Bluewater Wind Collapse: Liars Lose

The demise of the Bluewater Wind offshore wind project was inevitable. The final approved contract simply didn’t provide adequate returns to justify the massive investment required to build it. The assumptions used for Public Service Commission July, 2008, approval were lies. Honest information was presented and ignored including the comparative cost of power produced by offshore wind to conventional sources and about how those higher costs would eliminate more jobs than the wind farm created.

· The contract was discounted by a third the going rate of other offshore wind projects creating an insurmountable financial disincentive for investment. It appears the goal was to keep the project alive long enough for development inertia to allow price re-negotiation.

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Estimated cost per month for residential consumers was still too high so project costs were spread over more customers, the size of the project was reduced, and the estimates of future prices for conventional power were exaggerated until supporters got the cost estimate they needed for approval

· The economic benefit of the project was greatly exaggerated

· Permitting and construction timelines were overly optimistic

The initial review of the Bluewater project found the monthly cost to consumers would be ten times the final figure of $.70/month. The initial estimate was the correct answer and the project should have been rejected at that point. A recent review, using slightly less exaggerated future electric rates, raised the estimate to $2.42/month. Using realistic pricing in the contract and realistic future electric prices for conventional power yields a real cost to residential consumers of $6 to $7/month.

Supporters still claim the primary problem is lack of adequate federal government subsidies. Existing federal subsidies for wind power include a 30% tax credit plus loan guarantees. It was known when Bluewater was approved the subsidies would expire at the end of 2012. It was also known the offshore project could not be built that quickly. Expecting an extension was wishful thinking.

Subsidies were never intended to continue forever. The onshore wind industry used the credits to jump start the industry. Thirty five percent of all new electric generating facilities built since 2007 are wind powered. The cost of power from the latest wind projects, even without subsidies, is almost competitive with natural gas. Many states are requiring the use of renewable energy so onshore wind should continue to be successful without further subsidy.

Offshore wind technology has benefited from the experience of large European offshore projects and the same technological gains that have driven improvements in onshore windmills. The problem is it simply costs about three times as much to build in the ocean as on land (offshore oil drilling costs ten times more than onshore drilling). There is no magic research bullet or economy of scale that is going to change that basic fact. If we want more unreliable wind power now it needs to be onshore.

The Fuel Cell Tariff was sold using a similar strategy but with no “off button” to end the contract.

David T. Stevenson, Director, Center for Energy Competitiveness

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