Cape Wind Response: The Cost to Taxpayers

May 11, 2006
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The project will not cost federal taxpayers $ 1 billion, as opponents assert. Cape Wind will in fact receive no grants, loans or price subsidies from the federal government. It could, however, become eligible for the Production Tax Credit (PTC) under Section 45 of the IRC, by which Congress encourages investment in renewable energy through a tax credit of 1.8 cents per kilowatt hour of renewable energy produced during the first ten years of any new project. Due to our timeline, we could not become eligible for the credit unless Congress extends the current statutory expiration date.

Opponents overstate the potential amount of PTC eligibility. Based upon projected production levels, the annual amount of potential credit (if the PTC is extended at its current level for a term that allows Cape Wind to become eligible) would be approximately $28 million for the first ten project years. However, if the project is not built, the need for power will have to be met from other generation technologies, some of which could receive federal tax credits and price supports that far exceed these amounts.

The PTC Amount is not the net cost to taxpayers. Such PTC amounts would not represent the net cost to the taxpayers, since potential PTC credit amounts will be offset by all new and additional federal taxes upon the income generated by the project, both directly and indirectly, over its full term of operation. Such amount would further offset by the federal royalties and rentals payable by Cape Wind, as determined by the Secretary of the Interior so as to assure a “fair return” to the government.

It makes no sense to oppose projects because they respond to Congressional incentives. Opponents argue that Cape Wind should be blocked because of the financial incentives that were established by the Congress to encourage private investment in just such projects. It makes no sense for Congress to establish incentives for investment in specific areas, but then penalize the initiatives that respond to such incentives. Notably, Cape Wind’s opponents have supported the PTC, including its recent extension in the EPAct of 2005.

The Massachusetts Renewable Portfolio Standard (RPS) is not a “subsidy.” Opponents also argue that the project should be blocked because of the Massachusetts RPS, which mandates that power retailers purchase minimum percentages of their supply from renewable projects. The fact is, however, that Cape Wind will substantially increase the available supply of renewable power and thereby reduce the cost of RPS compliance. The Massachusetts program has also placed a price cap on the renewable power needed for RPS compliance, which cap applies whenever the market value of renewable power exceeds the market value of non-renewable power by 5 cents per KWH. Otherwise, the price of any renewable energy needed to meet the Massachusetts RPS is to be set by free market forces.

Massachusetts has found that Cape Wind will reduce electricity costs. After an extensive 32 month adjudicatory proceeding, the Massachusetts Energy Facility Siting Board (the entity of the Commonwealth with statutory authority over energy siting decisions) approved Cape Wind’s transmission lines in state waters based upon its finding that the power was need to serve the public and to lower ratepayer cost by an estimated $25 million per year.