CAPE WIND IS TOO EXPENSIVE

STILL NO DEAL

Cape Wind has led a charmed life for the past nine years, garnering support from major environmental organizations and much of the American press. It is easy to support something that sounds so, well....green and wholesome and sustainable, particularly if one knows little or nothing of the project's actual details. However, now comes the hard part: finding a power company to buy Cape Wind's energy and obtaining project financing. Once again , it all comes down to money.

In December of 2009 National Grid and Cape Wind signed a Memorandum of Understanding (MOU), indicating that the two companies wanted to negotiate a Power Purchase Agreement. Cape Wind wants to build a wind farm in Nantucket Sound and sell the energy it produces. National Grid, for some strange reason, is willing to negotiate a PPA under terms of which it would buy this energy. The MOU was submitted to the Massachusetts Department of Public Utilities (DPU) and the DPU approved the process taking place, allotting sixty days for the negotiations to be completed. The negotiations began at the beginning of January.

Well, we are now in the first week of May and still there is no PPA. Interior Secretary Ken Salazar issued his approval of the project on April 28 but we still have no PPA. Last month Rhode Island's Public Utilities Commission rejected a proposed PPA presented them jointly by National Grid and DeepWater Wind. The rate agreed in the PPA would have been 24.4 cents per kilowatt. The Rhode Island statewide average is 13 cents. There is no known method of appealing the PUC's decision, so unless Rhode Island changes some laws there will be no PPA for DeepWater Wind, not at nearly twice the going rate. None of this bodes well for Cape Wind. It is impossible to tell when one has crossed from Massachusetts into neighboring Rhode Island by water. Cape Wind's PPA will be as difficult to complete in Massachusetts as DeepWater's was in Rhode Island.

Shortly before the original sixty-day negotiating period expired National Grid requested a thirty day extension. It was granted. After those thirty days had expired another thirty day extension began and on April 30 National Grid wrote a letter to the Massachusetts DPU saying that "considerable progress" had been made but that no PPA has been completed. The company said it will notify DPU if the parties are "...not able to agree upon the final terms of the Power Purchase agreement on or before May 31, 2010, ..." Some might say that the only progress being made is in the passage of time.

We in Massachusetts are blessed with many public officials who are both entertaining and incompetent. One such official is our Secretary of the Executive Office of Energy and Environmental Affairs, Ian Bowles. Secretary Bowles is a Harvard and Oxford educated child of privilege who grew up on Cape Cod. He is also a confirmed and vocal supporter of Cape Wind. And he is much funnier than even he knows. Apparently when he heard what had happened in Rhode Island, and when he heard the rumored cost contained in the MOU (a document held in complete secrecy) he felt he had to act/speak. It is rumored that the cost projected in the MOU is 25 cents per kilowatt. Bowles wrote a letter to National Grid and Cape Wind in which he said he expected a much lower cost. 17 cents seems a good number to Secretary Bowles. His letter was widely publicized but hardly questioned at all by the press. In some bizarre way, this man trained as an economist believes that by merely saying the magic words he can make all well.

Today the residential cost of a kilowatt of electricity on Cape Cod is less than 10 cents.

Now enters the mighty New York Times, just two days before Secretary Salazar's announcement. In fact, because Salazar's announcement had been promised by April 30, and because the Department of Interior makes its announcements on Wednesday or Friday, there were great salvos of support fired as a salute to Cape Wind on Monday and Tuesday nationwide. The New York times posted a morning piece by Tom Zeller, Jr. on its Green Blog. Another Zeller piece was posted in the afternoon and more Cape Wind propaganda appeared on Tuesday.

Zeller's first piece makes interesting remarks about offshore wind's cost. First we read, "The Cape Wind project would place 130 turbines, each 440 feet tall, over 24 square miles of Nantucket Sound at a likely cost of more than $1 billion." Further on we read, "The current price tag for fully a installed offshore wind system is estimated at $4,600 a kilowatt...." Mr Zeller appears to have something in common with Secretary Bowles - humor - and very poor math skills. For nine years my frustration has risen unchecked as amateur after novice after totally uninformed members of the press have offered praise for and flawed analysis of Cape Wind. Mr. Zeller is simply the most recent but one of the most important examples of this by virtue of his being part of the New York Times organization. Let us se where he went wrong, shall we?

