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New England state RPS policies represent some of the most aggressive and costly programs in the country. By 2021, over 20% of the electricity sold retail in the region must come from renewables. Given a robust mix of natural resources, particularly wood biomass, and some hydroelectric, meeting the state mandates, while tough, is possible. But recent legislative and regulatory proposals altering the Massachusetts and Connecticut RPS programs now threaten the balance in favor of building new wind power facilities which could lead to an energy policy war between the states.

Background: Meeting the RPS policies

Sixteen different RPS programs are on the books in New England, each representing different technology classes for new and existing resources and each with different annual compliance requirements. Since the policies are designed to encourage deployment of new renewable generation -- RPS 'Class I' technologies -- the mandates for Class I resources are accelerated. Renewables designated as new resources are state specific but typically include wind, solar, some small hydro, low-emission biomass, landfill gas, and ocean thermal.

The ISO-New England estimates that 30,420 GWh, or 20.2% of the region's projected electric energy use in 2021 will come from renewables of which two-thirds represent new resources built to meet the RPS targets. Electricity suppliers can satisfy their RPS obligations by purchasing generation or Renewable Energy Credits (RECs)[1] from a variety of technologies located either within New England or from eligible resources operating in New York and Canada.

Competitive markets have generally met the RPS demand with the help of existing facilities that were recognized as new renewables by the states, but since 2010, New England has had a shortage of available RECs for most technologies.

Wind energy has not been welcome in most of New England. A lack of available open land, conflicts with sensitive environmental resources, limited transmission capacity and intense community opposition have stymied its growth. The high price tag (9-12 cents per KWh wholesale) coupled with its unpredictability has made wind less attractive for energy suppliers as well.

The study, produced in cooperation with the American Wind Energy Association (AWEA) and other stakeholders, explored a modeled energy scenario in which wind could supply 20% of the nation's electricity by 2030. DOE made clear in the report that the 20% scenario was neither a prediction nor a goal, but for wind proponents, the study served as the foundation for ongoing advocacy.

20% wind power by 2030 became a call to action and more. Absent a national renewables standard, AWEA heralded the 20% as a de facto mandate for wind.

The industry insists it's on track to reach 20% wind (up from 4% today), but such claims are neither realistic nor wise. Despite explosive growth in new wind installations in the last five years alone[1], challenges to further development have become more evident and will ultimately limit wind's expansion.

Since 2008, thousands of turbines have been sited in communities across the U.S. As more towers were erected, public acceptance of the massive facilities started to drop.

Earlier this year, both New Hampshire and Vermont sought statewide moratoria on wind farm development until the impacts could be better understood. Law suits are now pending against proposed and operating wind facilities in at least six state courts as well as at the federal level[2]. Ohio , North Carolina and others are revisiting their renewables mandates after wind has failed to deliver lower energy prices and jobs.

And this week, the reality of big wind splashed across media screens worldwide when AP reported that in Wyoming "a soaring golden eagle slams into a wind farm's spinning turbine [about once a month] and falls, mangled and lifeless, to the ground."

The public is increasingly wary of the wind industry's tactics and so is Congress. The 1-year, $12 billion extension of the wind production tax credit (PTC) secretly added to the Fiscal Cliff bill passed in January underscores how unpopular wind energy is on Capitol Hill. The PTC would likely not survive a standalone floor vote.

According to DOE's 2008 report, U.S. demand for electricity would reach 5.8 billion megawatt-hours (MWh) by 2030[3]. In order for wind to satisfy 20% (or 1.16-billion MWh) of this demand, 305,000 MW of installed wind operating at an annual average capacity factor of 43.4% would be needed. Yet, few existing wind plants in the U.S. come close to producing at this level.

The 2011 Wind Technologies Market Report "found that average capacity factors have been largely stagnant among projects built from 2006 through 2010"[4] at around 30%. In 2011, wind speeds improved raising the average capacity factor to 33%.

We examined 2012 monthly wind production data for 450+ operating wind plants in 34 states representing more than 40,000 MWs of installed capacity. All projects we looked at were in service for the entire year of 2012. The below map offers key insight into the effectiveness of wind at meeting demand by state.

Only three states, Nebraska, South Dakota, and Oklahoma, achieved average capacity factors over 40%. Most states, including California produced at under 30%.

Regional variations in production were also pronounced with the lowest average capacity factors[4] found on both the east and west coasts and the highest capacity factors, by state, found in the mountain and plain regions, correlating closely with NREL wind maps.

