Statement on Beacon Hill Institute report dated May 15, 2006


On the Beacon Hill Institute Reports on Cape Wind:
This is the third anti-Cape Wind report the Beacon Hill Institute (BHI) has prepared in the past three years. According to media articles, the Egan Family Foundation has contributed at least $125,000 to BHI for these reports. The Egan Family Foundation is made up of several family members who are also on the Board of the organization that formed to oppose Cape Wind, the Alliance to Protect Nantucket Sound (Alliance), these same Egan family members also own several large homes overlooking Nantucket Sound. Responding to the first two BHI reports on Cape Wind, Boston Herald Columnist Thomas Keane Jr. wrote, “Sloppy and unpersuasive, more interested in publicity than crafting a solid analysis, the Beacon Hill Institute is losing its credibility.” BHI has coordinated closely with the Alliance over the years, even filling in for the Alliance for the ‘con’ side of a debate about Cape Wind on Cape Cod and by participating in Alliance “media availabilities”.

BHI and the Alliance are flip-flopping on the economics of the project to fit their shifting agenda
The 2004 BHI Report entitled “Free But Costly: an Economic Analysis of Wind Farm in Nantucket Sound,” in fact found that the project would yield returns that would NOT be an attractive investment:

• “The project would not be a significant moneymaker for the developer. We find that the project would yield a respectable but modest 12.2% rate of return on equity. The rate of return could be as high as 18.1% but as low as 6.6%. … But there is no guarantee [sic] that it will make a profit of this size or, for that matter, break even. Unforeseen increases in construction or maintenance costs and the unpredictability of wind speeds add an element of risk to the enterprise.” Id. at 5-6.
• “There is a chance that the windfarm will lose at least $50 million.” Id. at 6.
• “Cape Wind itself might end up not benefiting as much as it expects.” Id. at 6.
• “Even with green credits and the Renewable Electricity Production Credit, the estimated rate of return on equity is just 12.2%, which is modest.” Id. at 15.
• “In short, the project is just about financially viable….” Id at 16,
• “In addition, Cape wind has to pay taxes, which push the private return below the economic return.” Id. at 16.
  

On ‘subsidies’ for Cape Wind
The timing of the release of this latest BHI report seems to be closely coordinated with an ongoing attempt of Cape Wind opponents to defend their anti-Cape Wind provision slipped into the Coast Guard Reauthorization Act in Conference Committee in Congress by making misleading arguments about how much Cape Wind would benefit from government “subsidies”.

There are 4 crucial points that need to be made on this subject to correct the public record.

1. For Cape Wind to become a reality, three central conditions need to be met: 1) Cape Wind will need to receive all permits and permissions from Federal and State authorities that will also require that Cape Wind be found to be in the ‘public interest’, 2) Cape Wind will need to pay whatever lease payments are required by the Minerals Management Service as well as other federal, state and local taxes, and, 3) Cape Wind will need to successfully raise the capital funds to build this project from the private sector. There are Federal and State renewable energy incentives that Cape Wind could possibly qualify to receive that would provide financial benefits based upon the successful operation of the wind farm and its actual production of clean wind energy, these are discussed below.
   
