On Thursday, Governor Andrew Cuomo announced actions to “jumpstart” the offshore wind industry in New York after his appointees at the state Public Service Commission (PSC) ordered “procurements” of offshore wind. But the governor’s press release doesn’t mention who must pay for them.
Generating electricity with offshore wind turbines, a priority for Governor Cuomo, isn’t profitable under current market conditions. Even as the industry has matured overseas and costs have dropped, offshore wind remains the most expensive type of renewable energy available. Any effort to “jumpstart” offshore wind in New York will cost a considerable sum.
The PSC’s 66-page order included this important line:
Every Load Serving Entity (LSE) in New York State shall invest in new offshore renewable generation resources to serve their retail customers, as described in the body of this order and evidenced by the procurement from the New York State Energy Research and Development Authority (NYSERDA) of qualifying ORECs, acquired in quantities that satisfy mandatory minimum percentage proportions of the total load served by the LSE for the applicable calendar year.
Translation: the PSC is ordering electric utilities (and other entity buying power from the grid) to purchase “offshore renewable energy credits” (ORECs) based on how much power the utility was handling—the way the state’s nuclear and renewable mandates work now.
The proceeds will then be used by NYSERDA, the state’s Cuomo-controlled energy outfit, to pay a handpicked company to build and run about 80 wind turbines in one of two areas south of New York City and Long Island (see map below). The project would have a nameplate capacity of 800 megawatts (MW), meaning it will generate 800 MW under optimal conditions. However, wind speeds that are too low (or too high) result in turbines generating less power, and offshore wind projects tend to generate the equivalent of 43 percent of capacity over the course of a year. An 800 MW project would produce electricity equivalent to 4 percent of last year’s combined demand in New York City and Long Island.
This means ratepayers as far away as Buffalo, Ogdensburg and Plattsburgh will pay inflated electricity prices as utilities are forced to boost rates and surrender the proceeds to state officials.
In fact, 53 percent of the funding would come from ratepayers north of New York City, based on total electricity use in each of the state’s 11 zones during 2017.
The exact cost likely won’t be known until the PSC and NYSERDA decide exactly how the subsidies will be paid (i.e., the duration of the contract between NYSERDA and a developer), but Maryland officials recently approved a similar price scheme that gives an idea of what’s in store for New York ratepayers.
There, wind developers building a pair of wind farms east of Ocean City will get $131.93 for each megawatt-hour generated over 20 years,
on top of whatever they make by selling their power (see note below). By comparison, the average wholesale cost of one megawatt-hour of electricity in New York state last year was $36.56.
If the New York projects fetch the same subsidy as those in Maryland, and assuming they get the statewide wholesale rate, the annual cost to ratepayers will be
$392 $283 million. Over 20 years, that will come to $7.8 $5.6 billion, with $4.2 $3 billion coming from ratepayers north of New York City.
And despite the industry maturing and costs decreasing, there’s reason to believe New York’s OREC price could be even higher. Cuomo (and the PSC) have signaled that contractors will be subject to the state’s prevailing wage—a bid to steer work to the governor’s political allies in the building trades. While Maryland had a similar mandate, New York’s prevailing wage is considerably higher because the state Labor Department imposes union-set terms instead of performing a wage calculation itself. For example, for a structural ironworker, the prevailing wage in New York City is more than triple that of Maryland’s Worcester County when fringe benefits are included.
The Maryland projects will place turbines between 12 and 21 miles from shore, but New York’s sites under consideration would be at least 21 miles from shore. This increases construction and operation costs and also reduces the amount of energy that reaches the mainland since more electricity is lost to heat as it is transmitted over greater distances.
The PSC, in its order, estimated New York’s project cost “will range between a $1.1 billion benefit and a $2.7 billion cost at net present value.” But that estimate includes the PSC’s “carbon benefit” calculations, meaning that instead of looking at the total amount by which electric bills will increase, the PSC factors in societal benefits for the world population at large from each ton of carbon dioxide that isn’t emitted as a result. NYSERDA in January estimated that the capital costs of building an 800 MW offshore wind project and connecting it to the mainland would reach $4.3 billion (see table 8, page 75), followed by $109 million in annual operating costs.
A smaller project under development off Long Island is less analogous, but would hint at an even higher cost. The Long Island Power Authority (LIPA) will pay developer Deepwater $1.62 billion over 20 years for power generated by 15 wind turbines south of Rhode Island, totaling 90 MW capacity. Deepwater isn’t subject to prevailing wage, but the turbines are farther from land than those in Maryland.
That works out to about $240 per megawatt-hour, or about $200 on top of what the owner can expect recoup for each megawatt-hour sold on Long Island. An OREC price that high would push the ratepayer expense to $12 billion, with upstaters paying $6.4 billion.
Regardless of the ultimate cost, the bulk of it will be borne by ratepayers north of New York City because the PSC is mandating OREC purchases based on the load that a load-serving entity draws from the grid. Cuomo could, alternatively, set up a funding mechanism akin to the MTA tax, which collects money from users based on where they live—but that would require legislative approval. One motivation behind using the PSC to implement energy policy has been to avoid legislative oversight—or having to sign a massive tax increase during an election year.
Another green blunder
The Cuomo administration’s focus on offshore wind is the latest symptom of a ham-handed renewable energy agenda so clumsy it’s actually caused at least one renewable plant to close its doors and has had to slash its goals as much as 94 percent.
The state’s banner renewable program, the Clean Energy Standard, heaped arbitrary rules on the energy sector that disqualified what was arguably the most attractive form of renewable energy (Quebecois hydroelectric power) because it would have edged out the more “sexy” renewable projects—such as offshore wind, which is propelled in no small part by a degree of fetishization in political circles.
The price tag isn’t the only obstacle for offshore wind. NIMBYism has thwarted any plans to build turbines within view of Long Island, and as Robert Bryce has noted, commercial fishermen will be adversely affected. And offshore wind would need to be backed up by energy storage or other generators in those instances when wind conditions cause decreased output.
At the end of the day, the state should be pursuing a generator-blind approach to renewables that rewards desired attributes—capacity and reliability—rather than cherry-picking individual companies (and unions) to do the work.
NOTE: Maryland ORECs work differently from existing NY renewable energy credits, providing a price guarantee rather than a supplement on top of the wholesale price of electricity.