Cape Wind's total capacity is 468 megawatts (MW). This is because there will be 130 turbines with a capacity of 3.6MW each. 1,000 killowatts (KW) equal 1 MW. So, Zeller's $4,600/KW, when multiplied by 1000 equals $4.6 million/MW. Using the most recent actual cost figures from offshore wind farms in northern Europe I agree that Zeller is in the ball park. But, that cost per MW, $4.6 million multiplied by 468MW total capacity equals a lot more than "more than $1 billion." $4.6 billion X 468 = $2.1528 billion. $2.15 billion! Well, Zeller is technically correct because $2.15 billion is "more than $1 billion".

Cape Wind's energy will cost as much as $5million installed. Read on......

Tom Zeller's reckoning is very misleading. For one thing some of the most recent European offshore wind farms use major components, such as the huge steel monopile foundations, that are made in China. The savings are dramatic compared with what these massive steel components would cost if made in the U.S. Other costs associated with Cape Wind will be higher than they would be in Europe, so the final project cost could reach $5 million/MW or $2.5 billion. But, why trouble ourselves with these trivial details? What's a billion dollars or so among friends? Certainly the New York times would not object to a 20% or greater increase in their electric bill....if it meant reducing CO2 emissions and saving the world from global warming. After all, Cape Wind will do both almost single handedly.

What follows might be a little tricky, so bear with me. It is important because among all the grand claims made for offshore wind power no one has ever actually discussed what the real numbers are, the real costs, the facts of operation. Wind turbines are rated by output or capacity. Cape Wind's turbines have a nameplate capacity of 3.6 megawatts each. This means that the nameplate says the turbine can produce as much as 3.6MW of energy. No wind turbines operate at 100% of capacity. 90 - year old principles established by European physicists set a limit if 60% of total capacity as an ideal and further reduce that limit to 30% due to various mechanical factors. Cape Wind claims its turbines will operate at slightly more than 39% of nameplate capacity. This means that the Cape Wind project will not generate 468MW but 182MW, on average. To make this easier, let us say that Cape Wind projects 40% capacity.

At 40% actual average capacity the installed cost of $2.5 billion rises two and half times in relative terms. The actual cost of the project, in terms of energy produced, will be $6.25 billion. Hmmm.....Zeller was right; over $1 billion. But, no one in the world operates offshore wind turbines at anything near 40% capacity. 30% is cause for celebration while 25% and lower are the rule. So, if Cape Wind operates at 30% capacity, its installed cost will rise to $8.3+ billion and if it operates at 25% the installed cost will be around $10 billion in terms of the actual energy produced. 468MW is a vast overstatement. Offshore wind is close to being the most expensive form of energy generation in the world. And, the operating and maintenance costs (O&M) are staggering. They are five times greater than for other types of power plants.

Is it any wonder that PPA costs for offshore wind are pegged at twice the cost of conventional power sources and higher? The cost of a kilowatt in Denmark is 38 cents and wind generates an amount of electricity equal to 20% of Denmark's national load. Have you ever read this fact in the New York Times?

Comparing offshore wind to other sources of energy might be helpful. Natural gas is used extensively in this country to generate electricity. In fact, the developer of Cape Wind is himself at this moment preparing to build a new gas-fired power plant in Westfield, Massachusetts. This plant will have a nameplate capacity of 400MW and will cost $400 million or more to build. If that plant operates at a capacity as low as 80%, the $400 million capital cost will rise to a mere $1.2 million/MW. That is a far cry from $5 million. Today's gas-fired plants are very efficient.

Somehow we have arrived at a stated goal of generating 20% of our national energy from renewable resources by the year 2020. It is generally agreed that most of this 20% will be produced by wind and that there are millions of megawatts of wind energy in our coastal waters, mainly in the Atlantic, the Gulf of Mexico and the Great lakes. So, using our 2020 vision what do we see for future energy costs? When should we suppose that the New york Times will finally tell us the facts of offshore wind energy?


Copyright 2010 By Peter A. Kenney

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