A Free-Market Energy Blog

Cape Wind’s $0.21/kWh: Bad News for Buyers, as for U.S. Taxpayers

By Kent Hawkins -- May 17, 2010

The Boston Globe recently reported that National Grid will pay 20.7 cents per kilowatt-hour for Cape Wind electricity production starting in 2013, with increases of about 3.5% a year for 15 years. This radically uneconomic cost figure  challenges the pro-wind studies of the project–and confirms the analyses of authors at MasterResoource.

A Charles River Associates (CRA) report previously indicated that the Cape Wind projects would save electricity customers billions of dollars. This expectation was immediately challenged in a MasterResource post by Glenn Schleede, who documented the study’s out-of-date data, doubtful assumptions, and missing costs. His conclusion was that the electric customers in New England – as well as the taxpayers – deserve a far more complete and objective analysis of the potential cost impacts on them of the proposed Cape Wind project than was provided by CRA and released by Cape Wind.

Subsequently, a Clean Power Now spokesperson in the Cape Cod Times defended Cape Wind on economic grounds. (Clean Power Now is a non-profit organization formed in 2003 to inform citizens and empower them to support viable renewable energy projects and policies.) In response, Glenn Schleede in a letter to the Cape Cod Times noted that the complexities and unknowns in the cost of offshore wind projects were greater than onshore projects. He also questioned the 20-year assumption of the expected life of wind turbines. Many 10–15 year old wind turbines, in fact, are past their useful life.

With approval of Cape Wind by the U.S. Department of the Interior Secretary Ken Salazar, the State of Massachusetts must approve the power purchase agreement between Cape Wind and the National Grid. According to the MA Secretary of Energy and Environmental Affairs, Ian Bowles, Cape Wind must produce electricity at a substantial discount to the Rhode Island offshore wind project’s forecast 24.4 cents per kilowatt-hour. Based on the announced price for Cape Wind at 20.7 cents per kilowatt-hour, a 17% discount has been achieved. But is this substantial? And why is one costly offshore project the standard to approve another out-of-the-money offshore wind project?

Although pre-dating the Boston Globe article, an editorial by Lisa Linowes, provided a more complete analysis of the Cape Wind project. She pointed out that at 20 cents per kilowatt-hour, the above-market costs passed on to Massachusetts ratepayers will range between $128–192 million per year. Her conclusion is a useful last word.

The economics of this project should settle the environmental issues in favor of the environment.  Spending enormous sums on Cape Wind only benefits Cape Wind at the expense of the taxpayer, the ratepayer, and any potential developer who can build a better, more commercially reasonable project.

For the sake of transparency and completeness, CRA should now show how their study results compare to this outcome.

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