More on Maryland's Offshore Wind Power Initiative

As I reported in Is an Offshore Wind Farm in Maryland's Future?, Martin O'Malley, Maryland's Democratic governor, is moving ahead with a legislative proposal to subsidize a "wind farm" off the coast of our state. A cluster of wind turbines like these ...

... would be built off Ocean City, eleven miles out into the Atlantic, if the governor gets his way.

When the wind blows, the blades of wind turbines spin, generating electric power. But the offshore version of this relatively new technology is expensive and remains unproven to an extent that even many of O'Malley's fellow Democrats in Maryland's General Assembly remain unconvinced.

In The Washington Post of January 23, 2012, the article O’Malley to try again for offshore wind development, by Aaron C. Davis, talks about the governor's latest proposal.

I personally think the costs and risks are worth taking, because wind technology is clean and green. Wind power is solar power at one remove, in that the warmth from the sun is what makes the winds blow. No fossil fuels are used, no carbon is expelled into the atmosphere, and global warming is thus not facilitated.

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According to Wikipedia's article on wind power, the United States already has (as of 2010) 40,180 megawatts of generating capacity from the wind, putting us in second place behind China, with 44,733 MW. "Offshore wind power can harness the better wind speeds," the article says, that exist out away from the land.

Governor O'Malley's immediate problem is that Maryland would have to subsidize the offshore wind farm, as it would be too expensive for private developers to build without financial incentives. Money, tax breaks, and/or loan guarantees would likewise need to come from the federal government. Maryland's monetary contribution would ultimately wind up being paid for by higher electric bills charged to residential households and large commercial accounts.

Legislation the governor introduced in the last General Assembly session, in 2011, would have charged residential households a flat $2.00 per month on their electric bills in the form of an explicit line item. That bill failed to pass. This year's version does not include a flat line item for customers. It assumes the costs of wind generation will be folded into the base electric rates customers pay.

It's still supposed to top out at $2.00 extra per month, but the Post article says there's a catch:

If solar [power] is any example, that means it could be nearly impossible for residents to calculate the cost of the subsidy. 

Although O’Malley’s bill would mandate that the cost be no more than $2 per month, that per-household price would have to be estimated up front on a 20-year prediction of future energy prices — a term twice as long as the state’s Public Service Commission typically forecasts. 

If the commission’s estimate is wrong, the subsidy for wind could be much higher or lower. 

“We could look like geniuses, or people could experience the price more” than $2, said one administration official, who spoke on the condition of anonymity to freely discuss the governor’s proposal.

How would the financial details work?

To make the bill more palatable to [Sen. Thomas M. Middleton, (D-Charles County), who chairs the Finance Committee, and his counterpart in the House, Del. Dereck E. Davis (D-Prince George's County)] O’Malley’s office also did away with a mandate in last year’s version that required utilities to buy wind power at a set price high above current market rates.

Rather, to ensure that developers can turn a profit, the state’s Public Service Commission, which regulates utilities, would set up a kind of commodities market. The electricity created from offshore wind would be sold at competitive prices. But the energy would also come with renewable-energy credits. The credits are needed by the state’s power generators to meet Maryland guidelines requiring them to obtain a growing share of their power from wind, solar and other renewable sources. The price of the credits would fluctuate in tandem with market rates to ensure that offshore wind producers can continuously count on a stable profit.

By "sold at competitive prices" I assume the Post means that an open market would determine the price of the wind power generated off Maryland's shore; there would not be a preset price. I further assume the the "renewable-energy credits" that "the state’s power generators" need to amass — according to what mandate I don't claim to know — would be bought and sold on a secondary market whose prices would "fluctuate in tandem" with those for the power itself.

I admit to having doubts, by the way, as to whether market-determined prices would indeed "ensure that offshore wind producers can continuously count on a stable profit." Just as agricultural farmers aren't always guaranteed profits each year, why is it thought that tomorrow's "wind farmers" would be able to count on profits?




Clearly, the mandate that "the state’s power generators" — i.e., existing power plants that use coal, natural gas, or nuclear power — amass credits that derive from wind power generation is key. The operator(s) of the wind farm would receive the proceeds of selling the credits, which would amplify the proceeds of selling the wind power itself.

But existing electric-power generators would surely pass the cost of the credits on to their customers, in whole or in part. Ideally, as I say, the governor anticipates that the passed-on cost would top out at $2.00 per residential customer per month, and at "2.5 percent for the state’s largest commercial and industrial businesses."

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Two key questions, then, are (1) Will the legislature pass O'Malley's complex proposal? and (2) Would it work out the way the governor hopes, if it becomes law? My guesses are "yes" and "yes" — but don't bet the farm on it.