Offshore Wind (OSW) for Maryland Background, Status, & Issues

Presentation Outline Background History of OSW in Maryland Wind & OSW in the world Potential role in energy mix Cost & financing (and the role of RECs) Benefits & savings History of OSW in Maryland Legislation and associated stipulations Progress toward operation The U.S. Wind bid and proposed project Where we are, and pending steps Political issues What can CPSR do?

Wind & Offshore Wind Globally As of 2015 - 433 GigaWatts of electricity produced by wind In > 80 countries: China (145 GW) > USA (74 GW) > Germany (25 GW) > India (25 GW) > Spain (23 GW) Annual growth rate 22% (shifting from Europe) Mostly NOT offshore Offshore wind leaders are northern Europe & U.K. Collectively about 11 GW in 2015

How much offshore wind is currently operating in the U.S.? NONE!

Potential of Wind Power for U.S. & MD Recent NOAA analyses* indicate that by expanding renewable energy (mostly wind and solar)… “…the United States could cut total CO2 emissions 31 percent below 2005 levels by 2030 by making changes only within the electric sector, even though the electrical sector represents just 38 percent of the national CO2 budget;” and “the model produced a system that cuts CO2 emissions 33 percent below 1990 levels by 2030, and delivered electricity at about 8.6 cents per kilowatt hour.” Jacobson et al**estimate that MD could achieve 100% renewable energy by 2050 through 60% offshore wind, 33% solar PV, and 5% onshore wind. * Future cost-competitive electricity systems and their impact on US CO2 emissions Nature Climate Change, Volume 6, 526–531 (2016) ** 100% Wind, Water, Sunlight (WWS) All-Sector Energy Plans for the 50 United States; Energy Environ. Sci., Volume 8, 2093-2117 (2015)

OSW – Cost & Financing (1) Offshore wind installation costs 2-2.5 X more than onshore wind This makes an OSW project cost $4 million per MW capacity (So the MD 750 MW project will cost $3 billion!) The cost structure of OSW is different from that of conventional electricity generation: Installation cost is 70-80% of OSW cost, pro-rated over LOP (the balance is mostly operation & maintenance) With predictable wind, OSW cost is therefore quite predictable For fossil fuel-generated electricity, 40-60% of cost is fuel – less predictable

OSW – Cost & Financing (2) The predictable return from OSW makes it a potentially attractive investment However, OSW power production cost (about 20 cents per kWh) is still roughly 2 X greater than onshore wind or present fossil fuel-generated power The additional cost offsets provided by tax credits, Renewable Energy Credits (RECs), and other incentives are what makes an OSW project, and the energy it generates, affordable for now The 2015 federal budget compromise restored the tax credits for wind and solar installation/production (wind can choose ITC or PTC)

RECs, and how they affect energy cost (A Digression) Utilities (e.g., BGE, Pepco) buy much of the electricity they sell In 29 states and D.C., Renewable Portfolio Standards require a specified % of electricity to be from “renewable” sources Producers of such “renewable” energy get 1 “Renewable Energy Credit” (REC) for every MW they put into the grid Utilities buy these RECs (usually separate from the electricity itself) to meet their required % of renewable energy When there are source-specific carve-outs for certain kinds of RECs (e.g., SRECs, ORECs), those command a higher price Proceeds from RECs helps make renewable energy investment feasible (and anticipated RECs can be used as collateral) This required purchase of RECs increases the near-term cost of electricity to the utility (usually passed on to customers) In the long run, cost of RECs may be offset by lower production cost of renewables (compared to fossil-fuel dependent sources)

The “other side’s” argument… “Electricity in Maryland is already too expensive” (13th highest in U.S.) Source – EIA (U.S. Energy Information Administration) Electricity Maryland U.S. Average Period Residential 14.70 cents/kWh 12.80 cents/kWh May-16 Commercial 11.16 cents/kWh 10.25 cents/kWh Industrial 8.11 cents/kWh 6.54 cents/kWh c.f. : Avg. residential rates in – Delaware: 13.29 cents/kWh; Virginia: 11.10 cents/kWh; Pennsylvania: 13.32 cents/kWh; but New England (6 states) avg. : 17.82 cents/kWh

Benefits & Savings from OSW Reduced production cost of energy No carbon emissions No associated pollutants Increased supply and reliability for the grid Major step in transition to a clean energy economy New industry – new jobs

OSW for Maryland - Legislation Maryland Offshore Wind Act of 2013 (HB 226) Modifies RPS to establish basis and parameters for OSW development Establishes conditions for PSC approval Establishes OREC cap (2.5% of total MD electric capacity) Requires PSC to establish OREC parameters Project proposes OREC pricing, subject to PSC approval Sets requirements for applicants, including financing arrangements; analyses of impact on income, employment, taxes, etc.; effect on energy markets; small business role; offering participation to minority investors; environmental impact & benefits; and health impact & benefits Caps OREC price (< $190/MWh) Caps cost to customers (< $1.50/month to residential; <1.5% of usual cost to non-residential)

So where are we in the process? Competitive bidding for offshore lease done Winner = U.S. Wind ($8.7 million) Project application submitted with required analyses & agreements $2.5-3.0 billion project; life of project > 25 years 187 6MW turbines, 150 m rotors, 100 m hub height 750 MW – “will power 531,000 homes” (150,000-190,000?) U.S. Wind application complete Feb 2016 Mandatory 6 month wait for additional applications PSC extended wait by 1 month (Sept. 22) to complete review If no further extensions, PSC begins open comment period (up to 6 months)

Maryland Offshore Wind Project Site (U.S. Wind, Inc. lease)

Projected Benefits Reduce CO2 by 1.65 million tons/year* Reduce SO2 by 2,960 tons/year,* NOx by 1,050 tons/year* Up to $280 million estimated benefits* from avoided mortality from reduced pollution Reduce electricity shortage on Eastern Shore Reduce “congestion fee” ($2.00/consumer??) Possibly reduce “capacity charges” as well Job estimates: “thousands” (Baltimore & Eastern Shore) *http://www.synapse-energy.com/sites/default/files/Health-Climate-Benefits- Offshore-Wind-14-068_0.pdf

Additional Dimensions for Maryland IF APPROVED… U.S. Wind is proposing that – as first U.S. at-scale OSW project – Maryland become a hub for Atlantic OSW development Federal grant application pending to make improvements to the Port of Baltimore for an OSW facility at Sparrows Point

Examples (not MD) – Gains from OSW

The Competition (?) Atlantic Wind Connection (Google-backed!) 6,000 MW, N.J. to Virginia Cape Wind 468 MW, Massachusetts Deepwater Wind Two stages (R.I. Sound): 30 MW, Block Island R.I. 900 MW for New York, R.I.

Political/Advocacy Issues Concerns about sustaining MD’s OSW commitment Hogan team’s main concern is ratepayer impact Newly Hogan-populated PSC could deny OREC application THAT WOULD STOP THE PROJECT! Democratic legislators may not be focused on OSW now Environmental (and health?) advocacy (MDCC) was important in passage of OSW legislation in 2013 Can’t assess PSC response or action needs until PSC hearing process begins May need legislative intervention to sustain progress

Actions Under Consideration (MDCC) Engage in PSC consultation and docket process LTE’s, other public information during the process Sign-on letters Engage susceptible legislators Republicans from Baltimore, Eastern Shore (jobs) Other Republicans: stress economic development Democrats: shore up/activate support Accompany legislators on tour to R.I. project Possible legislative intervention

CPSR Role? Further analysis of health benefits? Participation in coordination with MDCC? Other actions? (Focus on November elections?) A new energy dawn for Maryland?