Since 2009, the State of New Hampshire has reviewed three large-scale wind energy facilities totaling 177 megawatts. In each case, the project proponents engaged University of New Hampshire Professor and economist Ross Gittell and his research assistant, Matt Magnusson, to conduct economic impact studies to show the long-term (20-year) benefits the projects would deliver to the local area.

Figure 1 summarizes the findings of each report.

The UNH researchers relied on NREL's Jobs and Economic Development Impacts (JEDI) or similar linear spreadsheet models to assess job creation and economic impacts for the three projects: Granite Reliable Wind Park, Groton Wind and Antrim Wind. The methodologies and assumptions for the three studies appear nearly identical.

In all cases, their reports showed minor direct job opportunities (15 full-time equivalent positions for operations at the three sites) but substantially inflated indirect and induced job benefits relative to the local area.

The problem with the models

The JEDI models purport to enable calculating the state or local economic impacts resulting from building a potential wind energy facility. However, JEDI only looks at the positive impacts of a project and assumes that money spent is always beneficial. But that is not a safe assumption.

According to economist, Dr. Robert Michaels:

"Authors of studies using JEDI acknowledge that it 'offers a gross analysis rather than a net analysis; that is, the model does not account for the net impacts associated with alternate spending of project funds.' ...JEDI treats the renewable like a proverbial "free lunch," a gain to the economy for which nothing need be sacrificed. Many other effects might reduce job creation or possibly turn it into destruction."

He goes on to say:

"JEDI's creators recognize that the net effect of increased renewable investments on employment is ambiguous. On occasion they have cited the works of others who use more complex models ...NREL's researchers are thus aware that other models that capture important complexities are available. For unknown reasons, they instead persist in using a model that can produce only the single result of job creation from renewables."

The Navigant jobs study commissioned by the American Wind Energy Association, which uses JEDI models, suffers the same failures. It wasn't until Congressional members hammered NREL earlier this year over unsubstantiated and inflated job creation claims under the Section 1603 program that NREL finally updated its website to more publicly admit that JEDI models produce gross impacts and not net impacts.

JEDI and New Hampshire Wind

In reviewing the methodologies for each of the UNH economic impact reports, we could find no indication that the models accounted for project costs. When we asked the UNH researchers if their report for Antrim Wind, for example, considered net impacts at first they said no, but later amended their response to say they looked at the costs and found there were none.

Seriously?

Apparently, Gittell and Magnusson do not think it's relevant that both the Granite Reliable Wind and Groton Wind projects have, or will receive approximately $111 million in Section 1603 grant money from the federal government; Antrim Wind expects to benefit from the production tax credit. Most economists would consider the federal subsidies to be a cost borne by U.S. taxpayers, including those residing in New Hampshire.

Gittell and Magnusson also ignore another substantial cost factor in their analyses -- the fact that the Granite Reliable and Groton wind projects each have long-term power purchase agreements with in-region utilities at contract prices that are well above market rates for wholesale electricity. Antrim Wind has made it clear it is also seeking a long-term purchase agreement which is required to obtain financing.

When asked if their Antrim Wind analysis considered the impact of above-market energy prices, Gittell replied that "there has been no contract for the sale of the power from the Antrim Wind Project at any price, therefore there is no foundation for the question and it cannot be answered." A convenient but misleading and badly informed answer.

Gittell's economic model utterly neglects the fact that onshore wind in New England demands between 9-11 cents per kWh, more than twice the wholesale price of natural gas, the fuel most likely to set the market price. More wind in the fuel mix will cause upward pressure on energy prices in New England for the life of the power purchase agreements.

Since wind energy largely produces during off-peak hours, when market prices are even lower, the delta between the contract price and the market price for the energy is even more pronounced.

And it looks like low natural gas prices will be the new normal for a long while. The Energy Information Administration's Annual Energy Outlook 2013, released last week, enforces the fact that we can expect low natural gas prices, facilitated by growing shale gas production, over the next 15 years!

Gittell, Magnusson and the developers for the three projects all insist wind provides a hedge against fluctuating energy prices. This may be true in some regions of the country but not in New England, where 90+% of the generation operates in the day-ahead market. Wind could have a marginal impact on prices in the real-time market but any benefit is entirely erased by the high-priced power contracts.

Big wind - a drain on the economy

At the very least, the high cost of the New Hampshire wind power contracts will exceed the economic benefits touted by the UNH researchers and will serve as a drain on New England's regional economy. See Figure 2. Gittell's simplistic conclusion that the benefits of the operating projects will enrich the host communities and surrounding areas disregards the fact New Hampshire residents do not live in isolation. Many work, shop, and recreate in neighboring states and will be impacted by the high cost of these projects.

According to our analysis, the three projects (assuming Antrim Wind is erected) will result in significant costs to the New England region in above-market energy prices alone. Other costs related to property values, tourism, and impacts to the environment are also likely to arise.

There is no excuse for the sloppy work of Gittell and Magnusson who, in our opinion, have ceded their credibility for their wind clients. But shame on New Hampshire's energy siting board for not understanding the projects they're approving in the context of the larger regional power market.

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The American Wind Energy Association has made extending the Production Tax Credit ('PTC') its primary focus this year. Documents available on the trade group's website show that about $4 million of its 2012 budget ($30 million) was directed toward securing extension of the PTC. With job growth the number one political issue in the United States, AWEA's strategic plan calls for rebranding of the wind industry as an economic engine that will produce steady job growth, particularly in the manufacturing sector.

The problem for AWEA is that the industry's own record on job growth lacks credibility. Accurate information available in the public suggests the industry has inflated its overall job numbers.

Section 1603 and Jobs

Seventy-five percent of the Section 1603 largesse was lavished on big wind, yet, despite billions in public funding, the wind sector experienced a loss of 10,000 direct and indirect jobs in 2010 bringing AWEA's reported total to 75,000 jobs[1].

In April, NREL released its estimates of direct and indirect jobs created by projects receiving 1603 funding. The agency relied on the JEDI model ("Jobs and Economic Development Impacts") to estimate gross jobs, earnings, and economic output supported through the construction and operation of solar photovoltaic (PV) and large wind projects.

