"If only the hot air blowing at the United Nations' Climate Ambition Summit this week could be used to generate electric power. That would be especially convenient since Governors in the Northeast are lobbying the White House to bail out their states' offshore wind projects, which have hit a gale of ballooning costs.
"Inflationary pressures, sanctions on Russia, and the lingering supply chain disruptions resulting from the COVID-19 pandemic have created extraordinary economic challenges," wrote Govs. Kathy Hochul (N.Y.), Ned Lamont (Conn.), Phil Murphy (N.J.), Maura Healey (Mass.), Wes Moore (Md.) and Dan McKee (R.I.) to President Biden last week.
"Offshore wind faces cost increases in orders of magnitude that threaten States' ability to make purchasing decisions," they say. "Without federal action, offshore wind deployment in the U.S. is at serious risk of stalling because States' ratepayers may be unable to absorb these significant new costs alone."
The pandemic and sanctions on Russia are excuses. The real problem is government policies that have increased demand for wind equipment and ships, which has inflated prices at the same time interest rates have climbed. Wind turbine makers are having to replace defective equipment, which is leading to order backlogs.
The U.S. lacks specialized ships for assembling turbines at sea that comply with the 1920 Jones Act, which requires cargo vessels that run between U.S. ports to be built and crewed by Americans. Offshore wind developers are having to resort to expensive work-arounds like ferrying parts from Canada.
Large offshore developers are asking New York for an average 48% price adjustment on contracts to cover rising costs. Two have moved to scrap contracts for projects off Martha's Vineyard. Danish developer Orsted is warning it may have to write down its projects off New Jersey, Rhode Island, Connecticut and New York.
Orsted CEO Mads Nipper recently told Bloomberg News that it's "inevitable" that consumers will have to pay more for renewable energy. "And if they don't, neither we nor any of our colleagues are going to build more offshore," he warned. "It's very simple."
But the Governors fear making their constituents pay for their climate follies. Ergo, they are lobbying the Administration to boost the value of the Inflation Reduction Act's (IRA) renewable energy tax credits for offshore wind. Orsted has also been putting "maximum pressure," to quote Mr. Nipper, on the Administration to sweeten the credits.
They want the White House to let offshore projects qualify for "bonus tax credits," which the IRA conditions on using U.S. manufactured content and building in "energy communities." These subsidy sweeteners would boost credits to 50% from 30% of a project's cost. Yet the projects don't meet either condition.
The IRA defines an energy community as abandoned land that is polluted from an industrial activity; a census tract with a recently closed coal mine or plant; or an area disproportionately reliant on fossil fuels for employment or tax revenue. If oil drilling were allowed off New England, maybe the wind projects could qualify for bonus credits. But they don't.
All of this exposes the folly of government industrial policy that force-feeds an energy transition that makes no economic sense, and won't matter to the climate in any case. The corporate welfare demands will keep coming, and consumers will pay one way or another." [1]
1. The Great Northeast Wind Bailout. Wall Street Journal, Eastern edition; New York, N.Y.. 22 Sep 2023: A.18.
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