Home Delaware Guest view: UD research paper on offshore wind costs gets an ‘F’

Guest view: UD research paper on offshore wind costs gets an ‘F’

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By David Stevenson

Stevenson heads the Center for Energy & Environmental Policy at the Caesar Rodney Institute, a Delaware-based free-market advocacy group. 

A recently-released research paper from the University of Delaware (UD) reports that the cost of power from a proposed 800-megawatt offshore wind project would fall within current wholesale power prices.

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In reality, offshore wind power will be 3.5 to 5.7 times as expensive as the current wholesale price. It could add $400 to $545 a year to residential electric bills and up to hundreds of thousands a year to some businesses.

How did UD get this so wrong?

First, where does my information come from? Answer: The US Department of Energy relies on its Energy Information Agency (EIA) for the best available data. A recently revised Annual Energy Outlook estimates the average lifetime project Levelized Cost of Electricity from new resources.

New onshore wind, solar, and natural gas plants are expected to produce power for $36.49 to $40.23/megawatt-hour, about the same as the current wholesale power cost from our existing regional grid. EIA projects offshore wind power will cost $136.51, about 3.5 times as much. 

Dominion Energy is required to build a 2,600-megawatt offshore wind project in Virginia based on legislation. It is the only offshore wind project being built directly by a utility company, and consequently, its investment costs are the only such information on the public record. Capital costs were submitted to the utility commission

Power costs for renewable energy sources are directly related to capital costs since there is no fuel cost and operational costs are minimal.

For example, the Skipjack 2 project off Delaware’s coast, the same size as suggested by the UD report, will only create 25 permanent jobs. The current capital cost forecast for the offshore wind project is *$4.8 million/megawatt, 4.5 times higher than the capital cost reported for utility-scale solar by the solar industry for the fourth quarter of 2021.

However, these estimates don’t include the cost to add needed transmission line upgrades. Offshore wind projects are located on the edge of the electric grid and need major upgrades to move the power where it’s needed.The Dominion Energy plan for Virginia added 24% to capital cost to cover transmission line upgrades. That raises the true investment cost for offshore wind to *$6 million/megawatt or 5.7 times the cost of other resources.

UD researchers made a series of bad assumptions

They simply rejected the EIA levelized cost estimates and developed their own unique estimating systems. They use only the first-year price and left out the annual escalator clause, which can be as high as 3%. That price is then compared to a wholesale price Delmarva Power pays that includes a three-year price guarantee that adds about a 50% premium to the actual regional grid wholesale price.

The UD report also assumes regional grid prices will rise at the same rate as any escalator clause, and the capital cost of future offshore wind projects will fall. However, the EIA estimates the real wholesale cost of power generation will fall about 20% over the next twenty years, not rise.

Dominion Energy recently raised its offshore wind construction cost estimate from $8 billion to $10 billion because of rising material costs. Not only is the current cost of offshore wind high, but it also looks like it is going higher.

UD proposed an 800-megawatt project will generate 27% of Delaware’s electric demand creating a premium wholesale megawatt-hour cost of about $35.46 to $48.62. Delaware residential customers use 11.2 megawatt-hours/year, so electric bills will rise approximately between $400 and $545.

We can meet the state’s environmental goals without this added cost with other generation options.

One final point. If we could build offshore wind at a competitive price, why is UD asking for legislative mandates to build these industrial-sized turbines? The UD proposal also forces beach communities to accept a location to bring power ashore decided by the state.

(Editor’s note: Your thoughts are welcome. Respond to drainey@DelawareBusinessNow.com).

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