But an investigation by the House Subcommittee on Oversight and Investigations rightly objected to NREL's conclusions. The Subcommittee found that NREL overstated the number of jobs created under 1603, that it failed to report on the more important net job creation, and ignored potential jobs that would be created given alternative spending of Federal funds. The key sticking point was that NREL did not validate its models using actual data from completed projects.

The Subcommittee concluded that models used to estimate job creation were no substitute for actual data and added: "The Section 1603 grant program was sold to the American people as a necessary stimulus jobs program, and yet, the Treasury and Energy Departments do not have the numbers to back up the Obama Administration's claims of its success in creating jobs."

The problem with JEDI

Since NREL's JEDI model provides a gross analysis only, it does not consider how building a renewable energy facility might displace energy or associated jobs, earnings, and output related to other existing or planned energy generation resources (e.g., jobs lost or gained related to changes in electric utility revenues and increased consumer energy bills, among other impacts).

In other words, the model is one-sided, only considering the benefit side of a cost-benefit comparison and ignores everything else.

Validating AWEA Job Data

So what data do we have on wind industry jobs? Not much.

Apparently, AWEA is the only source of nationwide employment statistics in the United States for wind-related jobs.

Of the purported 75,000 direct and indirect jobs, the majority (around 60%) work in finance and consulting services, contracting and engineering services, and transportation and logistics. Twenty thousand are employed in wind-related manufacturing with the remaining jobs tied to construction and O&M.

But validating this information is not possible since no industry codes exist that isolate wind power establishments or wind turbine and wind components establishments. The North American Industry Classification System (NAICS) bundles wind-related manufacturers under the same code as the "Turbine and Turbine Generator Set Units" manufacturing industry (NAICS 333611), which includes "establishments primarily engaged in manufacturing turbines (except aircraft) and complete turbine generator set units, such as steam, hydraulic, gas, and wind."

At the end of 2010, the Bureau of Labor Statistics reported 26,218 total jobs in this industry. It's not credible that AWEA's estimated manufacturing jobs could represent the vast majority of employment under the NAICS 333611 classification.[2]

Navigant's Magic

In December, AWEA commissioned Navigant Consulting, Inc. to study the impact of the PTC on job growth in the wind industry. The study, also based on the JEDI model, considered two scenarios, one where the PTC is extended for 4 years (2013-2016); the other where the PTC expires at the end of this year.

Navigant's model showed that extension of the PTC would provide a stable economic environment and allow the wind industry to grow to nearly 100,000 American jobs over four years, including a jump to 46,000 manufacturing positions. Expiration of the PTC showed a loss of 37,000 jobs.

The message to Congress was clear: extend the PTC or you will be blamed for American jobs being lost. Even Interior Secretary Salazar peddled AWEA's numbers despite the Congressional report that raised doubts about the model.

Recent statements by AWEA prompted us to look at the numbers even further. In May, AWEA's Denise Bode told Windpower Monthly that of the estimated 75,000 wind jobs, at least 30,000 were manufacturing jobs -- a jump of 10,000 jobs!

Where did the additional manufacturing jobs come from?

As it turns out, Navigant tabulated direct and indirect jobs but also quietly added INDUCED jobs -- those jobs created when the overall level of spending in an economy rises due to workers newly receiving incomes.

Factoring in 'induced employment' was a radical departure from job figures previously provided by AWEA. Induced job figures are more abstract and inherently unreliable but a convenient way to inflate job numbers. We could find no documentation that explained this change in job reporting nor was the change footnoted in the Navigant study.

We spoke with a Navigant represent who suggested AWEA might have been incorrectly treating 'induced jobs' as 'indirect jobs' in its prior reports but that would not explain the inflation in manufacturing jobs. Total job counts would have stayed about the same.

In looking at the Navigant modeled numbers, it appears the wind industry currently only provides 58,000 direct and indirect jobs, not 75,000. A four-year extension of the PTC could result in a possible 70,000 direct and indirect jobs by 2016 (scenario 2) -- 5,000 less than the number AWEA touts today! 

Conclusion

The change in job counts raises serious credibility issues about the industry's employment strength. But the absolute numbers tell only a piece of the story. Since Navigant's study is based on JEDI, the job figures represent gross numbers and do not consider them in the context of the larger economy. In that sense, Navigant's findings, like NREL's study, tell us nothing about the true impact of the PTC.

But one thing does appear to be true: AWEA's job figures, dating back to least 2009, may be nothing more than figures pulled from thin air. 

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[1] Lawrence Berkeley National Laboratory reports (p. 7): "The American Wind Energy Association, meanwhile, estimates that the entire wind energy sector directly and indirectly employed 75,000 full-time workers in the United States at the end of 2010 - about 10,000 fewer full-time-equivalent jobs than in 2009, mostly due to the decrease in new wind power plant construction." A recent AWEA blog (February 3, 2012) confirms the 75,000 is still current.  

[2] Wind manufacturing represents under 1% of the 11.5 million domestic manufacturing jobs in 2010.

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The American Wind Energy Association's (AWEA) newly released Annual Market Report for 2010 can be summed up in one word -- Spin!

We've tracked the wind industry's progress closely in the last six years and mapping our observations to AWEA's declarations is always a challenge. Their reports are packed with assertions but rarely include the data and assumptions on which claims are based. This year's report was no different. To illustrate the point, we thought it useful to examine some of the claims touted by AWEA.

High Cost, Low Value

With natural gas selling at record lows and supplies expected to be abundant through this decade, wind developers are under pressure from investors to secure power purchase agreements (PPAs) with utilities. Most PPAs for onshore wind we've reviewed lock in purchases for 15+ years at roughly twice the wholesale price of fossil and nuclear resources within their respective regions. In some cases the prices are fixed regardless the time of day the energy is delivered or number of years into the contract; others apply adjustments for on- and off-peak energy and may include annual escalators. In states where renewable portfolio standards have been adopted, utilities likely have no choice but to accept above market rates which are passed through to the rate base.

