Wasteful Government Subsidies for Cape Wind Project | Citizens Against Government Waste

Wasteful Government Subsidies for Cape Wind Project

The WasteWatcher

Wind energy has been touted by environmentalists as clean and cheap.  While it may be clean, it is far from cheap.  A maze of government subsidies, mandates and crony capitalism deeply mask the true cost of wind energy production to make it extremely wasteful of citizens’ dollars.  In the free market, wind energy would never be built without the massive government intervention it receives.

The Cape Wind project in the largest offshore wind project planned in the United States.  It is to be located in swanky Nantucket Sound off the coast of Massachusetts between Cape Cod and Nantucket Island.  This $2.6 billion project will have 130 wind turbines soaring 440 feet into the sky.  

Theoretically, at peak capacity, which means that the wind would have to be blowing 24 hours a day, seven days a week, the manufacturers of these turbines claim that a project of this size can produce 454 megawatts of electricity.  Of course, the wind doesn’t blow 24 hours a day, seven days a week.  Proponents of Cape Wind have had to admit that, in reality, their project will only produce on average 170 megawatts.  Still, they claim that the endeavor is worthwhile because 170 megawatts is still higher than the 20 percent efficiency that wind turbines typically produce. 

Supporters also claim that the project is being built with private financing, but fail to mention the massive government intervention.  This makes Three Card Monte look like a fair game.

First, despite more than a decade of trying to push this controversial project, the developers are trying to rush the approval of a federally-subsidized loan guarantee from the Department of Energy (DOE).  The developers originally applied to DOE under Section 1705 of the Title XVII Innovative Technology Loan Guarantee Program (LGP).  DOE announced in the spring of 2011 that the application would be tabled with no further approval before the program expired on September 30, 2011. 

A new and smaller loan guarantee program application has since been made under Section 1703 of the LGP. This new application is currently under consideration at the DOE for rushed approval, which would allow construction to begin this year.  Perhaps more significantly, this would also allow Cape Wind to qualify for another federal subsidy in the form of an energy production investment tax credit of 30 percent, which is set to expire on December 31, 2013. 

Second, the Massachusetts legislature passed the Green Communities Act which mandates that 20 percent of the power in the state be produced by renewable sources by 2025, regardless of cost.  Armed with this mandate, project developers forced the regional utility, National Grid, to sign an agreement to purchase 50 percent of the power produced by Cape Wind at 18.7 cents per kilowatt-hour (kwh), which is more than double the 8 cents per kwh that average Massachusetts utility customers currently pay.

Third, when two New England utility companies wanted to merge, the Massachusetts Department of Public Utilities (DPU) held up the approval until the companies agreed to purchase another 27.5 percent of the power produced by Cape Wind at between 18.6 and 23.5 cents per kwh.

Before the DPU could approve the merger and the power purchase agreements, under the law the agency had to justify that the benefits outweighed the costs.  The power purchase agreements will mandate higher costs on utility ratepayers in Massachusetts, followed by a 3.5 percent increase each year.  Since the DPU could not conclude that the benefits were greater than the costs, they added a magic accounting gimmick that they dubbed “unquantified benefits” to ensure they could justify the additional $440 million that electricity users in Massachusetts will have to pay above average rates. 

Finally, supporters of big government projects always discuss job creation.  Of course, construction will always lead to jobs.  The $2.6 billion will create about 1,000 temporary and 50 permanent jobs related to the project’s operation.  For a long time, supporters claimed that the massive towers were going to be manufactured in Massachusetts.  Instead, they will be built in Europe, so U.S. taxpayer money will be used to subsidize jobs overseas.

The Cape Wind project is yet another alternative energy boondoggle that is costly to taxpayers.  The federal loan guarantee program to assist in the financing of this project is one of the last remnants of the ill-conceived federal Stimulus Bill enacted in 2009.  Companies and projects funded under this alternative energy program in the DOE have lost billions of taxpayer dollars already.

The DOE should not second-guess its initial rejection of this project, the request for any further federal government loan guarantees should be dismissed, and no additional wind energy projects should be approved for federal loan guarantees.  In fact, Congress should allow the DOE’s LGP to expire at the end of 2013 to prevent further costly boondoggles. 

Roger Morse President, Capitol Pathfinders, LLC

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