Two U.S. Senators sent a letter to Secretary of the Interior Ken Salazar asking why the Department of the Interior is open to permitting wind farms in federal waters off the Atlantic Coast but opposes oil and natural gas production in the same region.
Apparent Double Standard
Sens. David Vitter (R-LA) and Lamar Alexander (R-TN) sent the letter noting the Interior Department’s apparent double standard encouraging expensive wind power but stifling more economical oil and natural gas production.
Vitter and Alexander asked Salazar to explain the department’s reasoning and provide economic data on money the federal government earns from wind power leases versus oil and natural gas leases.
The issue came into focus after the Interior Department announced on October 23 it had granted NRG Bluewater Wind Delaware LLC a lease to develop wind power on the Outer Continental Shelf under the Obama administration’s “Smart From the Start” energy program. Noting the lease was awarded with no competitive bidding process, the two lawmakers asked Salazar for data comparing the economics of the proposed wind farms with “the value of a similar lease for oil and gas on equivalent acreage.”
“We favor development of energy in the Atlantic OCS, including renewable and oil and natural gas development,” the senators wrote in their letter. “Unfortunately, the same cannot be said for the Department of Interior. We note that there has not been a single competitively bid lease for any energy in the Atlantic OCS under your leadership, and further, your department continues to ignore strong bipartisan support for developing all of our nation’s energy resources on the OCS.”
Favoring Economic Losers
“In the context of job creation and strengthening our economy, it would be helpful to understand the underlying economics of this lease sale, and in turn be able to compare it to the value of a similar lease for oil and gas on equivalent acreage, including revenue stream comparisons,” the letter observed.
“Particularly, in light of the multiple failures from the Stimulus (Solyndra, Evergreen Solar, First Solar, Mountain Plaza Inc., Fisker, etc.) and the current criminal investigation of Abound Solar, it would be useful to know what kind of return on investment the Department of Interior expects from this venture, as well as the anticipated price impact for electricity relative to current rates.”
“The administration has a habit of picking energy industry winners and losers, and we want an explanation,” Vitter said in a press statement accompanying the letter. “Secretary Salazar should at least be able to defend the economics of the lease sale for wind energy. For example, the federal government receives significant revenue from the royalties for offshore oil and gas production in the form of rents, royalties, bonus bids, and taxes. Can the same be said for this offshore wind project?”
Who Will Benefit?
In their letter to Salazar, Vitter and Salazar asked, “Who are the intended customers for the electricity to be sold by NRG Bluewater Wind Delaware LLC, and what rate have they indicated they will be able to charge utilities for bringing electricity on the grid? After all, according to the Energy Information Administration, offshore wind generation is estimated to be over three times as expensive to build and operate as onshore wind generation.”
“What utilities have indicated they are interested in purchasing electricity from NRG Bluewater Wind Delaware LLC, and what states are within the potential service area where consumers will be paying the additional costs of this electricity?” the senators asked.
“What is the effective royalty rate Interior has contracted with NRG Bluewater Wind Delaware LLC for this lease for the energy it produces?” the senators added. “What is the anticipated revenue to be raised from this development over the next 10 years?”
Letter Illustrates Key Points
According to Daniel Simmons, director of state policy at the Institute for Energy Research (IER), the letter is important because it highlights the loss of potential federal revenues when the Department of Interior encourages expensive, inefficient wind power rather than oil and natural gas production. The letter also highlights the higher costs consumers must pay for wind power, Simmons noted.
Wind power in many regards is more environmentally harmful than oil and natural gas, Simmons explained.
“The footprint of offshore wind is far greater than that of offshore oil or natural gas production,” Simmons said. “In 2010, the Institute for Energy Research ran the numbers to compare the offshore Cape Wind project to a natural gas project. It turns out that it would take 59 Cape Wind projects to equal the energy production of a single natural gas production facility.”
“The Cape Wind project would need 7,700 turbines and be spread over 1,475 square miles to produce as much power as a single natural gas power plant,” Simmons added. “Sea-based natural gas or oil production is far less environmentally intrusive than offshore wind projects.”
Bonner R. Cohen, Ph. D., ([email protected]) is a senior fellow at the National Center for Public Policy Research.
“Vitter, Alexander Seek Answers on Administration’s Offshore Wind Lease in Atlantic Outer Continental Shelf,” U.S. Sen. David Vitter: http://www.vitter.senate.gov/public/index.cfm?FuseAction=PressRoom.PressReleases&ContentRecord_id=e5c90cd7-9fca-f80b-b1a1-c115b0962d76
“Production from Developing Manteo Prospect Offshore North Carolina vs. Equivalent Wind Farm,” Institute for Energy Research:http://www.instituteforenergyresearch.org/2010/04/14/production-from-developing-manteo-prospect-offshore-north-carolina-vs-equivalent-wind-farm/