New England Ratepayers Association

Advocacy for Ratepayers Across New England

Letter to DoE Loan Programs Office re: Cape Wind Loan Guarantee


The following letter was submitted to the Department of Energy Loan Programs Office in opposition to a loan guarantee for the Cape Wind Nantucket Sound offshore wind farm project.

May 28th, 2013

Mr. Matthew McMillen
Director, Environmental Compliance
DOE Loan Programs Office
United States Department of Energy LP 10
Room 4B196
1000 Independence Avenue, SW
Washington, DC 20585
matthew.mcmillen@hq.doe.gov

Mr. Todd Stribley
DOE Loans Program Office
United States Department of Energy LP 10
Room 4B196
1000 Independence Avenue, SW
Washington, DC 20585
todd.stribley@hq.doe.gov

Re: Impact of Cape Wind Project on Massachusetts ratepayers relative to project’s request for loan guarantee from United States Department of Energy.

Messrs. McMillen and Stribly:

The New England Ratepayers Association (NERA) wishes to submit the following comments for consideration regarding Cape Wind’s request for a loan guarantee from the U.S. Department of Energy.

The New England Ratepayers Association is a non-profit, social welfare organization which advocates for the rights of ratepayers throughout New England. Our members are individuals and businesses in New England that are concerned about the high costs of electricity in the region and its impact on our economy.

NERA strongly opposes a DOE loan guarantee for the Cape Wind Project on the grounds that the project would negatively impact ratepayers in Massachusetts—increasing electricity costs by approximately two hundred million dollars annually.

Cape Wind currently has power purchase agreements (PPA) with National Grid and N-Star for 77% of its generation.  National Grid is contracted for 50% of Cape Wind’s power at 20.7 cents per kilowatt-hour, and NSTAR for 27% of the power at 18.7 cents per KwH—both for 15 years and both with 3.5% annual escalators.   According to NEPOOL, the average wholesale cost of electricity in New England for 2012 was 4.5 cents per KwH, making Cape Wind’s PPA four to five times the average cost of wholesale power in New England.  Even when considering compliance costs (6.5 cents per KwH), Cape Wind’s electricity is still twice that of the average wholesale cost.   Factoring for escalators, the PPA will double the cost of power by the end of its contract—costing ratepayers an additional $2.7 billion during the life of the contract over wholesale power costs.

The fact that Cape Wind has not been able to secure private financing over the past ten years despite this exorbitant PPA should tell the DOE everything it needs to know about the viability of the project.  If it were worthy of investment, private capital would make itself available, negating the need for the DOE to provide a guarantee.  Should Cape Wind receive a loan guarantee, taxpayers will be on the hook if the project fails, with no upside if it succeeds — except for the right to enjoy higher electricity rates.

Why hasn’t the project garnered more interest from private investors?  Likely because its business plan is dubious at best.  While the proposed capacity of the project is 468MW, the expected production is 178MW, which makes the project’s assumed capacity factor approximately 37%.  This is a very generous estimate given that the onshore wind farm capacity in the Northeast according to the EIA is 24%–meaning that Cape Wind would have to produce 50% more power than other wind farms in the region.  A recent study from Harvard University indicates that the actual generation from large-scale wind generation farms may be substantially less than anticipated. The study, led by Harvard applied physicist David Keith, said that the generating capacity of large-scale wind farms that are larger than 100 square kilometers could peak anywhere from 0.5 and 1 watts per square meter. Prior estimates put these figures at 2 to 7 watts per square meter. This means that production calculations may be vastly overestimating how many KwHs will be generated—information that I’m sure isn’t a part of Cape Wind’s calculus when estimating its generating capacity.

Furthermore, another study conducted by the University of Edinburgh’s Dr

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. Gordon Hughes for the Renewable Energy Foundation calculates the decay rate of offshore wind farms in the United Kingdom and Denmark, finding that capacity drops from 40% in year zero to 15% by year ten.  He concludes that “…with such low load factors it seems likely that many wind farms will be re-powered–i.e. the turbines will be replaced—once they reach age 10…”.  Is it worth putting taxpayer dollars at risk to invest in a project whose capacity estimates are questionable, not to mention the fact that its decay rate may necessitate turbine replacement before the initial investment is repaid?  What will likely happen is another wind farm graveyard will be built which will add to the thousands of defunct steel dinosaurs that already proliferate our landscape.

While the big picture clearly shows that Cape Wind isn’t a financially viable project, local opposition is yet another reason to deny the loan application. NERA sponsored a survey conducted by the University of New Hampshire Survey Center.  Here are a few key points from the survey:

  • 69% of Massachusetts residents feel that the Cape Wind Project should not receive federal loan guarantees in addition to the other subsidies and lucrative PPA agreement they currently enjoy.
  • A majority of respondents (50%) feel that the Cape Wind project should be halted immediately, with only 41% of Massachusetts residents supporting the Cape Wind project.
  • Most respondents would not support Cape Wind if they knew it would have negative impacts on tourism and property values (63%) or when they learn that ratepayers will pay billions in higher rates over the life of the project (65%)
  • When provided information about costs of generation, a majority of people would prefer to get their power from Natural Gas and Hydro (59%) with only 25% preferring to get their power from very expensive solar or Cape Wind.

In conclusion, NERA feels that it is not in the best interests of ratepayers or taxpayers for the Department of Energy to provide the Cape Wind project with a loan guarantee.  Despite a favorable PPA and guaranteed funds from the Federal Production Tax Credit, Cape Wind has been unable to acquire significant private capital to fund the project.   The DOE should not support a construction project that is doomed to fail, costing ratepayers and taxpayers billions of dollars along the way.  Ratepayers and taxpayers have already seen too many taxpayer dollars wasted on the construction and manufacturing of green energy products.

We respectfully request your rejection of the Cape Wind loan guarantee application.

 

Sincerely,

Marc Brown
Executive Director
New England Ratepayers Association

Updated: November 29, 2016 — 9:42 am

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