AWEA asserts that average power purchase agreements for wind generation in 2010 were priced around 6 cents per kilowatt-hour which it insists is the same wholesale price for combined cycle natural gas plants, and about 2 cents cheaper than coal-fired electricity. It might be true that PPA prices, on average, are around 6 cents per kwh but comparisons to natural gas and coal are not appropriate.

Within New England, wholesale pricing for onshore wind is between 9 and 11 cents per kwh. In the Midwest, contracts are around 6-7 cents and in regions with better wind regimes, gentler terrains and/or limited or no permit requirements the costs could run slightly lower.

But wind agreements are negotiated after a project has taken full advantage of available federal and state incentives so the costs of the incentives are not factored into the energy price. Other costs not accounted for include the build-out of wind-related transmission, system improvements to accommodate wind's intermittency and costs to cover capacity resources required during low wind conditions. These costs are ultimately imposed on rate and/or taxpayers outside the PPA.

The claim that PPAs are priced lower than coal-fired electricity makes no sense unless AWEA is comparing wind pricing to new coal plants and completely ignoring prices offered by existing generators. The Energy Information Administration (EIA) tracks wholesale power prices for six major electricity trading hubs around the U.S. and these data show prices ranging between 3 and 6 cents per kwh with New England on the high end and Ohio and Texas at the lower range. Clearly wind is more expensive than available energy resources even after applying governmental incentives.

And in an apples to apples comparison, wind energy is very expensive.

If we were to concede AWEA's claim that wind is priced on par with natural gas and cheaper then coal, what's our value proposition. Wind is not a capacity resource. It's not dispatchable. And in most parts of the country it delivers at the time of day and year when we least need the energy. Wind is inherently a lower value resource and in a more fair power market it should be priced below more reliable generation. But that's not what's happening.

20% wind by 2030?

AWEA insists the industry is on track to meet the Department of Energy's goal of 20% wind by 2030. Last year, we took a baby step by adding 5,116 megawatts of new wind bringing the total nameplate installed in the U.S. to 40,181 megawatts. But getting to DOE's goal (305,000 MW installed including 54,000 MW offshore) will require over 13,000 MW of new wind online every year for the next 20 years. And the entire wind fleet would need to operate at an annual average capacity factor of 43.4%. AWEA boasts that 2010 expanded the number of states with industrial scale turbines by 2 -- Delaware and Maryland -- but Delaware's contribution amounted to a single 2 megawatt turbine. You simply can't get 'there' from 'here'.

Delaware's one turbine triggered a lawsuit by residents living nearby over noise and legal nuisance claims. Opposition to wind energy proposals in general has intensified in the last few years and wind developers are feeling the effects of a growing backlash. Those who raise concerns about property values, health effects, the adverse environmental impacts etc. are more educated on the costs/risks of wind and are inclined to reject the degradation these enormous sprawling industrial complexes impose on communities and open lands. Building the next 40,000 MW of wind and related infrastructure will be much harder.

No offshore turbines exist in the U.S. nor is it clear any will go online soon. We've written extensively on the high-cost of the Cape Wind and Deepwater Wind proposals whose PPAs are under appeal. Last week, a Maryland Senate committee killed a bill backed by Democratic Gov. Martin O'Malley to implement offshore wind citing price as a factor.

Despite Interior Secretary Salazar's intention to fast-track offshore wind, the upward pressure these projects will impose on utility rates will prove a significant limiting factor.

Large Investment, Small Value

AWEA's report highlighted the industry's $10 billion investment in 2010 to install 5,000 MW. If we back out the nearly $3.4 billion in federal Section 1603 grants, the industry's contribution was closer to $6.6 billion. Our tax dollars picked up the tab for a third of the cost. Yet, what value did we get in return?

We've already examined the cost of wind and know the benefit is not economic.

What about the environmental payback? AWEA insists the U.S. wind power fleet will avoid an estimated 65 million metric tons of carbon dioxide annually. This assumes a megawatt hour of wind will back out a megawatt hour of fossil -- an overly simplistic concept that ignores the realities of energy dispatch. Nonetheless, if we assume AWEA's metric applies at all times, carbon allowances under the Regional Greenhouse Gas Initiative (RGGI) are trading at the floor price of $1.89/short ton. And since the CO2 cap under RGGI is already satisfied, the price is unlikely to go up this decade. Reducing CO2 emissions by 65 million tons should only cost $135 million -- a fraction the public dollars spent on wind development for 2010 alone. Clearly, there are far less costly, and more appropriate methods for reducing carbon then building massive wind towers everywhere we look.

Perhaps wind's value lies in job creation, but we're not so sure. Most jobs created by the industry are tied to construction and are temporary in nature lasting six months to two years.

In 2007, AWEA touted that the industry represented 50,000 direct and indirect jobs in the U.S., a figure that jumped to 85,000 in 2008 and held steady in 2009. In 2010, jobs dropped to 75,000 with roughly 20,000 in the manufacturing sector.

AWEA's annual report lists pages of facilities it claims are "US Wind Industry Manufacturing Facilities". Of the 450+ facilities listed (in some cases listing multiple facilities per company), a small fraction represents plants dedicated to building turbine parts (blades, towers, nacelles) including Vestas and Gamesa plants in Colorado and Pennsylvania respectively. The rest build components for industrial uses. Many have been in business for decades and their sole business is not wind-specific. AWEA omits any details showing the percentage of each company's gross revenues tied to the wind industry so verifying job counts is not possible. Apparently we're to take AWEA's assertions on face value. The problem is that these job numbers are repeatedly reported in the press and in government documents with the only substantiation being attribution to AWEA.

Wind construction jobs are not permanent so the industry would need to reach peak levels of development year after year just to maintain current job levels. When installations dropped in 2010, it was no surprise that jobs dropped as well. And since growing the manufacturing base is predicated on installing more wind turbines it's hard to see where job growth is sustainable.

[Note: job growth in the wind industry must be examined in terms of net growth for the overall economy. Studies have shown that shifting to alternative energies has resulted in either no net growth in jobs or a net reduction due to job transfers and higher energy prices.]

