Offshore wind and big company lobbying
How to tell if it's legitimate (hint - it's usually not)
Big Offshore Wind is calling in the big guns:
Offshore wind projects need federal help to get built, six governors tell Biden
ATLANTIC CITY, N.J. (AP) — Offshore wind projects need more federal funding and planning assistance to ensure they get built, the Democratic governors of six northeastern states told the Biden administration, warning that a cornerstone of the climate change fight could be in jeopardy.
President Joe Biden can take three steps — on tax credits, revenue sharing and permits — to help the nascent wind industry deal with challenges like inflation, supply chain and other issues, according to the letter Wednesday from the governors of New Jersey, New York, Connecticut, Maryland, Massachusetts and Rhode Island.
Already, one of the major offshore wind developers active in the northeast, the Danish firm Orsted, has said it considered walking away from projects in the region that have become more costly than anticipated. Although the company decided to stick with them for now, it has said it won’t make a final decision on whether to actually build them until the end of this year or the beginning of 2024.
It is a regular feature of the energy sector that developers lobby for government support, or changes in regulations, to make projects happen. And they typically mobilize local politicians to that effect.
At first glance, it’s not surprising: power plants are critical infrastructure built in a heavily regulated and strategic sector, so it is normal for governments to have a big say, and it is in a sense logical for companies to negotiate the terms of the investment with the regulator, or the politicians that oversee the regulator.
But what you see in the recent lobbying around offshore wind is companies that have made bets - in the form of bids for regulated tariffs to sell electricity - that are trying to wiggle out of their commitments and get a better deal after the fact. They promised to build a power plant at given conditions and now they are effectively breaking that promise.
In some cases, there are legitimate grounds to claim something - when the government itself has not fulfilled its own obligations or changed the rules that apply to the sector in general or to that plant in particular.
But here, what has changed is mostly the macro-economic environment (higher interest rates, and inflation increasing the cost of the turbines and equipment). This is a normal business risk, from which most businesses are not protected when they make investment decisions. So why do utilities lobby so hard? Or maybe, since the answer is obvious (it works) - why do they think they can get away with it?
Maybe the answer is also simple: offshore wind projects are high visibility, highly symbolic projects that carry a lot of political weight:
they mean jobs (thus the local politicians), although the jobs claims are sometimes inflated - or the real jobs are not really where people think;
they mean big numbers (billions in investment, and GW in capacity, something that is seen as more meaningful than individual solar or onshore wind projects which are typically much smaller) and worth political intervention to be seen to “make nice big things happen”
they offer amazing photo-ops - whatever people say about how they damage landscapes - they are instantly recognizable, and they offered a immediate, unambiguous message of clean energy - something everybody wants to be associated with that these days - even oil&gas companies and non-energy businesses put wind turbines on their website or their annual reports
So it is fairly easy for those inclined to do so to blackmail politicians into helping them: give us more money, or the projects that will give you great headlines will disappear, and instead you get negative headlines about the failure of your net-zero policies.
Politicians also don’t typically understand the economics of energy projects very well, and are not in a good position to call a utility’s bluff. The arguments presented always look superficially correct and consistent with the ‘ask’ (inflation, etc), but they often are not, when you dig a little bit.
And in recent times, offshore wind has become a tribal issue - it is supported by greens and wonks and opposed by populists that put it (to simplify) in the same woke basket as political correctness and rampant bureaucracy. So supporting offshore wind, whatever the price, has become a political marker that brings its own benefits to (one half of the) politicians - and that is a rich vein to tap into. And it turns out that the political split on this topic is not 50/50, but more favorable to wind, so this is an issue worth taking a stand on, almost irrespective of the cost - on the majority side (in favor) you get support from large numbers; on the minority side (against) you mobilise your “team” and reach larger numbers.
And thus we end up with additional subsidies or support regimes that are not really necessary and that distort competition: the larger, politically-active players can bid better prices than the disciplined market players, and then whine and blackmail their way into an economic project.
I would thus suggest
Don’t do tenders based on price if you don’t know when the project can get built (ie if projects are still subject to permitting processes or legal recourse or other uncontrollable delays). That’s a sure way to get unrealistic bids that will then be subject to lobbying and renegotiation;
Put much stiffer penalties (bid bonds) for exiting a bid. That will concentrate minds (and will actually not exclude bids from disciplined layers);
Call utilities’ bluff and see what happens.