Two GOP senators question NRG offshore wind economics

Two GOP senators have questioned the federal economic benefit from offshore wind development, particularly a lease sale agreement earlier this fall with an NRG Energy (NYSE: NRG) subsidiary.

Sens. David Vitter, R-La., and Lamar Alexander, R-Tenn., also said Nov. 9 that the Obama administration seems anxious to pick energy winners and losers – by pushing offshore wind leases and ignoring potentially lucrative offshore development of oil and natural gas on the Atlantic Outer Continental Shelf (OCS).

The lawmakers laid out their concerns in a letter to Interior Secretary Ken Salazar. The letter and a statement about it were posted the same day on Vitter’s Senate website.

“Secretary Salazar should at least be able to defend the economics of the lease sale for wind energy,” the senators said. “For example, the federal government receives significant revenue from 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?”

In particular, the senators pointed to Interior’s Oct. 23 announcement of commercial leases for NRG Bluewater Wind Delaware. The Republican lawmakers said it appears the NRG unit received exclusive commercial wind development leases in the Atlantic OCS “with no competitive bidding process.”

Alexander and Vitter said they favor a mix of oil, gas and renewable energy development in the Atlantic. “Unfortunately, the same cannot be said for the Department of Interior,” the lawmakers said.

OCS oil and gas being shunned, senators assert

Lifting the moratorium on leasing in the Atlantic OCS was a result of decisions by President Obama and the U.S. Congress in 2008, then controlled by a Democratic Party majority, the senators said.

“In 2009, the Department of Interior rejected a lease plan that would have provided for oil and natural gas leasing offshore Virginia,” the lawmakers said. “As well, you have elected to block oil and gas leasing off the vast majority of the OCS for at least the next five years, effectively negating the bipartisan decision.”

The federal government derives significant revenue from royalties for offshore oil and gas production; on top of substantial up-front competitive bids for the rights to explore and produce energy (these bids alone totaled nearly $10bn in FY 2008, according to the letter). The current royalty rate companies must pay is between 12.5% and 18.75%, said Alexander and Vitter.

The senators want to know the anticipated level of revenue from the NRG Bluewater project over the next 10 years. They also ask if the government will make money on the NRG deal once the wind energy tax credit (currently 2.2 cents per KWH) is taken into account.

“In other words, will this company get paid by the federal government to produce wind energy so they can in turn pay any royalty they might owe to the federal government? Will the total value of any production or other renewable tax credits exceed the price paid for the lease?”

The senators said that the U.S. Energy Information Administration (EIA) has indicated that offshore wind is estimated to be at least three times as expensive as onshore wind. They also ask about the potential customers for the offshore wind power and the environmental review for the NRG project.

“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 senators said.

In announcing the NRG lease, Interior said Oct. 23 that the lease area has been located to avoid existing uses of the OCS offshore of Delaware, including but not limited to major shipping lanes into and out of Delaware Bay, a proposed vessel anchorage ground and a munitions disposal area.

Interior said in October that since Obama took office, domestic oil and gas production has increased each year, with domestic oil production at an eight-year high and natural gas production at an all-time high.

NRG Energy is in the process of merging with GenOn Energy (NYSE: GEN). Officials with Houston-based NRG could not immediately be reached for comment Nov. 9.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.