Conclusion

Despite billions in public funds pouring into the market in just the last few years, the wind industry is struggling in the face of lower energy demand and the corresponding drop in prices. AWEA never misses an opportunity to remind Congress that long-term renewable policies are needed to ensure wind's growth. But before our legislators ram through another round of incentives or extend existing policies, it's time they look past the distorted reality presented by the wind industry and understand the real costs of wind energy now borne by the American rate- and taxpayers.

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Last month, the State of Massachusetts approved the most expensive power purchase agreement in the country -- a 15-year contract negotiated between Cape Wind and National Grid to sell one-half the project's 468 megawatts at 18.7 cents per kilowatt hour.

National Grid understood from the outset that the sticker shock of selling Cape Wind's energy on monthly electric bills would be enough to send some customers, particularly large industrial and commercial users, shopping for alternative, low-cost energy suppliers. To buffer the impact, the State approved allocating the entire cost of the project to the delivery side of the electricity bill. By spreading the cost to as many customers as possible the price shock to any one customer would be less, or at least that was the thinking.

The population of Massachusetts is approximately 6.5 million people; National Grid's customers number in the millions. There is plenty of opportunity to spread the pain. But what if a similar proposal were presented to a State like Vermont with a tenth the population?

We may learn soon enough.

The State of Vermont is served by roughly twenty-one utilities the largest two being Central Vermont Public Service (CVPS) and Green Mountain Power (GMP) which together represent 250,000 customers or 70 percent of the customer base. Most of the 5 million megawatt-hours of electricity sold by CVPS and GMP is purchased through low-cost long-term agreements with Vermont Yankee, an in-state nuclear facility, and Canada's Hydro Quebec whose contract was just renewed. Vermont is ranked as having one of the lowest consumptions of electricity, its electric sector produces the lowest carbon emissions in the country, and the State currently boasts the lowest electricity rates in New England.

Vermont Yankee's operating license is set to expire in 2012. Public opposition to nuclear power coupled with a recent vote by Vermont's legislature to not support the plant's relicensing has created uncertainty about the plant's future. CVPS and GMP have each signaled privately that they are looking for replacement power, including renewables and wind.

In October, the utilities each signed separate 20-year power purchase agreements to acquire a total of 85% of the energy produced by Noble Environmental's 99 megawatt wind facility to be built in neighboring New Hampshire. While no prices were disclosed publicly, the president of Noble told regulators this spring that he was looking at a wholesale price of 9-11 cents per kwh. This price represents 6+ cents higher than Vermont Yankee's contracted rates, 4-5+ cents above in-region natural gas rates, and 3+ cents higher than the recently renewed contract with Hydro Quebec.

And more wind is on the way.

Vermont's Public Service Board (PSB) approved three wind energy projects to be built in the State since 2007: Sheffield Wind at 40 MW, Deerfield Wind at 30 MW, and Georgia Mountain Community Wind at 12 MW. A fourth project now under review will add another 63 MW bringing the total to about 230 MW -- about the same number of megawatts under contract between Cape Wind and National Grid!

For each of the in-state wind projects, Vermont's PSB included wording similar to the below which was incorporated into the Deerfield Wind order:

"...given the significant impacts from the construction and operation of the Project, we conclude that the general good will not be promoted, nor are sufficient economic benefits obtained, unless we condition our approval of the Project on the requirement that Deerfield enter into stably-priced power contracts with Vermont utilities." (Deerfield PSB Order Docket No. 7250)

So let's be clear: With onshore wind selling at 9-11 cents per kwh in New England, the State is forcing the high cost of wind on its ratepayers and calling it an economic benefit? It may be a benefit, but the ratepayers are not the ones benefiting. For them, it's more like an energy tax.

In the Cape Wind case, National Grid argued, and Massachusetts agreed, that in order to reduce the price shock of the project's 230 megawatts on its customers, the cost needed to be spread to as many ratepayers as possible.

For Vermont, spreading 230 megawatts of wind across a much smaller customer base -- even at half the price per kwh of Cape Wind -- will be a shock to State's economy. Since none of the 230 megawatts has been built yet, the public has not felt the impact, but that will change in the next 3-4 years when the projects come online. Still, larger businesses in Vermont are paying attention now. Vermont opted not to adopt deregulation, so larger users cannot shop for competitive energy suppliers. Their only choice is to pay the higher electric rates or leave the State.

David O'Brien, Commissioner of Vermont's Department of Public Service, is well aware of the economic impacts of above market electricity prices on the State. Earlier this year, his department published the results of a study to evaluate the consequences of adding just 50 megawatts of renewable energy at prices that were higher than market based alternatives. The report concluded that "above-market energy costs due to higher electricity prices would have the deleterious effects of "reshuffling consumer spending and increasing the cost of production for Vermont businesses" and that "increased costs for households and employers would reduce the positive employment impacts of renewable energy capital investment and the annual repair and maintenance activities".

Remarkably, the State's legislature, which has enacted aggressive policies promoting wind energy, appears to lack even a fundamental understanding of how its policies will impact Vermont's economy. The same holds for the State's PSB which has responsibility for approving energy projects and rate cases. With project approvals conditioned on the energy being sold to in-state utilities, can the State change its mind once the higher costs are realized? Unlikely.

It's time for Vermonters to stand up now and demand a realistic accounting of pending energy costs and benefits.

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Wind energy development in the United States and worldwide has been touted over the last few years as a key economic engine necessary to move us out of recession and back into a growing market. While energy policy has become a priority at all levels of governance, the focus has shifted away from meeting demand needs in favor of job growth. Governors around the country are pledging millions in public dollars to attract project development, including the chance to become a manufacturing center for wind turbine components.

But as with many of the benefits attributed to wind energy development, the details tell a different story.

Earlier this year, the Vermont Department of Public Service published a report entitled The Economic Impacts of Vermont Feed in Tariffs. The Department evaluated the economic consequences of The Vermont Energy Act of 2009 (Act 45) passed last year. Act 45 established mandatory cost based prices for 50 MW of renewable energy technologies. The statute set energy prices for this energy at "generally higher, and in many cases significantly higher, than current estimates of prices for market based alternatives".

