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Updated on May 9, 2010


Why should offshore wind power cost 270% more than conventional power?

There are seven uility companies delivering electricity to customers in Massachusetts. These companies buy power on the wholesale market and distribute it through the electric grid. Each of these seven companies bills their customers, adding to the price of the electricity itself their own costs for various transmission expenses plus approximately ten percent for profit. Until now the electricity sold in Massachusetts was generated by power plants using natural gas, oil, coal or nuclear energy as fuel and the price charged for power was established as an average cost among these four conventional sources. So far, so good.

But, in 2008 Massachusetts passed a law requiring utilities doing business in the state to include in their power mix 3% renewable energy. To sweeten the deal in behalf of the utilities the commonmwealth's Department of Public Utilities issued a rule making which allows these companies to add a 4% surcharge to the so-called green energy they sell. And, also allowed under the Green Communities Act is a 3.5% automtatic price increase, every year.

National Grid, one of the seven utility companies serving Massachusetts also does business in neighboring Rhode Island. In December National Grid reached agreement on a twenty-year Power Purchase Aggreement with DeepWater Wind, an energy developer planning to build a large wind farm off the Rhode island coast. This PPA sets a price of 24.4 cents per Kilowatt ($.244/KW) and deals with an initial small windfarm that will supply power to Block Island. A larger wind farm one hundred units, will be built thereafter. Now National Grid is negotiating with Cape Wind Associates LLC to develop a similar PPA in Massachusetts. The Cape Wind project is advertised as a 468 megawatt offshore wind farm to be built in Nantucket Sound. It is reasonable to expect that the Cape Wind price will be close to the price agreed in Rhode Island. The $24.4/KW price for Rhode Island is roughly eighty percent higher than the state's current average price of $.09/kw. This means that Rhode Island's wind power will cost 270% more than conventional power. And, in the Rhode Island PPA the price will be increased by a 2.75% surcharge allowed by state law and by an annual escalator of 3.5%.

Under Massachusetts law and DPU rules utilitiy companies will add a 4% surcharge and an annual escalator of 3.5%. But, the wind is free.

The average cost for energy in Massachusetts for 2009 was 10.993 cents/KW. This was the residential rate. The commercial rate was 9.428 cents/KW. A rate of 24.4 cents/KW would mean an increase of 221% and 259% respectively. While the immediate cost increase will be barely noticeable, according to wind power proponents, because only 3% of the total power sold will be from wind or any other renewable source. However, Massachusetts has stated that its goal is to see 20% of its energy derived from renewable sources by the year 2020 and that is a mere ten years away. Commercial scale renewable energy in Massachusetts at this time means wind power.

Here is where the simple arithmetic turns into more complicated mathematics. At the end of the first year of the expected PPA the cost of energy sold will be 7.5% percent higher than at the beginning of the year, this is due to the additional 4% and 3.5% charges. To be conservative, let us assume that the National PPA with Cape Wind has a starting rate of 20 cents/KW. At the beginning of the first year the actual cost will 20.8 cents/KW and at the beginning of the second year it will rise to 21.5 cents/KW. At the beginning of the tenth year the cost will have risen to 26.33 cents/KW. This represents an increase of 36.9%. And, instead of only 3%, 20% of our power will cost this higher rate.

Electricity generated by wind is simply too expensive, even without ugly surprises. Today's $100 monthly charge for conventional power, adjusted for ten years from now with 20% of this power being produced by wind, will rise to $116.58. This is only an 11.6% increase overall, 198.96 per year.But it is only part of the bill. Transmission charges, various and often mysterious fees and taxes are added to reach the total monthly charge. Remember, this example is based on wind energy costing 20 cents/KW. Obviously 24,4 cents/KW would raise the bill's total. Let's call the increase $200 per year. Not bad, right? Let's say that five other things we need and use regularly also increase in cost by $200; do we all have and extra %1,200? After taxes?

Already Massachusetts officials are talking about the need to upgrade and modernize our electric grid. Just for Massachusetts the cost is estimated at $3.5 billion. Boston's notorious Big Dig highway project started with a cost estimate of $4.5 billion but after ten years it topped out at more than $14 billion. The fine print in a PPA can be where the real money is to be made. Various extra costs, sudden government mandates, escalators and adjustment clauses all can add significantly to the actual net cost as it will eventually appear on Massachusetts electric bills.

Energy is de-regulated in Massachusetts. This means that those who generate power are not necessarily those who deliver or transmit it to customers. This results in a two-part electric bill. One side of the bill states the total electric use for the billing period and the other itemizes and totals various costs for transmission, grid congestion, state and federal taxes and a few small and mysterious cost items. The rate charged for electricity is set by the DPU. National Grid, for example recently received approval for their first rate increase in fourteen years, totaling $150 million over three years. The magic of the utility industry is in those odd, ambiguous extra charges and fees on the transmission side of the bill.

Austin, Texas provides an example of what can happen when wind power is added to conventional energy sources. Austin Energy, the city's publicly owned utility company, signed long term PPAs for substantial amounts of wind power to be generated in west Texas. Austin Energy's customers were offered the opportunity to purchase a portion of their electricity from "green" sources, more than 80% of which would be wind. The anticipated extra cost was to have been less than 15% on a monthly bill, roughly on the order of what we in Massachusetts are told we might see. Then grid problems arose to which the solution was a $4 billion - $5 billion rebuild, recently approved by the Texas legislature. That is, as much as $5 billion of taxpayers' money is needed to fix the problem plus the average monthly electric bill for all Austin Energy customers, not just those who voluntarily signed to buy "green" energy, will rise by at least 35% and possibly more than 50% because until the grid congestion problems are solved Austin Energy is committed to buying wind power it cannot receive and the buying replacment power to provide to its customers.

Perhaps the real green in 'green energy' is the extra money it will cost everyone, both in higher electric bills and in huge subsidies to developers and grid upgrades. Every dollar added to our electric bills is matched by another dollar in various costs paid with tax dollars. The simple question is this: how will struggling families, retired people living on fixed and sometimes shrinking incomes and already overtaxed small businesses be able to afford higher utility bills? How much will "green energy" add to the cost of running our hospitals, schools, local governments and industry?

Can we afford wind energy at all? Or, can we afford it but only in smaller doses than what our leaders seem intent on forcing us to buy. For the sake of argument, let us assume that an average family will pay $250.00 more for electricity every year and that number will increase by 3.5% every year. Not so bad? Perhaps just this money is more of a burden that many families can take on. Perhaps the actual additional cost will be higher when we dissect that monthly electric bill and see how many costs directly caused by wind power have been hidden on the transmission side of the bill. But there are added costs for each of us and they are huge. What about the enormous cash rebates and tax credits scooped up by the "green energy" developers and their investment banks? What about the vast publicly funded grid upgrades? These tens of billions of dollars nationwide and untold billions more at the state level will be paid for in one of two ways: our taxes will be increased or other services will be cut back and funds trnsferred to the "green" energy programs. Commercial scale wind power, particularly offshore, may be the most heavily subsidized form of power generation ever seen with more hidden extra costs than any other form of energy generation.

What if the actual total cost to a typical family or small business caused by increasing reliance on commercial scale wind power is two or three times the effect seen on our monthly electric bills? What if the sum of increased electric rates plus increased taxes plus decreased services reaches a thousand dollars a year per family? The average cost of electricity in the United States is now approximately 10 cents/KW. In Denmark, where 20% of all electricity comes from wind, the average cost is 39 cents?KW. So, when people say we are lagging far behind Denmark in wind power, they are more right than they know.

Can we afford the true cost of wind power?

Copyright 2010 BY Peter A. Kenney


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