Monday, May 15, 2006

Blowing & Twisting In The Wind

The Boston Herald's Jay Fitzgerald covers the latest volley in the Cape Wind Farm controversy.

The Beacon Hill Institute, a conservative think tank out of Suffolk University, has come up with its second economic study that is critical of Cape Wind's project:

"As a result of the tax subsidies and high energy costs, the study said, Cape Wind Associates could expect to receive a 25 percent return on equity, or $139 million, over the decades-long life of the project."

Sounds like a ton of dough, dosen't it! But the
spreadsheet of economic projections runs to 2033 (27 years from now). That said, a 25% return on equity over a period of 27 years (seems to me they've already spent millions to this point) is really pretty meager. No --- in fact, it's atrocious!!!

So what is the story here? It appears that much of the
report's focus is on the variety of federal and state tax subsidies that are the only elements that make the project economically viable (and barely so at that):

The project would only be privately profitable because of the subsidies it can expect to receive. It would receive a “gross subsidy” (subsidy before taxes) of $731 million (in present value terms in 2008, using the prices of 2006), consisting of

(i) the Federal Production Tax Credit, which would contribute $180 million to revenue in present value terms;

(ii) the sales of Massachusetts “green credits”, worth a total of $487 million in present value terms; and

(iii) accelerated depreciation of investment costs, which would allow the firm to defer payment of Federal income tax, worth $65 million.

But this is the case with every other such project nationally. Are we making a statement about federal tax/environmental policy or are we saying something specific about Cape Wind? And as Cape Wind's Jim Gordon points out:

"... one federal tax credit, worth a potential $180 million to the project, is set to expire at the end of 2007 and there are no guarantees it will be renewed. Meanwhile, the institute bases its calculations on long-term electric rates that“no one can really know,” he said."

This is the second critical study that BHI has done on Cape Wind. The first study from 2004 made a number of conclusions that appear to contradict this latest work: it suggests that, notwithstanding the subsidies' delivering Cape Wind only a 25% return over 27 years, it is nonetheless "excessive." The earlier study also predicted (based upon a survey of tourists in 2003) catastrophic effects on the region's tourism economy -- predictions that contradict the experiences elsewhere, where windmill projects have actually helped tourism:

"...other studies of wind projects have generally found no damage to tourism from wind turbines. In fact, towns in Denmark that host offshore wind farms have set up visitors' centers to accommodate tourists who come to see the towering structures against the skyline. A federally funded study by the Renewable Energy Policy Project found no drop in property values near wind projects in the United States in a review of 25,000 real estate transactions."

That didn't affect the opinion of "environmental economist" Jonathan Haughton, who expressed his impirical thinking this way:

"We sensed that . . . if it were a question of 20 or 30 windmills out in Nantucket Sound, people would not be nearly so concerned," he said. "The sense of the infinite horizon will be lost."

No word on whether questions regarding the "infinite horizon" was part of the scientific survey.

But the worst aspect of the first study is its reckless and unfounded conclusion that the wind farm would result in an average 4% drop in property values in the six towns that contain real estate viewing the Sound.

What is the basis of that conclusion?

A survey of 501 home owners on Cape Cod and Martha’s Vineyard, as well as 45 Cape Cod realtors, finds that the presence of a large scale wind farm in Nantucket Sound could indeed be perceived as a loss in amenity value.

Sixty-eight percent of home owners surveyed believe that the presence of the wind farm would worsen the view of Nantucket Sound. On average, home owners believe that the wind farm would reduce property values by 4.0% (and among these, households with waterfront property believe that the loss would be 10.9%).

A survey of homeowners? This means of "analysis" is so frivolous as to be completely meaningless. Indeed, it is an embarrassment to the Institute that something like this would come out under its name.

It appears that the smoking gun in the first study was the generous ($100,000) financial support of the Egan Family Foundation. Established by the family of Richard Egan, founder of EMC Corp., the Foundation's board of directors includes Michael Egan, an owner of oceanfront property on Oyster Harbors and a fierce opponent of the project.

The Institute denies that Egan had anything to do with either study.

Having watched this debate fester since its inception, it has become increasingly clear that the opponents of Cape Wind cannot even buy credible research to support their opposition.

UPDATE!!! And now, it appears that Senator Kennedy's underhanded effort to kill the project with typical backroom tactics may be unraveling. Today, sixty-nine members of the Massachusetts General Court sent a letter to the U.S. Congress stating their opposition to the anti-Cape Wind provision that was attached in Conference to the Coast Guard Reauthorization Act:

...Chairman Smizik stated, “This letter makes it perfectly clear that there is substantial support for Cape Wind in the Massachusetts Legislature and strong opposition to the move in Congress by the Alaskan delegation to interfere with Massachusetts energy policies.” “In Massachusetts, the Legislature has assigned the authority to approve major energy proposals to the Massachusetts Energy Facilities Siting Board, and not to the Governor, in light of the special public interest in maintaining adequate energy supplies”, Smizik continued....

...Matt Patrick, Representative of the 3rd Barnstable District which includes the shoreline nearest to the proposed offshore wind turbines, said, "We would be remiss if we let the gross inaccuracies from the opponents of the Cape Wind project justify the illicit amendment to kill the project.” Patrick continued, “The allegations from the opposition cannot be documented. The review process involving 18 agencies and numerous public hearings over the past 4 years have documented the positive benefits of the project in direct contradiction to the allegations from opponents.” “Let the process go forward and if Cape Wind survives based on its merits, it should not be subject to the arbitrary whims of the Governor”, Patrick continued....

Now things are getting interesting...

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