I join you today not just as an expert witness but also as a resident of the state of Maryland. My wife and I are raising a family—and paying an electric bill—in Silver Spring. And it’s disappointing when I see Maryland pursue unwise energy policies that impose a high price on my family and every other family in the state with no comparable benefit.
I’d like to focus today on the Maryland law that mandates the buildout of 8.5 gigawatts of offshore wind by 2031 (called the POWER Act). I estimate it will cost each household in Maryland more than $25,000 to build that much offshore wind, and the costs would be spread over the life of the offtake agreements, likely 20 years. However you slice it, the up-front cost of building 8.5 gigawatts of offshore wind is about $63 billion.
That’s just the capital cost of 8.5 gigawatts of offshore wind in this region, according to the U.S. Energy Information Administration. There are also ongoing operation and maintenance costs that will add approximately another $1 billion per year. All told, the Maryland offshore wind mandate will have direct costs of more than $80 billion.
It’s true that all power plants are big investments. However, the thing that makes intermittent energy like wind so costly for the power grid—in addition to its high direct cost—is the fact that it can’t really replace a power plant that operators can turn off and on. The wind doesn’t always blow at the right speed, but people always demand electricity. In other words, the people of Maryland will end up paying for the wind AND a backup source like a gas-fired power plant.
It has been instructive to watch the green energy policies of Germany and California play out in this regard. Both places have chosen to embrace intermittent energy at the expense of reliable energy, and the experiment went as poorly as we thought it would.
We know, for example, that Germany’s energy transition has caused its residents to pay three times more for electricity than we pay in the United States. California pays higher electricity prices than any other state in the Lower 48. In short, intermittent resources raise the cost of the electricity system.
We should keep in mind that increases in electricity costs are very regressive. That is, they hit low-income folks the hardest. The energy burden—meaning the percentage of income spent on energy—is already significantly higher for low-income households than for others (8.1 percent versus 2.3 percent). High-cost offshore wind might be a nice concept for politicians and the wealthy, but the cost of offshore wind is scary for everyday people.
Grid problems are made worse when low-cost existing power plants are closed before the end of their useful life. California and Germany are both guilty of that when they closed nuclear plants ahead of schedule. New York also closed the Indian Point nuclear power station ahead of schedule and is dealing with the consequences of that decision. Maryland is dealing with similar issues with the Brandon Shores coal plant, and I hope those can be resolved.
We no longer have to speculate on the cost of offshore wind in the United States. We can look to other states on the East Coast. In the second half of last year, BP and Equinor canceled their contract with the state of New York; Ørsted canceled two large projects in New Jersey; and developers in Massachusetts canceled four projects totaling 2,400 megawatts of offshore wind.
It may be too late to save California or New York from themselves, but it’s not too late to recognize the folly of the forced energy transition and stop energy prices from skyrocketing in Maryland.
So, what are some alternatives?
First, for anyone who wants to see a green transition, renewables will still be built if the offshore wind mandate is repealed. Solar energy and onshore wind will continue to grow in a market setting, partly because of their much lower capital cost than offshore wind, but also because there are corporate buyers who have voluntary goals to procure renewables. Let’s not forget that there are also lucrative subsidies at the federal level to help these technologies.
Second, for those of us who simply want electricity to be reliable and affordable, let’s see what gets built without the mandate. No one has tried to build an offshore wind project in the United States without a state-level mandate. The only way to know what type of power plant makes the most sense is to put it to the market test.
And there *is* a market. Maryland is the original “M” in the PJM Interconnection (the P and J stand for Pennsylvania and Jersey). PJM is the multi-state wholesale electricity market covering 13 states and DC.
PJM has a capacity market that is designed to make sure the most cost-effective resources get built. Many states within PJM are going outside the market to procure resources the market would never take. This is a costly policy that undermines the original basis of electricity markets, which was to ensure reliable electricity at the lowest possible cost.
Finally, I want to pre-empt a question I hear frequently, which is that offshore wind mandates make sense given the presence of climate externalities. That is, the social cost of greenhouse gases is so high that it justifies a mandate.
My colleagues at Cato showed with respect to nuclear energy that the social cost of CO2 would have to be unrealistically high to justify building new nuclear facilities on CO2 grounds, as opposed to, say, natural gas-fired generation. The same is true—and in fact the case is much stronger—when it comes to offshore wind. There is simply no economic justification for an offshore wind mandate.
Thank you for holding this important hearing. I look forward to answering your questions.
