Developers looking to build thousands of wind turbines off the Mid-Atlantic coast and New England are up against a force even more relentless than the Atlantic winds: the iron law of megaprojects, which puts warns of future problems for green energy projects.
The Iron Law, coined by Oxford professor Bent Flyvbjerg, says ‘megaprojects’ – which cost billions of dollars, take years to complete and are socially transformative – reliably go over budget, over time. time again and again.
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From Boston’s Big Dig to California’s high-speed rail to New York’s East Side Access rail project, 12 years behind schedule and 300% over budget, big boons regularly demonstrate the rule’s validity. .
Offshore wind projects are not immune to iron law, regularly experiencing significant cost overruns before a single watt is generated.
The New York state government, which is seeking to replace oil and gas-fired power plants with hundreds of wind towers off Long Island, decided in 2019 to create an offshore wind supply chain from zero, starting with a massive state-funded turbine manufacturing facility. 100 miles north of New York on the Hudson River.
The ground hasn’t even been broken yet, but the budget certainly has been: the price of this Albany Port facility has already double from $350 million to $700 million. An additional $100 million could be needed for equipment costs, bringing the final price to $800 million.
A similar situation is playing out in New London, Connecticut, where a state-funded jetty facility being built to support that state’s offshore wind construction has more than double price from an initial estimate of $95 million to $250 million.
And in Massachusetts, developer Commonwealth Wind has asked the state to drop its power purchase guarantees and relaunch the project, arguing that inflation and supply chain issues mean the project is not financially viable under its current contracts .
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Large projects tend to exceed their cost projections for many reasons. One is the unforeseen, and sometimes unprecedented, complexity of these projects. Other uncertainties and costs arise from the challenge of navigating the bureaucracy of the modern regulatory state. In addition, there is a risk of inflation for projects that take years, sometimes decades, to develop. Underlying all of this is often not spending enough time on careful planning that treats reality as a fundamental constraint.
But sometimes project proponents may just worry that accurate cost projections might scare off public support initially, and choose to employ what Professor Flyvbjerg politely calls “strategic misrepresentation.”
As former San Francisco Mayor Willie Brown said, “If people knew the true cost upfront, nothing would ever be approved. . . . Start digging a hole and make it so big that there is no alternative to finding the money to fill it.
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If that sounds too cynical, note that the current president of the Connecticut Port Authority has admitted that when officials first proposed installing the pier, they already knew it would cost more than they claimed.
Ironically, the New York and Connecticut projects aren’t even large enough to be considered megaprojects, yet even they have run into the iron law of over budget and falling behind schedule. The challenges will not diminish with bigger and more ambitious green energy projects.
In New York, the state’s massive Climate Leadership and Community Protection Act, of which the Port of Albany project is the first substantial investment, is projected cost between 270 and 290 billion dollars. At this price, it’s a gigaproject made up of many individual megaprojects.
The benefits, mostly in the form of greenhouse gas reductions, are expected to reach $415 billion. But if the overall cost of the policy climbs by just 55%, which is within the normal range for megaprojects (and far less than the Port of Albany cost overrun), the costs will outweigh the benefits, creating a net loss. for New Yorkers.
If the costs increase to twice the initial estimates, which is not uncommon, the state would have to spend more than one hundred billion dollars more than the benefits earned, which would represent a loss of more than $30,000. per New York household by 2050.
And that’s assuming the benefits are as good as promised. It’s even worse if, as is often the case, the benefits have been exaggerated.
The story of megaprojects is a wake-up call for the whole country as we try to move away from fossil fuels. Cost estimates for a nationwide transition range from $4.7 trillion to more than $60 trillion, nearly three times US GDP. Such uncertainty should make us think before jumping wildly into the financial unknown.
If we’re not careful, we risk digging holes à la Willie Brown, and politically and financially, we could end up too deep to get out.
James E. Hanley is a Fellow of the Empire Center for Public Policy.
Syndicated with permission by RealClearWire.
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