Sometime today (Monday, May 24, 2010) Nstar and Cape Wind ‘officials’ will meet to discuss the possibility of the utility buying electricity from the proposed offshore windmill farm. There will be the usual executive small talk concerning mutual acquaintances, who plays golf where and maybe a mention of the Celtics. But eventually the conversation (or presentation) will turn to money. Here’s where the hypocrisy of Cape Wind will be glazed over thicker than a triple dipped Krispy Kreme.
It’s not the more expensive price to consumers (estimated at an extra $1.50 per month) that bothers me, rather it’s the idea of investors getting a huge return from a boondoggle made possible by poor government policy and unimaginative politicians desperately seeking affirmation from Greeniks(1).
The way electric utility companies make money is by charging customers through a rate structure approved by state regulators. The rates are designed to allow the companies to make a profit through recovering “prudently” incurred costs and a rate of return “sufficient to attract new investment in transmission facilities”. So one could say that smart investors would want to maximize cash flow by covering as much of the prudently incurred costs as possible while jacking up the value of the investment in transmission facilities to provide as big a return as possible (10% of a billion is thousand times greater than 10% of a million). Add to this state requirements, like the Green Communities Act which requires utilities operating in Massachusetts to buy a percentage of electricity from renewable sources in Massachusetts, and you have an environment well suited for inefficient projects the likes of which would make Willie Wonka blush.
According to Cape Wind’s website the offshore windmill farm will provide 155 new jobs, up to 55 of them on the cape. It will also be very clean, replacing the equivalent power that would be produced “from burning 570,000 tons of coal, or 113 million gallons of oil, or 10 billion cubic feet of natural gas.” And contrary to reports from finance publications and several papers, Cape Wind claims the project “will reduce the clearing price for electricity in the New England spot market by reducing operations of the regions most expensive power plants, this will reduce electricity prices in New England by 25 million dollars per year.” The first two benefits are the result of impact studies, the third is spurious at best.
So you’re thinking, after reading four paragraphs of regurgitated uninspired middle school level research, that your shade tree economist is headed for a predictable close of drill baby, drill. Wrong. Here’s where it gets interesting (it actually doesn’t get interesting but what the hell, you’re more than halfway through now). Renewable energy from clean sources is exactly what this country needs and we need it yesterday. Unfortunately a $1 billion to $2 billion(2) wind farm moves us in the wrong direction. It is an act of financial and political hubris the likes of which gave us insolvent quasi-government mortgage underwriters and a federal recipe for health care coverage that will break the back of an already entitlement loaded system.
If we as taxpayers and beneficiaries of good environmental policy want to back a $1 billion plus investment, we should actually benefit from it. What about using $1 billion to invest in many local projects? A combination of clean/renewable sources that work on a local level? Why not fund smaller windmills to help supply power to schools, hospitals, and malls? What about plug-in stations for electric cars? A good chunk a billion dollars could also beef up an aging nuclear power plant or hydro-electric dam.
The big drawback to managing power from renewable sources is that they are by nature unreliable. If the sun don’t shine or the wind don’t blow there’s no microwave popcorn. Hence the need considering current technology to mix consistent but dirty with inconsistent but clean (kind of like prom dates). Supporting smaller local efforts mitigates inconsistency.
Cape Wind maybe a windfall for investors in EMI corp. and its owners but for the rest of us it’s a big dig solution to a problem that is best solved by taking another road.
(1) Greenik – a.k.a. ‘Watermelon’ – one who is green on the outside, red on the inside. A person who’s true agenda is maximizing government control of private sector activity but who claims to act in the best interest of the environment or climate as a means to an end.
(2) Cape Wind has not released investment estimates but media reports range from $1 billion (Boston Globe) to $2 billion (AP).