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