According to the report, the analysis found the Feed in Tariff program would increase Vermont capital investment and create jobs during its 26 year life cycle, however, the net gain in employment was found to be far less than conventionally thought. Following an initial increase in temporary construction-related jobs, long term employment would average thirteen full time jobs per year, including both direct and indirect employment in the energy sector as well as the job and income related effects of increased electricity costs. But other sectors, predominately service sectors, would suffer long term net job losses. In essence jobs would be created in one sector of the Vermont economy at the expense others.

But job transfers were not the only finding reported by the Department. The model also showed that above-market energy costs due to higher electricity prices would have the deleterious effects of "reshuffling consumer spending and increasing the cost of production for Vermont businesses" and that "increased costs for households and employers would reduce the positive employment impacts of renewable energy capital investment and the annual repair and maintenance activities".

The findings of this report are significant in light of contentious debates underway in Vermont's neighboring Massachusetts and Rhode Island. Each State is under pressure to approve power purchase agreements for the proposed Cape Wind and Deepwater Wind offshore wind projects. Electricity prices cited in both contracts are significantly above market rates. 

We applaud Vermont's effort to consider objective economic principles that test the claimed benefits of renewable energy development. Unfortunately, our experience has shown many regulators are content to accept that wind development will produce a cleaner environment and healthier economy without substantiation.

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After nine years of debate and millions of public and private dollars, the decision to permit America's first offshore wind project fell on the shoulders of one man, U.S. Department of the Interior Secretary, Ken Salazar. Hindsight notwithstanding, there was no chance Salazar could disapprove the Cape Wind application. Does anyone doubt the Obama administration would dare to ignore the tsunami of political favoritism already bestowed on the project, no matter how unjustified? And given the administration's stated goal to nurse the U.S. economy back to health through the green movement, a denial of the permit would have unleashed a public firestorm virtually impossible to contain.

Let's face it, the Alliance to Protect Nantucket Sound had an uphill battle in the message war from the beginning. As early as 2003, even before Windaction.org was organized, everyone knew about the wealthy 'NIMBYs' ("Not in my backyard") on the Cape waging war against the one opportunity in the region to see renewables built in a substantial way. At the time, New England had less than ten megawatts of wind installed and most people were convinced Cape Wind represented an environmentally safe, low cost, economically beneficial development that could lead the nation in eliminating our reliance on fossil fuel. The NIMBYs, even those with the Kennedy name, were discredited in the press as little more than self-serving hypocrites unwilling to take one in the view for the betterment of the whole. This attitude still prevails today in some quarters but the realities of wind energy's flaws are beginning to take hold and we believe the Alliance and its supporters will ultimately be vindicated.

'Finally'

The announcement of Salazar's decision opened an emotional relief valve and pressure built-up over nine years was volcanically released. Stories about Cape Wind's approval flooded the web with words like 'Finally!' splashed across the screen. The public was informed in no uncertain terms, that Cape Wind would be built, offshore wind in the U.S. was on the upswing, and the country had officially established itself as a player in the offshore arena.

From our perspective, Salazar's action was significant, but not for the reasons stated above. Rather, from this point forward, politics and public opinion will no longer drive the discourse. The Cape Wind decision and the public record on which it's based will be challenged on the facts to determine whether the project is commercially reasonable and whether it will operate in compliance with existing laws. To be frank, there is no assurance Cape Wind will survive the scrutiny.

Issues still pending

There are several issues still pending that require resolution before the project can proceed as follows:

RADAR SAFETY. The FAA has assigned the 130 wind turbine structures (heights of 440 feet) a 'presumed hazard determination' given their proximity to airports and radar stations in the Northeast. The military has already stepped up its concerns involving the moving blades interfering with radar for surveillance and weather tracking;

IMPACT ON WAMPANOAG TRIBES. The Mashpee Wampanoag Tribe and Wampanoag Tribe of Gay Head (Aquinnah) contend that the project will destroy the archaeological evidence of their history throughout Nantucket Sound, including Horseshoe Shoal. Further they argue that the eastern horizon over Nantucket Sound must remain unaltered in order to perform their spiritual rituals and ceremonies;

FEDERAL LAW VIOLATIONS. Various stakeholders including the Alliance and Windaction.org have filed the requisite 60-day notice of intent to sue for violations of the Endangered Species Act, the Outer Continental Shelf Lands Act, and other laws. Regarding the Endangered Species Act, the parties will show that Salazar's approval ignored the Fish and Wildlife Service's original recommendations to minimize and/or avoid impacts, a clear violation of the law.

COST. All of the above are legitimate and serious concerns, but Cape Wind's true Achilles heel lies in the cost of the project. Few in the State of Massachusetts, including the ratepayers, fully understand what Cape Wind will do to electricity rates and whether the cost can be sufficiently offset by the project's expected benefits. We develop the data on this issue in more detail below.

Project costs

With no offshore wind built in the U.S., there is limited information on record to determine the economics of such a project. However, lessons learned during the recent proceedings before the Rhode Island PUC (RI PUC Docket 4111) are useful. In Rhode Island, the State reviewed the unsigned long-term power purchase agreement negotiated between Deepwater Wind Block Island, LLC and National Grid (also referred to as Narragansett Electric Company). With the backing of RI's governor and legislature, Deepwater proposed to construct a pilot wind project in shallow water off Block Island consisting of 6-8 turbines and a nameplate capacity of up to 30 megawatts. The purchase agreement contained an initial bundled energy price (energy, capacity, renewable credits) of $244 per megawatt hour (MWh) with a 3.5% escalation factor each year. According to pre-filed testimony submitted to the PUC, the cost was compared to long-term prices of $80 and $120 per MWh established for renewables located elsewhere in the region. The RI PUC ultimately determined the agreement was not commercially reasonable and withheld its approval.

