Wind power for Dummies

Is Offshore Wind Right for Delaware?

Often when making a difficult decision, a simple method that cuts through the confusion, is to quickly list all the positives in one column and the negatives in another. Then…. compare them directly. Often just seeing them on the same page gives one a clear assessment of the direction he needs to go.

It is time we did so with Wind.

Pros

More stable electricity prices over the long-term outlook;

A price hedge against future spikes in energy prices;

Less reliance on the PJM market that has experienced dramatic increases in capacity and energy price since 2006;

A new Delaware capacity source;

Promotion of significant environmental benefits;

Would make Delaware the East Coast hub of a clean, new industry.

Cons:

The cost of the project is more expensive than market projections;

The Project in- service date has been delayed by one year and could extend to November 2015;

Termination or downsizing of the project presents opportunity cost risk and may limit Delaware’s ability to acquire future renewable resources;

Project viability is untested;

The long-term nature and large size (i.e. serves a significant portion of Delaware’s energy load) of the PPA increases ratepayer risk;

Indirect costs related to negative LMP and PJM charges for energy imbalances potentially create higher prices under the PPA.

That is it in a nutshell. The good and the bad. Looking at them broken down so simply probably is inductive to making a snap judgment.

Breakdown:

More stable electricity prices over the long-term outlook;

Notice that it doesn’t say cheapest. It says stable. Compare the difficulties being faced today by ARM holders in today’s mortgage crises, as opposed to the calm stability provided by a fixed rate mortgage. A lot can be said for avoiding uncertainties. Especially if one locks into a low rate for the full thirty years……That is what we are about to do for our energy needs, if we decide to pursue building a wind farm off Rehoboth. Any future business doing a cost analysis as to why it should resettle in Delaware, would be very interested in the stability being provided here.

A price hedge against future spikes in energy prices;

The delivered cost of fuel to power plants throughout PJM is the single largest determinant of electric energy prices. Energy prices will rise. One has only to hear the Shellhorn and Hill radio ad on WDEL to prove it. It is amusing that whereas everyone else discusses how high carbon fuels will rise in the future, Delmarva Power is the only one betting that they fall below the level where offshore wind is cheaper. But having a substantial percentage of our energy locked at one price will offset and minimize the impact that those rising costs will have on our lives.
Less reliance on the PJM market that has experienced dramatic increases in capacity and energy price since 2006;

For example: PJM’s Reliability Pricing Model (“RPM”) has resulted in a dramatic, 1,277 percent rise in capacity charges since 2006. Bluewater wind would remain the same for twenty five years. Need we say more?

A new Delaware capacity source;

The location off-shore at Rehoboth, is a good location considering the planned retirement of two generating units inside of NRG. Otherwise that future energy would have to be transported down the peninsula , losing much of its energy along the way.

Promotion of significant environmental benefits;

The shutting down of NRG’s two archaic units and the substitution of their power generation capability by several windmills, will provide substantial environmental benefits, especially to those citizens of Millsboro, dodging the mercury, antinomy, and sulfur landing upon their yards. Energy with no carbon being exhumed, is good for us all.

The cost of the project is more expensive than market projections;

The market projections are suspect. These are the same ones that predict gas prices will go down. There is a good chance that will not occur. If gas prices rise, then wind will be lower than other sources of power. What is important to realize, is that gas sets the market price for almost all power. The lower costing energy sources all reap tremendous profits if gas is brought on line, since the highest bid for that hour sets that hour’s price. Even if most of one’s power comes from Salem’s nuclear plant, if gas gets used, gas (and Salem) both get paid gas’s price.

The Project in- service date has been delayed by one year and could extend to November 2015;

The longer the time, the more expensive the project becomes. By stalling….. our costs rise, and we will wind up paying more than what was stated in the contract. That is why time is important and we to decide next week if we go forward.

Termination or downsizing of the project presents opportunity cost risk and may limit Delaware’s ability to acquire future renewable resources;

If the Bluewater Wind deal does not go through, while we were discussing the pro’s and con’s, other states were buying all the REC’s leaving little left for our state. We wind up having to buy them at a high rate, and we get stuck with the tab.

Project viability is untested;

Only on these shores. But so was commercial aviation at one time, and before that….railroads. There is risk with any new venture that needs full disclosure, but wind farms overseas do well and are growing at an incredible rate. The largest one sponsored by Shell Oil, is being built in the Thames estuary.

The long-term nature and large size (i.e. serves a significant portion of Delaware’s energy load) of the PPA increases ratepayer risk; Just as the wind farm’s large scale will provide Delawarean’s with increased benefits, it if it does not go through, ….it will cause us an equally large risk. For example, we would receive little benefit (or risk) were we to choose to build one turbine. But we are planning 450, and hopefully, some day that number could climb to 600.

Indirect costs related to negative LMP and PJM charges for energy imbalances potentially create higher prices under the PPA.

If the wind does not blow, we will have to buy energy off the expensive spot market. But if we had no wind farm, and no other generating capacity as Delmarva suggested in its report to the PSC, we would be getting ALL of our energy off of the spot market. At least with Bluewater, when the wind blows, we have some hedge.

So if one looks at the pros and cons throughout this exercise, one sees that most of the cons…………occur if the wind farm is not built. If it is built, then those negatives go away.

It is time to quit piddling around our General Assembly and face logic and get this thing started. As the rest of America starts feeling the results of the second Great Depression, it would be nice to have someone in this state still working………

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