   
2. Massachusetts Renewable Energy Credits. The BHI report, recent Alliance advertisements, and statements by Cape Wind opponents such as Senator Kennedy and Congressman Delahunt all identify the Massachusetts “subsidy” as constituting the bulk of the “government subsidies” that Cape Wind would receive – and in so doing, they seriously misrepresent the nature of the Massachusetts program, how it works, and what Cape Wind’s impact would be. As part of the Electricity Restructuring Act of 1997, the Massachusetts Legislature enacted a Renewable Portfolio Standard (RPS) that mandated greater use of new renewable energy sources in the region by providing such sources with Renewable Energy Credits (RECs) which are bought and sold in an open market. RECs are NOT paid by taxpayers, they are paid by electric resellers which are mandated to buy an increasing number of them through 2009. As stated by the Massachusetts Energy Commissioner, Cape Wind would greatly increase the supply of RECs, thereby driving down the REC market price and reducing the cost of this program to electricity consumers. No one really knows what the value of RECs will be to Cape Wind when the project comes online, the one thing that is sure is that Cape Wind will make this renewable energy policy mandate more affordable to electric consumers than would otherwise have been the case if Cape Wind is not built. The fact that Cape Wind will save money to Massachusetts electric consumers by reducing how much this renewable energy program costs is completely lost by Cape Wind opponents when they seek to create public outrage over a false perception that Massachusetts taxpayers will fund Cape Wind. Finally, as to how Cape Wind fits in with the original policy goals of Massachusetts Legislators in enacting the RPS to increase regional development of renewable energy, several Mass State House Committee Chairs who were architects of this legislation have stated, “Cape Wind is exactly the type of project we envisioned when we enacted the Restructuring Act. The 420 MW Wind Park proposed by Cape Wind Associates will provide affordable, efficient, reliable and clean energy.”-- Massachusetts State Senators Michael Morrissey and Susan Fargo and State Representatives Daniel Bosley and John Binienda.
   
   
3. There is a fundamental inconsistency for Cape Wind opponents to criticize Cape Wind’s potential eligibility to receive government renewable energy incentives they otherwise claim to support. The Federal Wind Production Tax Credit (PTC), which reduces the federal tax burden for wind farms, enjoys overwhelming bipartisan support in Congress and has received favorable votes from both Senator Kennedy and Congressman Delahunt. The U.S. Senate also considered a National RPS last year that Senator Kennedy voted for. The Alliance also claims to support both the PTC and the RPS. Cape Wind would not qualify to receive these incentives in any special or unique way, and the PTC would have to be extended again, further out into the future, to even apply to Cape Wind. How can one honestly claim to support these incentives in one breath and then vilify a company in the next breath for possibly qualifying to receive these incentives by producing a substantial quantity of clean wind power that the incentives were created to encourage?
   
   
4. One would reasonably (but wrongly) assume by reading the BHI report or by listening to Cape Wind opponents that wind power gets preferential government treatment not enjoyed by other types of energy production. In fact, all forms of energy production are currently encouraged or “subsidized” by existing U.S. energy policy. According to a Fact Sheet entitled, “Wind Energy Myths”, by the U.S. Department of Energy, published in 2005, “…every energy source receives significant federal subsidies; it is disingenuous to expect wind energy to compete in the marketplace without the incentives enjoyed by established technologies.”
   
   

Other BHI claims about Cape Wind

• BHI’s report is overly simplistic, makes sweeping assumptions, and overlooks some factors entirely, all of which overstate Cape Wind’s potential profitability. Certainly most renewable energy supporters would hope that renewable energy projects, like Cape Wind, can be profitable as are fossil fuel and nuclear energy projects because if clean energy isn’t profitable the U.S. won’t build very much of it. To be fair to BHI, there is one accurate and important statement about their estimate of Cape Wind’s profitability in their report that should even be underscored to its readers, as it bears upon all of their other analysis about Cape Wind, “this figure is subject to considerable uncertainty because the project faces a number of significant risks.”
• The BHI report acknowledges it does not factor in lease payments Cape Wind will be required to make to the Federal Government, and it ignores entirely the Community Host Agreement that Cape Wind has signed with the Town of Yarmouth to provide $350,000 to the Town per year for a period of 20 years, indexed to inflation.
• The prior BHI report on Cape Wind, in addition to questioning whether Cape Wind could be profitable, was also interesting in that it refused to classify Cape Wind’s job creation or its impact to reduce electricity prices as ‘benefits’. In the case of Cape Wind creating jobs BHI didn’t count that as a benefit because “…jobs are a cost not a benefit. Jobs are a cost because people have to be paid for the inconvenience, exertion and discipline that they demand.” In the case of Cape Wind reducing energy prices, BHI didn’t count that as a benefit because they just saw that as transferring money from power plant owners to electricity consumers. By contrast, the Massachusetts Energy Facilities Siting Board values maximizing savings to the electricity consumer over maximizing revenues to power plants and in their Final Decision to Approve Cape Wind’s application last year they found that Cape Wind would reduce electricity costs to consumers by $25 Million dollars per year.