During this same time, Cape Wind and National Grid initiated negotiations on a long term power contract. Under the Massachusetts Green Communities Act signed into law in 2008, Massachusetts utilities are required to enter into long-term contracts with renewable energy projects located within state boundaries, including state and adjacent federal waters.

Any power purchase agreement between Cape Wind and National Grid would have to be approved by the State. In February, MA Secretary of Energy and Environmental Affairs Ian Bowles cautioned the two parties this way: "Let me be clear. Our expectation is that the Cape Wind project must produce electricity at a substantial discount to the Rhode Island offshore wind project."

The problem for Cape Wind is its upfront capital costs. According to the latest figures from Europe, the cost to build offshore wind is approximately $5,000 per kilowatt. At 468 MW, Cape Wind will come in at a cool $2.3 billion (Most press accounts grossly understate the cost of the project).

That's a hefty expense for single power project, especially one expected to deliver only 39% of the time with no guarantee its generation will arrive when most needed. With high upfront costs and fewer hours to spread the cost over, power purchase agreements that lock in the energy and renewable credit prices are now a requirement in order to attract investor financing.

Impact on electricity rates

As noted above, renewable resources within the New England region carry a bundled energy price between $80 and $120 per MWh. If we assume Cape Wind can discount its costs to $200 a MWh, $44 off Deepwater's higher price, the above-market cost passed on to Massachusetts ratepayers will range between $128 million and $192 million per year. That's as much as $81 per year per household above any other renewables.

A provision in the Green Communities Act tilts the scale in favor of projects like Cape Wind by requiring MA utilities to enter into long-term contracts with renewable energy projects located in the state, including state and adjacent federal waters. This requirement openly discriminates against renewable generation located elsewhere including lower cost options that import from Canada or New York. This provision in the law is designed to restrict competition and place increased emphasis on the development of in-state renewable energy even if such resources are more expensive and/or more environmentally harmful. If Cape Wind were made to compete with outside resources, we suspect the project would have substantial difficulty proving its worth. But that may be what eventually happens.

TransCanada Power Marketing Ltd just filed a suit challenging several provisions of the Green Communities Act including the section that mandates contacts be entered with generators located in Massachusetts.

Uncertain benefits of Cape Wind

Earlier this year, Cape Wind Associates released a report authored by the Charles River Associates ('CRM') that analyzed the impact of Cape Wind on New England energy prices. The brief nine-page report concluded that "Cape Wind would lead to a reduction in the wholesale cost of power averaging $185 million annually over the 2013-2037 time period, resulting in an aggregate savings of $4.6 billion over 25 years." Interestingly, CMR's stated annual cost savings is in line with what we would expect Cape Wind to cost the ratepayers in above-market rates.

Aside from being thin on data, the Charles River analysis is highly speculative, at best, and fails to fully articulate the interaction between the real-time and day-ahead energy markets.

The New England ISO (ISO-NE) typically operates using a day-ahead auction where generators are required to offer firm levels of production for each hour of the next power day. The energy price, in turn, is determined based on those bidding into the system; all generators receive the same price per megawatt hour of production. Significant penalties are applied if a generator is unable to meet his commitment.

Because of its intermittency, a wind generator wishing to operate in the day-ahead market would need to contract with other dispatchable resources, most likely inefficient gas peakers, in order to "firm" their capacity commitments and avoid penalties.

A more likely scenario would be for a project like Cape Wind to operate exclusively in the real-time market i.e. a pure spot market carrying no penalties for non-performance and where prices are generally less than the prices paid for the day-ahead energy market. Those selling into the real-time market are normally paid at the clearing price of the real-time market. However, any long-term power purchase agreement will assure Cape Wind receives steady revenue at contracted price. When National Grid sells the wind energy to the grid, the energy will be sold at the lower cost spot energy market price, Cape Wind will be paid the above-market contract price, and the ratepayer will cover the difference.

The day-ahead market for the New England region represents roughly 90% of the available generation with the real-time market holding less than a 10% share. Since the price paid for ninety-percent of the generation is established twenty-four hours in advance of the power day, any participation from wind will have only a marginal impact on prices limited to those resources operating within the real-time market. Generators that bid in day-ahead who can back down are likely to do so to the greatest extent possible in order to save fuel and other costs. For New England this would be efficient co-generation natural gas, biomass, and large hydro. Since generators in the day-ahead market are still guaranteed payment, any price suppression from wind would be limited to the spot market. Thus, any downward pressure on pricing will impact inefficient single-cycle gas plants, pump storage, must-take landfill gas, small hydro, and other intermittent resources.

Assuming the New England region maintains its current policies for scheduling and dispatch of energy on the grid, ratepayers and regulators in Massachusetts would be wise to demand tangible proof of Cape Wind's economic benefit. At the very minimum, the State's consumer advocates should lose the rose-colored glasses and evaluate Cape Wind against other renewable projects in the region that can deliver reliable low/no carbon generation at a price commensurate with market value. Spending enormous sums on Cape Wind only benefits Cape Wind at the expense of the ratepayer or any potential developer who can build a better, more commercially reasonable project.

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Last month, New Hampshire's Gov. John Lynch announced that 25-percent of the electricity powering the state's government buildings will now come from wind power.

Following a competitive bidding process the state signed a $4.4 million load-service contract with ConEdison Solutions , to supply electricity from both renewable and traditional fuel suppliers in the period from July 1, 2009 to May 31, 2010.

Lynch touted the agreement as "...another step in our efforts to protect our economy and our natural resources by ensuring 25 percent of the electricity used by state government comes from clean, renewable wind power."

The specifics of the contract are straightforward. The state locked-in its purchase of 47,352,000 kilowatt hours (kwh) at a fixed price of 9.2 cents per kwh. The price was all-inclusive and did not distinguish between electricity acquired from wind versus that from other fuel sources. Any added charges associated with transmission or distribution of the energy were excluded from the price and will be billed separately by the local utility.

The state's Energy Manager, Karen Rantamaki, told Windaction.org that New Hampshire had been purchasing its electricity from Unitil Corporation. When asked what the State would have paid in electricity costs had it stayed with Unitil she directed us to Unitil's website.

What we found surprised us.

