Cape Wind Blows (for Taxpayers and Ratepayers)

Cape Wind is a massive $6 billion, 468 Megawatt wind farm to be built off the Coast of Massachusetts.  The project includes 130 wind turbines covering an area of 25 square miles.  Great huh?  Not so fast.  In my opinion, this project could never be built without massive subsidies.  In the case of Cape Wind, the taxpayer and ratepayer will carry the burden.  Here are some fun facts.

·        Under the Massachusetts “Green Community Act”, utilities and other electricity suppliers will be required to obtain renewable power equal to 4 percent of sales in 2009 – rising to 15 percent in 2020 and 25 percent in 2030, and more thereafter.

·        Electricity generated from this project will cost the ratepayer about 20.7 cents per kilowatt hour escalating at 3.5%/year (according to an article written by Joseph Baker entitled “Massachusetts Upholds Cape Wind’s Power Purchase Agreement” 12/2011 – Link as follows http://www.energyboom.com/wind/massachusetts-upholds-cape-wind-power-purchase-agreement) .  This is compared to about 9 cents per kilowatt hour that current Massachusetts ratepayers are saddled with. 

·        Massive subsides include the following (according to a report by the Beacon Hill Institute)

o       Federal production tax credit - $337 million over 10 years

o       Massachusetts “Green Credits” 1.7 billion over 25 years

o       Accelerated depreciation - $65 million in present value terms

·        This project has been approved by the Obama administration and is the “flagship” of offshore industrial wind power.

·        According to the Beacon Hill Institute, Cape Wind is a windfall for the developer of the project, Cape Wind Associates.  They will profit handsomely to the tune of 25% return on equity or about 2.5 times the average for all corporations.

Fortunately, several lawsuits have been filed to kill this project.  In my opinion it should never be built.  Renewables should become part of a domestic energy portfolio only when the economics are favorable.  White Elephant projects like Cape Wind would only cost ratepayers more and saddle businesses with artificially high energy costs.  The result would be more outsourcing and slower economic growth (Read more http://www.beaconhill.org/BHIStudies/WindMills2006/WindSubsPressRel060515.pdf)

Renewable Portfolio Standards (RPS) are State laws which require that uneconomic projects to be forced upon utilities through mandates (I’ll write more about RPS in an upcoming blog).  RPS is a horrible idea.  The scheme is opaque because the Power Purchase Agreements (PPAs) are kept confidential.  The only reason we know about the Cape Wind PPA is because of the uproar and lawsuits.  PPAs are contracts that commit the utility to buy power from “green” projects for 20-25 years and most often have escalators that protect margins of the “green” companies supplying the power.  The utility simply rolls in the high cost energy into its rate base and the ratepayer is left holding the bag