Google is coming to a (future) offshore wind farm near you. In an announcement Tuesday, the technology giant said it is joining with investment firm Good Energies in a $5 billion investment to secure permitting for and begin constructing an underwater electricity transmission line. Also party to the venture is the Japanese trading company Marubeni and the Maryland transmission company Trans-Elect.
The electricity “backbone” will extend 350 miles in federal waters off the Atlantic Coast, from northern New Jersey to Norfolk, Virginia. In the article, Federal Energy Regulatory Commission Chairman Jon Wellinghoff is quoted as saying it will offer “a gathering point for offshore wind for multiple projects up and down the coast.”
This is good news for a couple of reasons. First, it is an example of private companies investing in the energy industry, a seemingly rare occurrence amid the usual array of government energy tax credits, subsidies, and loan guarantees. These “incentives” translate into taxpayers backing investments the private sector might normally shy away from and companies being slow to make their products more efficiently. Both Google and Good Energies will assume 37.5 percent of the equity for the project. More companies joining them would lower each party’s investment and risk. On its blog, Google proffered this statement:
We believe in investing in projects that make good business sense and further the development of renewable energy. We’re willing to take calculated risks on early stage ideas and projects that can have dramatic impacts while offering attractive returns.
Second, Google’s endeavor could also pave the way for future companies seeking permits for similar projects. Experts agree that the regulatory burden on this first-mover project will be significant, but they see a potentially positive outcome of pioneering in this industry. Some industry members question the immense price tag of such a project and would rather see actual turbines built now, but Google, which can invest its money as it sees fit, seems to be setting its sights on what it considers to be long-term benefits.
Cape Wind off the coast of Massachusetts is the most developed offshore wind farm project, but years of legal issues have delayed its construction. Other proposals exist but are in preliminary research phases. Experts rightly still question whether energy companies will consider it economical to invest in offshore wind farms or whether states will push for wind energy standards that could result in higher average electricity prices for consumers. Wind power is not cheap. An estimated $200 million will be passed on to consumers in the first year as a result of the Cape Wind project alone, state Sen. Paul Sarlo of (D–NJ) noted.
If it comes to fruition, this proposed project would mean a structural framework for wind power, which industry could plug into if it thinks wind power has market potential. Importantly, it indicates that companies can enter the market, to either succeed or fail, without government help.
Of course, wind advocates like the Sierra Club in New Jersey worry that Google’s project could chip away at political support for future state offshore wind subsidies, since New Jersey would be backing power sold to other states. Why are they concerned about what will replace the wind production subsidies that expire in 2012? Because, like other subsidies, the production tax credit has come to sustain energy companies in an unhealthy way. Intended to fund new projects, it has become a lifeline for old ones.
Another reason for Congress to get rid of this handout: It serves as a setup for establishing a renewable energy standard (RES). As The Heritage Foundation has reported, a national RES would only raise electricity costs, harm the economy and stifle competition among renewable energy sources. Removing the subsidies for all energy sources would allow the truly competitive ones to succeed and, ultimately, benefit the consumer.
Emily Goff co-authored this post.
Nicolas Loris is a Research Assistant at The Heritage Foundation’s Roe Institute for Economic Policy Studies. Loris studies energy, environment and regulation issues such as the economic impacts of climate change legislation, a free market approach to nuclear energy and the effects of environmental policy on energy prices and the economy.
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