Unitil's large customer prices are well below 9.2 cents per kwh. And with natural gas prices at a seven-year low and expected to remain depressed for the next 6-18 months, we anticipate electricity prices to remain stable[1]. New Hampshire's decision to sign with ConEdison appears less about saving taxpayer money and more about buying wind.

So what exactly did New Hampshire purchase for the higher electricity prices? Not much.

According to ConEdison Solutions, the "wind power" it sells is derived from its partnership with Community Energy, Inc., (owned by Spanish energy giant Iberdrola S.A.) who buys and sells renewable energy credits (RECs) from around the country.

We asked ConEdison Solutions the following four simple questions that NH's Ms. Rantamaki could not answer for us.

Question 1: Where are the wind facilities located that will be supplying the electricity?

Answer: The bulk of the RECs ConEdison sold in the last year came from Texas.

Question 2: When will the electricity be generated?

Answer: All renewable energy credits ConEdison sells are certified by GREEN-E. According to GREEN-E, certified RECs "include only renewables that are generated in the calendar year in which the REC is sold, the first three months of the following calendar year, or the last six months of the prior calendar year". For New Hampshire, the wind energy must be produced in the period from July 1, 2008 to March 31, 2010.

Question 3: What is the price of each REC?

Answer: National Green-e Certified Wind RECs are trading between 0.0012 cents and 0.0015 cents per kilowatt hour. At 0.0015 cents per kwh, the RECs acquired by New Hampshire would have a total market value of just under $18,000.

Question 4: Since the wind projects are already operational, are there any assurances that the money paid for the RECs will go toward expanding wind power facilities?

Answer: No. There are no stipulations on how revenue earned through the sale of RECs is to be spent.

Given these facts, we wonder if Governor Lynch is even aware of the misrepresentations in his claim above.

For example:

1. Electricity produced by turbines in Texas stays in Texas. The ConEdison agreement will have no effect on the state's consumption of fossil fuel.

2. GREEN-E certified RECS sold to New Hampshire could well have been "created" entirely in the year leading up the contract being signed, demonstrating the irrelevancy of the ConEdison agreement relating to wind.

3. There is no way to show how paying higher electricity prices will protect the state's economy or its natural resources. In fact, the higher price per kwh locked-in with ConEdison will result in costs far exceeding the market value of the contracted RECs.

At a time when the state is struggling to meet its budget, the pricey ConEdison contract does nothing more than raise electricity prices, line the corporate pockets of REC brokers ConEdison Solutions and Community Energy, and provide Lynch the PR opportunity to flaunt his "greenness" before an un-informed public -- Greenwashing at its best!

[1] According to the ISO-New England's August 7, 2009 presentation (Slide 54), wholesale electricity prices in the region are closely tied to natural gas prices.

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One compelling argument favoring wind energy development in rural areas is the opportunity for local economic benefits, especially jobs. Wind energy proponents fervently tout numbers showing hundreds of high-paying jobs created. But as with many of the benefits attributed to wind energy development, the details tell a different story.

Most of the jobs in a wind energy project are created during the construction phrase. These jobs are temporary lasting between 6 and 18 months. High-paying jobs, in particularly are usually filled by people who come to the area for short periods of time to assemble the towers, turbines, and associated electronics and to build substations and transmission lines necessary to connect wind turbines to the electric grid. Few permanent jobs are created.

Many wind companies publish their estimated employment numbers when trying to secure public support, however, they have no obligation to report actual employment so it can be difficult to confirm or refute their preconstruction estimates.

Larger project owners have the resources to pool their operational functions (purchasing parts, administrative, payroll, insurance, etc.) and can have centrally located crews to do maintenance on multiple projects. Smaller project owners sign maintenance contracts with turbine vendors that do not rely on local labor. For example, Vestas has its own turbine operations business.

Windaction.org received this report written by a gentleman laboring at a wind energy construction site in the United States:

"I went to the jobsite to check in yesterday afternoon. I noticed a lot of folks there who didn't speak English. I put on my mandatory hardhat, safety vest, hard-toed boots, and safety glasses, poured myself a cup of coffee and walked to the warm-up area. There we were given our daily safety talk.

This phase of construction is winding down and now they're 'energizing' the 90 or so turbines erected.

"After the safety talk and the pep talk, we formed a big circle. They put on loud music and a large fellow led us in stretches! Mind you the sun had still not risen and there were more than a hundred people there, about 15 men for every woman, all with hardhats, safety vests, steel-toed boots, and safety glasses on, all doing coordinated stretching.

"I asked someone in my office how many were from here. He said he was a local and that there were a few more. He said most of the early construction jobs, including site preparation labor positions were done by the locals. The actual design work plus the construction, erection of the towers, the energizing, and the operation, were all done by people who have been doing this type of work all over the world - they're trained and experienced, which means they're not from here. And the crews are from Spain, Poland, Germany, and Korea....

"So as usual, the low paying jobs go to us. The investment comes from out-of-state and largely from out-of-country. The profits go out-of-state and largely out-of-country. The workers come from out-of-state, and many from out-of-country.

"By the time the average person realizes what's happening, there will be huge wind farm facilities built across the state. They will all be financed, built, owned, and operated by out-of-state entities, and most of the energy will be sent out-of-state and the profits will largely go out-of-state and overseas. And we will be sitting here wondering what happened.

"Oh well, at least I have a job. I wonder if I'll be paid in Euros."

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Citing credit woes, Noble Environmental Power LLC of Essex Connecticut announced last week that all work was suspended at its 14-turbine wind farm under construction in Bellmont, New York. The turbine foundations have already been laid at the site and Noble indicated work would not resume until summer 2009. Contractors for Noble have informed Windaction.org that, while the announcement was sudden, there were indications the firm was experiencing cash flow problems months ago.

Earlier this year, Noble filed plans to raise $375 million in an initial public offering (IPO). The share sale was to be underwritten by now bankrupt Lehman Brothers. Public reports of the IPO stated the company showed no revenue on its income statement and was nearly $1 billion in debt. The company has 282 megawatts in operating wind power projects in the U.S.

