Inherit the Wind – the Reality Show

Investor-owned utility company National Grid agreed to a 15-year purchasing contract with Cape Wind, where the utility would purchase the project’s wind energy at 20.7 cents per kilowatt hour beginning in 2013, and increasing at 3.5 percent annually thereafter. Contrast this with the current average wholesale energy rate of 6 cents per kilowatt hour.

Robert Kennedy, Jr., an environmental lawyer, called the project “a boondoggle of the worst kind . . . It’s going to cost the people of Massachusetts $4 billion over the next 20 years in extra costs.” In fact, if you consider the federal subsidies that Cape Wind will receive, the cost to taxpayers as a whole is even more.

It’s ironic that Kennedy is making this cost argument. He claims that the issue is mostly one of siting, that in “the windiest country on earth” with “lots and lots of land” Nantucket Sound just isn’t a suitable place for a wind turbine project. In essence, this is the old not in my backyard argument: wind energy is a great idea, just not if I have to look at the turbines. But in arguing against this location because of its enormous expense to the people of Massachusetts, Kennedy and his ilk are also saying, not from my wallet. That is, wind energy is a great idea, but not if I have to pay for it.

The reality is, no matter where the turbines are located, wind energy is costlier than people are accustomed to paying. Where wind energy is cost-competitive with sources like coal-fired electricity, it’s only because the bill is being paid from taxpayer’s wallets. Wind energy producers currently receive a tax credit of 1.9 cent per kilowatt hour (kWh) for the first 10 years of a turbine’s operation against the corporate taxes owed by electric utilities. In most locations, this tax break, along with voluntary premiums for green energy, and increasingly, renewable energy portfolio mandates in a number of states, is what keeps the wind industry cost-competitive.

Indeed, proponents of renewable energy in Massachusetts have already locked that state into projects like this one. The Green Communities Act, a 2008 state law, requires the four investor-owned utilities in Massachusetts to buy from renewable sources an increasing proportion of the power they sell to consumers, and to enter into long-term contracts with renewable energy providers, with a preference for local sources. Environmental groups had nothing but praise for the Act, hailed as a paradigm shift in the way energy would be produced, bought, and sold.

The Cape Wind project may indeed be a costly boondoggle, but it’s really not hugely different from other wind energy projects that are competitive mostly because of mandates and subsidies. You’ve heard the old adage, you get what you pay for. For wind energy, it’s somewhat the reverse. What you pay for is a mandate for wind energy, and what you get is higher energy prices.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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