the total annual premium for power from these wind farms will be approximately $520 million. Over 25 years, New York taxpayers will pay about $13 billion for the so-called $6 billion benefit.
That's not all. Thanks to tax credits, U.S. taxpayers will bear at least 40% of the cost of wind farm construction. At a minimum cost of $5.5 million per megawatt (million watts) of capacity, total federal subsidies for New York's two wind farms would be at least $3.8 billion.
What about employment and other financial benefits? A study prepared for Empire Wind 1 owner Equinor and submitted to the federal Bureau of Ocean Energy Management (BOEM) says the project will create 180 direct jobs per year in New York during the six-year construction phase. The study estimates that an additional 60 jobs will be created each year due to indirect employment effects, i.e. additional employment in the project's supply chain.
A more reasonable estimate for both projects would be to create 515 jobs per year, rather than 800. USD, based on reports submitted to BOEM. A similar calculation of annual operations and maintenance (O&M) costs indicates an annual contribution to total value added of approximately $24 million, or approximately $600 million over 25 years.
Rather than the $6 billion in benefits touted by Governor Hochul over 25 years, a realistic assessment would be closer to $1.1 billion in 2024 prices. Regardless, residents will pay a cumulative $13 billion premium for the electricity generated by these projects.
Additionally, the majority of new jobs created under the scheme were concentrated in the final year of construction, with the largest share (47%) made up of professional services. Overwhelmingly, these jobs are for people who would otherwise perform other tasks.
The economic benefits of the two offshore wind farms are far lower than the governor claims, and the work is mostly temporary assignments for professional services personnel. Ms. Hochul believes that boosting the consultancy's business might be the desired outcome. Still, nearly the entire population of the state will bear a very high financial burden.
After withdrawing from the New York plan, the Biden administration's overall goal is to reach a target of 30 gigawatts (gigawatts) of offshore power generation capacity by 2030 or soon thereafter. This is equivalent to 17 times the combined capacity of the Empire Wind 1 and Sunrise Wind projects. The detailed costs and financial arrangements vary, but the figures above suggest that electricity ratepayers in states with offshore wind farms pay about $9 billion in recurring premiums annually. New job creation and revenue from capital and operations and maintenance expenditures are likely to be less than $800 million annually.
In addition to the huge subsidies from ultra-high electricity bills, federal taxpayers will contribute about $65 billion through tax credits if the Biden administration's offshore wind power goals are achieved. While subsidies for individual projects may not seem outrageous, offshore power generation subsidies are promised at around $870 per population in the country. That could last 25 years, but for a small part of the country that supports renewable energy plans, it's a huge burden.
Gordon Hughes is a senior fellow at the National Center for Energy Analysis.
This article was originally published by RealClearEnergy and provided via RealClearWire.
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