Noble Environmental, along with First Wind (formerly UPC Wind), is under investigation by New York Attorney General Andrew Cuomo for alleged improper dealings with public officials and anti-competitive practices. It is reported the company's credit woes partially stem from reluctance of financiers to invest in a company under investigation.

Noble's problems are not just legal and financial, they're also technical.  The company is experiencing problems with its Clinton and Ellenburg wind parks erected in Clinton County NY and online earlier this year. None of the 121 turbines have been operational for the last two weeks. The root cause of the shutdown has not been announced.

In these troubling economic times, Windaction.org strongly encourages communities and landowners involved with wind farm development to look out for themselves by ensuring decommissioning plans are filed prior to commencement of any construction. Such plans should be backed with bonds sufficient to cover the costs of restoring a site to its original condition and the full removal of scrap materials. Note, given dramatic fluctuations in scrap value and hauling costs, decommissioning plans should never allow the value of the scrap to be deducted from the projected turbine dismantling costs.

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Robert Bradley, in his seminal policy paper entitled Renewable Energy Not Cheap, Not "Green", discusses the Department of Energy's 1976 study which estimated wind power could supply nearly 20% of the U.S. electricity by 1995. By 1996, wind represented 1/10th of 1 percent share with clear signs the market was in decline. In 1997 Enron entered the picture with its purchase of Zond, one of the largest developers of wind generation. This, coupled with new state and federal restructuring initiatives that funneled billions into new subsidies for wind and other renewables, resuscitated the near-dead market.

Yet, the inherent flaws of wind energy that made it economically unviable in the 1990's still exist today. Bradley wrote "because wind power's high up-front capital costs and erratic opportunity to convert wind to electricity more than cancel out the fact that there is no energy cost for naturally blowing wind. Low capacity factors, and still lower dependable on-peak capacity factors, are a source of wind power's cost problem." Much of Bradley's paper applies today and it's well worth reading.

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Two different, but very similar news reports (CBS News: Winds of change blow in Texas and NPR: Winds of change blow into Roscoe, Texas) were published in the last two weeks. Each highlighted the economic opportunities resulting from wind energy development in West Texas and the revitalization of otherwise land-rich, resource-poor communities of the State. CBS termed it a "wind energy gold rush".

These stories stand in stark contrast to the message offered in this short video from the same area. Further, not all landowners who lease land for wind development continue to support their decision after the turbines are operational. This paid ad, which appeared in a Wisconsin paper in October 2007, tells a disheartening story of a landowner who recognized the fallout of his decision after the damage was done.

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The wind industry has incented rural communities to host wind energy installations with promises of jobs for local workers, the bulk of which are short-term, construction-related positions. After the facility is operational, only 1-2 people are employed full-time near the site per 50 megawatts of installed capacity. The facility largely runs unattended and is monitored remotely from locations in Europe and elsewhere.

Contrast this with a typical biomass facility that provides 20 full-time positions at the operating plant and another 2 positions per megawatt capacity (40+ people) in the woods conducting fuel procurement (ref. Ridgewood Renewable Power of New Jersey). But even temporary local construction jobs for wind plants may be proving elusive, as this letter from the Ironworkers Local 33 in New York demonstrates. See: http://www.windaction.org/documents/11901.

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In the rush to legislate renewable energy mandates, state legislators failed to consider needed infrastructure. Onshore wind plants are typically built hundreds of miles from load centers in areas with little or no transmission. Now states are scrambling to socialize the cost of transmission, a cost normally borne by the generators. Burdening ratepayers with this is contrary to the rules and recommendations held by utility commissioners as recently as a few years ago. Comments to FERC by the New England Conference of Public Utilities Commissioners and the Vermont Department of Public Service ( http://www.windaction.org/documents/11629 ) make the point this way:

"If a generator is not required to pay for transmission upgrades and the cost is instead to be socialized across all load, then generators will choose their location based on other factors, such as where land is cheaper or emissions permitting is easier, rather than where good transmission planning or market economics would dictate. On the other hand, if the cost of transmission associated with locating in these other areas were borne by the generators themselves, these economic tradeoffs would be internalized and economic location would be more likely to occur. As currently proposed, the costs are not borne by generators, which could lead to uneconomic grid expansion."

Further skewing the economics, in the case of wind, 70% of the costly transmission line's capacity will be un-utilized.

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In a July 9, 2007 Wall Street Journal article ( http://www.windaction.org/news/10617 ), wind power was described as "basically a cottage industry, until recently", and the race to build wind facilities worldwide has created a turbine shortage. Manufacturing of the turbines, and their 8000 specialty parts, is being squeezed, raising prices and the potential for quality problems.

Current reports from Germany ( http://www.windaction.org/news/11519 ) detail quality problems with installed turbines, "...wind power providers and experts are now concerned. The facilities may not be as reliable and durable as producers claim... Fractures form along the rotors, or even in the foundation after only limited operation". Last week, a Siemens wind turbine at PPM's Kondike III site in Oregon collapsed killing one person and seriously injuring a second ( http://www.windaction.org/news/11547 ).

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Energy policymakers in Massachusetts, Delaware, and elsewhere see a future where 1000’s of giant wind turbines, blades reaching to 300-feet in length, will populate the deep waters off the U.S. coast from Maine to Cape Hatteras (NC) and beyond. They envision wind energy as the primary source of electricity for eastern population centers. The fickle nature of wind will be 'corrected' by building new onshore gas plants that generate during low wind conditions.

Little has been voiced publicly about this eco-dream. Is it even possible using existing infrastructure? or will a new super-grid need to be created? How much of the enormous cost will be borne by the public? While money is being expended today, have there been policy and technical discussions reviewing the feasibility? There is very limited experience worldwide for deep-water wind development and none in the U.S. It's worth noting that the near-shore Cape Wind (MA) and LIPA (NY) projects, both heavily reliant on public subsidies and existing infrastructure, will each cost nearly a billion dollars to build. The one Texas offshore proposal, with subsidies, has been deemed economically unviable and scrapped by the developer.

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