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Inflation Winds

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Tony Paradiso's picture
Principal, E3

I provide consulting services primarily assisting renewable energy-related companies in areas such as strategic planning, marketing, and operations. I have helped bring to market numerous leading...

  • Member since 2023
  • 65 items added with 13,588 views
  • Mar 30, 2023

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Could Inflation Upend Clean Energy Deployment?


New Jersey has a stated goal of becoming the epicenter for offshore wind. Governor Murphy has signed an executive order that sets the state’s offshore wind goal at 11 gigawatts by 2040. That’s enough energy to power over 8 million homes.

The problem is that projects of this scale take many years to complete and inflation presents a major risk to the project’s investors.  Two wind solicitations have already been completed, but a third remains in process. State officials were considering allowing developers to add a price escalator based on inflation.

According to New Jersey’s Division of Rate Counsel, if such a provision were included in the previous solicitations it might had added $5 billion in electricity costs over 20 years.

The natural reaction is that would be bad. But if developers perceive that inflation risks make the proposed projects unprofitable, they could walk away altogether. And that wouldn’t be good either.



Julian Silk's picture
Julian Silk on Apr 3, 2023

Inflation is guaranteed to increase the wind costs.  The real question is how inflation will affect the alternatives, and whether the demand for electricity will be such that wind is a relative bargain in a higher-price world.  If natural gas prices and the prices for carbon capture come down, the wind goals will not be met.  If these prices stay high, or there is a popular new energy demand, such as demand for EVs or data centers, the goals are plausible.

Tony Paradiso's picture
Tony Paradiso on Apr 3, 2023

Inflation will increase the cost of everything but I think offshore wind is more susceptible  because of the lengthy development times. The issue isn't so much the impact of inflation on costs as it is the ability to put a pro forma together that one can trust to accurately reflect the economic conditions. The worst case scenario is that a developer wins a bid and then 5 years down the road - before any actual development has occurred - inflation causes the project not to pencil and it never gets built. 

Personally I would like to see more emphasis on carbon capture because I think both wind and solar (more so solar) are not efficient enough to be good long-term solutions. And by long-term I'm thinking 50-100 years down the road.  

Tony Paradiso's picture
Thank Tony for the Post!
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