The Bureau of Ocean Energy and Management (BOEM) recently provided some statistics on NRG’s Bluewater Wind project off the coast of New Jersey that show what a bad deal this project will be for taxpayers and consumers.
NRG paid about $24,000 to lease 96,000 acres, which works out to about $0.25 per acre. An acre for oil and gas drilling in the Gulf of Mexico sold for $205 per acre—820 times as much—at the last lease sale. Maybe an oil and gas lease in the Atlantic would not sell for as much as one in the Gulf, but it would certainly beat $0.25 per acre.
Then there’s the production tax credit (PTC). The PTC is adjusted for inflation and currently stands at $0.022 per kilowatt-hour. Using the Energy Information Administration’s (EIA) capacity factor to convert capacity to actual electricity generated, the 350-megawatt Bluewater project will receive nearly $25 million per year from the federal PTC for 10 years—about $250 million total.
Might the royalty payments cover this subsidy? (Here’s a sneak preview: The answer is “no.”)
The standard royalty fee on offshore oil and gas varies from 12.5 percent to 18.75 percent, but NRG will pay a 2 percent royalty fee—to be calculated not on the actual sales price but on the wholesale price of electricity. The statistics provided by BOEM imply that the rate is about a nickel per kilowatt-hour. Hmm. The EIA projects that the cost of offshore wind will be over 22 cents per kilowatt-hour. It’s not likely that NRG will be selling at the wholesale rate, since its customers are obligated to buy a minimum amount of renewable electricity.
In any event, BOEM estimates that NRG will pay $10.4 million in royalties in the first 10 years. So whichever wholesale price is used hardly matters—taxpayers will still lose over $230 million in the first decade.
What about the consumers? According to the EIA, offshore wind will be three times as expensive as conventional generation using natural gas.
It’s hard to find a winner in this deal other than NRG.
These losses look even worse when one remembers that the Obama Administration walked away from offshore energy development that would actually turn a profit for the taxpayer, not just a politically connected company. In the first months of its first term, the Obama Administration abandoned the previous five-year plan that would have started the ball rolling to open up access to our own oil and gas reserves in the outer continental shelf of the Atlantic. Four years later, the ball is still not rolling. So much for an “all of the above” energy policy.
In a budget environment that has so many squealing so loudly about sequestration, it is ironic that the Department of Interior is moving expeditiously with a project that costs the government hundreds of millions of dollars while it blocks development that would instead generate millions (if not billions) of dollars for the Treasury.