Offshore Wind Energy And Viability To The American Economy

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In his State of the Union address in January, President Barack Obama touted the growth of the American renewable energy sector that has occurred during his time in office—particularly the doubling of “the amount renewable energy we generate from sources like wind and solar.” He pointed out that “Last year, wind energy added nearly half of all new power capacity in America.” These metrics are proof that the renewable energy sector is capable of boosting economic growth while moving us away from the dirty energy sources of the past.

Figure 1

Yet despite the booming expansion of onshore renewable energy facilities, the United States still lags behind many other industrialized countries when it comes to development of a resource that we have in abundance in close proximity to some of our areas of greatest demand for electricity: offshore wind. As we have stood on the sidelines over the past two decades, other countries such as Denmark, the United Kingdom, Germany, and even China have leapt ahead of us, recognizing the inherent value of this strong, commercially viable, renewable resource. As of June 2012, the rest of the world boasted 4,619 megawatts of installed offshore wind energy capacity, while the United States has yet to begin construction on its first offshore wind turbine.

Under President Obama, the Department of Energy announced its intention to close that gap by developing 54 gigawatts of offshore wind capacity by 2030—more than 10 times the amount currently installed worldwide—and has begun taking proactive steps to achieve this target. In just the past five months, the administration has made major strides toward encouraging renewable energy development on the outer continental shelf. In October the Department of the Interior signed its first lease under the “Smart from the Start” program with NRG Bluewater Wind for a wind farm off the coast of Delaware. In November the department announced the first-ever competitive lease sales, giving multiple companies the opportunity to bid for leases on previously identified “wind energy areas” in federal waters off the coasts of Virginia, Massachusetts, and Rhode Island. And In December the Department of Energy announced that it will fund seven offshore wind technology demonstration projects, including Fishermen’s Atlantic City Windfarm in New Jersey; pilot projects in California, the Great Lakes, Connecticut, and Maine; and two turbines off the coast of Virginia.

Despite these advances and pledges of support, critics of the offshore wind industry insist that the technology is too expensive to fully compete with traditional sources of energy—fossil fuels—without massive subsidies. To put that theory to the test, the Center for American Progress, the Clean Energy States Alliance, the Sierra Club, and the U.S. Offshore Wind Collaborative commissioned a study from the Brattle Group—a consulting firm based in Cambridge, Massachusetts—to investigate the costs and benefits of developing a commercial-scale offshore wind industry in the United States.

To date, most studies of offshore wind energy development tended to analyze individual projects, focusing on the specific costs and benefits of building a particular offshore wind farm. Since the next offshore wind farm built in the United States will actually be the first, and first-in-class products or projects of any kind are inherently more expensive, the results of these analyses don’t accurately account for the broader economic impact of developing an entire offshore wind industry the way that the Obama administration and the Department of Energy have suggested. Therefore, we asked the Brattle Group to develop estimates of the overall investment that would be required to develop such an industry in the United States and how that investment would affect the price of electricity.

The results showed that there is great value in investing in offshore wind energy development, specifically:

  • The investment required to develop 54 gigawatts would range between $18.5 billion and $150 billion. By comparison, subsidies to the oil industry from 1950 to 2010 were $369 billion, $104 billion to the coal industry, and $121 billion to the natural gas industry.
  • The development would result in an average monthly-rate increase for American consumers ranging from 0.2 percent to 1.7 percent—as little as 25 cents per month for the average household electricity bill.
  • Even with natural gas prices at an all-time low, the cost of electricity from offshore wind could equal the cost of electricity from gas turbines in about a decade.

The Brattle Group’s analysis does not account for any subsidies to the offshore wind industry such as the production tax credit or the investment tax credit, both of which currently apply. The production tax credit gives developers a tax credit for every kilowatt of energy produced from eligible sources, while the investment tax credit allows investors and developers to write off 30 percent of the amount invested in new qualifying renewable energy projects. Developers can take advantage of one, but not both, of these incentives. Therefore, the Brattle Group’s positive results likely underestimate the positive economic growth offshore wind can provide.

The Brattle Group examined the cost trends for offshore wind both with and without carbon pricing or some other mechanism of internalizing the external costs of burning fossil fuels. This analysis reflects that such a policy is likely to become a reality at some point in the coming years. Americans are becoming increasingly aware that the price they pay for conventional energy simply doesn’t cover all its costs.

Perhaps the most obvious example of this phenomenon is the increasing frequency and skyrocketing cost of extreme weather events. In January Congress appropriated $50.5 billion in funding to help the mid-Atlantic and southern New England regions recover from superstorm Sandy—just one of the 25 weather disasters in 2011 and 2012 that caused at least $1 billion in damages. As a result, Americans have become increasingly convinced that human-induced global climate change plays a role in the growing power and proliferation of storms, droughts, and wildfires. New polls show that 73 percent of Americans believe climate change is causing a greater frequency of extreme weather events to occur.

In light of the Brattle Group’s findings, we recommend that Congress and the Obama administration take the necessary steps to accelerate development and implementation of the following policies:

  • Put a price on carbon. The Center for American Progress’s Richard Caperton made the case for imposing a price on carbon in his December 2012 report. He posits that “By raising new funds, driving new investments, and reducing the likelihood of the most catastrophic consequences of climate change, a carbon tax is a tool that can take on our country’s three most pressing challenges: the deficit, joblessness, and the climate crisis.” All three of these challenges can be addressed by offshore wind development, and a carbon tax is a critical step toward leveling the playing field for offshore wind and all sources of renewable energy.
  • Accelerate the “Smart from the Start” program. As stated above, the Obama administration has already begun to make up for lost time during previous administrations when it comes to offshore wind development. This program uses the principles of comprehensive ocean planning to identify and prioritize areas suited for offshore wind development, and to reduce conflicts among other users of offshore space before parcels are put up for lease. This reduces conflicts later in the game when delays are costlier and more disruptive.
  • Move swiftly to enact the Incentivizing Offshore Wind Power Act. This week, Sens. Tom Carper (D-DE) and Susan Collins (R-ME) introduced a bill that would make the first 3,000 megawatts of offshore wind energy capacity eligible for the investment tax credit. Reps. Bill Pascrell (D-NJ) and Frank LoBiondo (R-NJ) introduced an identical bill in the House. By granting the tax credit to a set amount of energy generation capacity rather than having the credit expire on a specific date, this bill removes the pressure for developers to act before they’re ready and ensures the early stages of offshore wind development will receive adequate and appropriate financial assistance regardless of when construction begins.
  • Roll back oil subsidies. While boosting the development of emerging technologies, the Obama administration must work to end unfair tax breaks for mature and polluting energy industries. In 2012 the top five oil companies made $118 billion in profit. Rescinding the billions of dollars in annual subsidies that these companies receive will help level the playing field for renewable energy development and allow for smarter investment of federal funds.

Given the inherently volatile nature of commodity prices and the likelihood that the externalities of fossil-fuel consumption will at some point be internalized to their cost, an investment in developing this offshore wind energy in America to diversify our energy portfolio is a commitment worth making.

The Center for American Progress is an independent nonpartisan educational institute dedicated to improving the lives of Americans through progressive ideas and action. Building on the achievements of progressive pioneers such as Teddy Roosevelt and Martin Luther King, our work addresses 21st-century challenges such as energy, national security, economic growth and opportunity, immigration, education, and health care. We develop new policy ideas, critique the policy that stems from conservative values, challenge the media to cover the issues that truly matter, and shape the national debate.