Governors' Wind Energy Coalition

The top Republican on the Senate Environment and Public Works Committee today said the federal government is making a fiscally foolish bet in offshore wind, an energy source he said would not stand on its own without government subsidies.

Sen. David Vitter (R-La.) today said he received a response to his letter last November to the Interior Department seeking an economic rationale for its issuance of a noncompetitive lease to offshore wind developer NRG Bluewater Wind Delaware LLC off the coast of Delaware.

Vitter’s remarks come a day after Interior announced it would hold its first competitive lease sale next month for offshore wind in the Atlantic Ocean, a significant step in the Obama administration’s three-year effort to promote a potentially massive energy source (Greenwire, June 4)

Vitter took issue with the 2 percent operating fee offshore wind developers are being asked to pay — oil and gas developers pay between 12.5 percent and 18.75 percent royalty — production tax credits for renewable energy, and the initial high cost of building an offshore wind farm.

“I appreciate the Interior Department’s response — albeit six months late — but their response tells us that the government assistance the wind industry receives in leasing and special tax credits exceeds the money they can generate for the Treasury in offshore production,” he said in a statement. “I’ll reiterate that alternative energy has potential for our ‘all of the above’ energy future, but the administration needs to quit ignoring the economic benefits of traditional energy.

In a response to Vitter on May 6, Bureau of Ocean Energy Management Director Tommy Beaudreau wrote that the NRG project would provide enough electricity to power more than 100,000 homes while generating new construction and operations jobs.

He said the differences in what the offshore wind industry is being asked to pay are a reflection of both the relative immaturity of the technology compared to oil and gas and the fact that it is not consuming a finite resource, such as fossil fuels.

Beaudreau added that the production tax credit is an important assurance for investors to back offshore wind farms, which require significant upfront costs.

In the first decade of NRG’s lease, the company is expected to pay about $10.4 million in operating fees — which are similar to royalties — and about $1.5 million in rentals. It paid $24,000 — or 25 cents per acre — to acquire the 96,000-acre lease.

While that’s far less than the minimum $100 per acre that oil and gas companies pay for deepwater leases in the Gulf of Mexico, the agency by law is only required to collect a “fair return” for offshore wind in federal waters.

Defining “fair” is a matter of debate.