New Jersey’s nascent offshore wind industry, the pride of the Murphy Administration, is taking on water. Higher costs, environmental damage, and manufacturing short-cuts mean that the promised environmental and economic benefits, which were always a fantasy, mean New Jerseyans will be on the hook for even higher costs.
Let’s start with higher costs. In a report I wrote for the Manhattan Institute in February 2022, I discussed how offshore wind costs were increasing, not decreasing as proponents claimed. Because of increased demand for inputs, including concrete, steel, and the various rare earths required to manufacture turbines, turbine costs were going up. Add to that increased demand for the specialized ships needed to install the newest, gargantuan turbines – 850 tall or more – along with shortages of the undersea cable needed to bring the electricity generated to shore, and the already high prices of New Jersey’s offshore wind contracts would turn out to be too low.
And so they have. Ørsted, the Danish company that is building both proposed Ocean Wind projects, wants to renegotiate its contracts. It also wants to capture all of the tax credits the Biden Administration has on offer, notably the 30% investment tax credit (ITC) and the production tax credit (PTC), which this year is $26 per megawatt-hour. Under the existing contracts, those tax credits were supposed to benefit New Jersey ratepayers.
The state legislature isn’t taking the financial hardship lying down. Last week, Assemblymen Greenwald and Moriarty introduced A5651. That legislation, which blames the higher costs on Covid-19 and supply-chain problems (hint: that’s false), allows wind project developers to keep the federal tax credits provided under the inaptly named Inflation Reduction Act.
The ITC is 30% of the “overnight” construction cost, that is, the project cost excluding financing. For the 1,100 megawatt (MW) Ocean Wind I, that amounts to almost $2 billion. (Ørsted won’t disclose the estimated cost to build the project. Based on data published by the Energy Information Administration in January 2022, the overnight construction cost for offshore wind cost is around $6 million per MW. That means the project will cost almost $7 billion to construct. The real cost is likely to be higher.) And if Ørsted develops some sort of New Jersey manufacturing presence, it can claim an additional 10% ITC.
So, the proposed legislation, if enacted, will take $2 billion from New Jersey ratepayers and hand it over to Ørsted. In 2022, New Jersey residents and businesses consumed about 74 million megawatt-hours (MWh) of electricity. Hence, the $2 billion gift to Ørsted amounts to just over $27/MWh. The average residential customer used just over 8 MWh each year. So, the average residential customer will be forced to pay over $200 to Ørsted, in addition to the above-market costs of the electricity itself and the cost of the backup generation needed to ensure that, when the wind doesn’t blow, there will be enough electricity to charge all of those electric vehicles the Murphy Administration will force New Jerseyans to buy and run the electric heat pumps, water heaters, and stoves they will be forced to use.
Meanwhile, offshore wind manufacturers are incurring higher warranty costs because they are cutting corners to lower manufacturing costs. Notably, one area of cost-cutting is the foundations that support the new behemoths. Combining weaker foundations with Category 3 to 5 hurricanes along the Atlantic coast – and there’s no guarantee any offshore wind turbine can withstand those sorts of winds – will be a recipe for catastrophic failures. And once that happens, New Jerseyans again will be left holding the bag because Ocean Wind’s only assets will be the turbines themselves.
According to the proposed legislation, “Offshore wind, as a source of clean, renewable energy, provides opportunities for New Jersey to reduce dependence on fossil fuels that contribute to climate change, while significantly expanding and securing the State’s economy for the short and long term.” By increasing electricity costs, offshore wind will harm the state’s economy and cause job losses. And the minuscule reductions in carbon emissions won’t have any impact on world climate.
But offshore wind will enrich the Governor’s friends. And, after all, isn’t that what’s most important?
