Monday, May 12, 2008

Should Delaware Emulate New Jersey?

Should we give up on the process to bring wind power to Delaware, and start over using New Jersey's plan as a model? The short answer is no.
The Senate Energy & Transit Committee, Charlie Copeland and the New Journal editorial board all seem to think that New Jersey's offers a cleaner, neater and easier way to procure offshore wind power.
Yesterday's News Journal editorial fits two enormous fallacies into ten short words:
For one thing, no one is forcing anything. It's voluntary.
The first fallacy is that Delmarva Power customers are being forced into buying power from Bluewater Wind, as if we aren't being forced to buy increasingly expensive electricity from coal and natural gas. I'm a Delmarva power customer, and I don't have any viable options, except to try to remove myself from the grid. The only thing I can do today is push for approval of the Bluewater Wind project and bring some stability to my electric bills. This fallacy also ignores the persistent fact that thousands of Delaware citizens have overwhelmingly voiced their support for wind power for more than a year.
At the heart of this fallacy is a misunderstanding of the power purchase agreement or PPA. Delmarva Power doesn't like it, because the company doesn't want to tie up such a big chunk of its buying power. As a customer, I do like it. I like the price stability it provides in the face of rising fossil fuel prices.
The second fallacy is that New Jersey has found a way to build offshore wind without the need for a PPA. While New Jersey doesn't specify the use of a PPA, it doesn't preclude it. I expect that the proposals that emerge will include PPAs, which are common tools in financing power plants. It's much easier, and cheaper, to raise the capital if investors can see the cash flow. This means that use of a PPA is the most efficient way to finance a wind farm. Without a PPA, a wind power installation would be much more expensive to finance, which means the power produced would be more expensive.
New Jersey is offering $19 million in subsidies to lure companies into developing proposals. Those who suggest that Delaware do likewise seem to forget that the state government doesn't have that kind of money. And if those writing the budget did magically find the money, it wouldn't make that much difference. Bluewater Wind has already spent several million of its investors' money to get to this point. Would $18 million make much difference even now? I doubt it. It represents maybe one percent of the cost of the project, or several months interest on the capital needed. If Delaware wants to help Bluewater with the cost of capital, it should approve the project without further delay.
The News Journal editorial suggests that New Jersey has decided on an easier way to procure large scale offshore wind power. The only reason anyone could imagine that is that crunch time hasn't arrived yet in New Jersey. After all the battle hadn't reached its peak at this stage in Delaware's process.
Offshore wind power of this scale will divert billions of dollars away from those who burn fossil fuels for a living. Does anyone think energy companies are going to give that up easily?
Those who think the Delaware should emulate New Jersey in the hope of avoiding this conflict are either cynically seeking to delay the offshore wind indefinitely, or are naively imagining that a shift of this magnitude in the energy industry can be accomplished without conflict.
We are one roll call away from being the first state in the U.S. to decide to build offshore wind. If we start over, it could be three years or longer before we get back to where we are today. Putting off the decision will not make it easier. The Senate should ignore those calling for further delay, and bring HCR 38 to a vote.


Anonymous Anonymous said...

We can lock in the cost of a portion of the DPL SOS customer power mix at bargain prices for 25 years. That will get done if there's a PPA (contract). Or we can be irresponsible and pretend the market will bring cheaper coal, natural gas and nuclear power over the next 7 years. Also, people who think Delaware can get offshore wind cheaper from an open bid in a few years don't understand how capital projects of this size are financed. Problem is, some of these folks are your state Senators! Please, call your Senator tomorrow. Ask him or her to vote Yes on HCR38 now. And tell them to read tommywonk!

9:58 PM, May 12, 2008  
Anonymous Anonymous said...

Delmarva too makes out with the Bluewater Deal. Just one point, the REC arrangement alone, gives them enough profit with which to be happy. We all know that Bluewater is willing to give that portion up, because they will get a valid return on their investment only if, the deal goes through.

Delmarva, now having seen how it is done, is trying to bamboozle us to ditch Bluewater Wind and let themselves corner the market themselves. The only problem is that their doing so, does nothing to alleviate our high cost of energy; it does nothing to alleviate the cancer causing pollutants in our atmosphere; and it does not one single thing about global warming.

Bluewater Wind does affect all three categories and does it so much cheaper than any other technological option even dreamed of at this stage.

Those few state senators not supportive of Bluewater Wind, can expect their names to become household jokes in the near future, just as happened to those politicians of the 1800's, who occasionally voted NOT to allow a railroad line come to their town.......

When their town died, they were rightly given the blame.

2:25 AM, May 13, 2008  
Anonymous Anonymous said...

If the main reason for Delmarva's opposition to the Bluewater wind farm is that it will not be getting a piece of the action, then could that be overcome by proposing some sort of a joint venture between Delmarva and Bluewater in which they would split the investment and the revenues? Or perhaps even some sort of a consortium including other investing parties as well. Or has the whole atmosphere surrounding this issue become irreversibly poisoned?

9:31 AM, May 13, 2008  
Anonymous Anonymous said...

Bluewater only got as far as it has by deceptive pricing, and now have been caught with their hand in the cookie jar, so to speak. Bluewater won the deal with a short-form bid that promised sub-7-cent "stably priced" power. The 7-cent deal became a 10-cent deal when the number of turbines was cut from 220 to 150. Fair enough. Then the fine print showed up.

It turns out that on top of the 10 cents for the electrons themselves, there's another 3 cents to pay to reserve the plant's capacity and for renewable energy credits. On top of that were escalators for construction materials, which they retracted under pressure. And then Bluewater's pricing coup de grace: inflation escaltors, even though only a tiny fraction of their costs inflate! The powerful escalation factors drive the 13-cent power up to 15 cents before the the first electron is generated, and then to 30 cents over the life of the contract! It turns out that "stably priced" meant "exponentially escalating".

Whether Bluewater created all the hidden costs because building offshore is really that expensive or because they were being piggish doesn't really matter. The bottom line is, they aren't willing to give up the rich fine print, which accounts for 2/3 of their total revenue. Now the government, which rushed into the deal based on a low sticker price, is trying to figure a way out without looking bad, while Bluewater stirs the publicity pot in the hope of forcing the deal politically before the general populace learns of and absorbs the fine print.

1:33 PM, May 16, 2008  

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