The claim that wind projects in the U.S. are achieving 30% average capacity factors nationally may be accurate but not meaningful when considering that state RPS mandates are based on local resources. For states like New York and Pennsylvania, where average capacity factors are in the low- to mid- 20% range, many more wind turbines and related infrastructure (transmission) will be needed to meet RPS mandates than originally forecasted resulting in increased costs and impacts. Couple this with the fact that wind production in most states is seasonal with summer months producing at half that of winter months and also concentrated during periods of low demand (night time) -- much of the energy arrives in excess of demand making it less useful and subject to curtailment.

More than half of the installed wind in the U.S. when measured in megawatts was built under the Section 1603 grant program which imposed no performance criteria on projects. Instead, the program substituted government largess for private investment, but with no accountability. Developers were rewarded for building turbines even in areas with marginal winds. The race to place projects in service before the end of 2012 was more about collecting 1603 grant money than producing quality wind facilities. Wind performance data for 2013 and 2014, when available, will reveal how much this will be a factor in lowering capacity factors.

The DOE is now stating that its revised report on wind energy will study U.S. energy policy as opposed to promoting it. "We want to deal in the realities [of the technology] and we also want to be sensitive to the concerns of the DOE's sister agencies," said Jose Zayas, the DOE's director of the wind and water power technologies office. This would be a departure from DOE's aggressive promotion of wind energy. It's essential the Department of Energy provide independent and comprehensive analysis that acknowledges the limitations and risks of relying on largely unpredictable and non-dispatchable energy sources. The public deserves answers and not unrealistic advocacy.

[1] At the end of 2007, installed wind in the U.S was about 16,500 MW. At the end of 2012, wind installations were at 60,000 MW.

[3] Given the precipitous decline in electricity demand since 2008, these figures will likely be throttled back in any revised study by DOE.

[4] Some of the reduced performance could be tied to transmission curtailment but this information is not publicly available.

Maryland Governor Martin O'Malley is convinced he's found the right formula for ensuring that his state becomes the first to site a wind facility off its coastline. Last week Maryland's House quietly approved HB 226. The Senate version (SB 275), although still in Committee, is also expected to pass despite much controversy over cost and risks to captive ratepayers–and back-door cronyism for developers and other special interests.

But don’t be fooled by the political victory. Despite the Governor’s grand claim that his bill will deliver offshore wind at an affordable price, the numbers tell a different story. O’Malley’s folly will deliver a paltry 80 megawatts of offshore wind at most, while draining billions of dollars from the State’s economy.

O'Malley's bill extends Maryland's 2007 Renewable Portfolio Standard (RPS) by requiring up to 2.5% of the State's electricity load come from offshore wind.

Unlike other proposals, private wind developers needn't negotiate power purchase agreements with electricity suppliers to sell their energy. Instead, the bill establishes a ratepayer funded subsidy known as an OREC ('Offshore Wind Renewable Energy Credit') which pays a bundled price up to $190 per megawatt hour (MWh). Project owners, in turn, sell their energy and capacity to the power pool and refund the revenue back to ratepayers while retaining the environmental benefit.

This looks like a bureaucratic nightmare for the State but a sweet deal for developers who can waltz into Maryland waters knowing they have a guaranteed market for their power and certainty of price. The $190/MWh ORECs are more than three times the price of conventional generation -- including onshore wind! (Nonsolar Tier 1 RECs in Maryland are trading for only $4/MWh).

Two prior attempts at an offshore wind bill failed in large part due to added costs imposed on ratepayers, particularly those least able to subsidize a rich man's vision. And no pixie dust magically appeared since the last legislative session that made the price of offshore wind easier to swallow.

The Governor fostered support for his bill the old fashion way -- through handouts and hand-waving.

Earning the nod of those representing poorer districts meant packing the bill with millions in grants to boost small and minority-owned businesses that might involve themselves in the offshore sector.

The hand-waving came in the form of price caps on electricity bills - $1.50 per month for average residential customers and 1.5% total annual electric bills for nonresidential customers. By pitching the cost on a 'per-ratepayer' basis, there was no need to advertise the billions that $190/MWh energy adds up to[4].

But the caps meant limiting the project size. The largest project that could be built offshore without exceeding the caps is 211 MW (about 1% of load). At a 39.3% capacity factor, this equates to roughly 80 MW of output. Even at this reduced size, ratepayers will still incur nearly $2 billion in above-market energy prices over 20 years.

O'Malley boasts that wind energy carries a "fixed, stable, affordable rate that can be locked-in" over the next 20-30 years, but locking in prices at rates significantly above EIA's forecasts for average wholesale electricity prices makes no sense. Not to mention that the turbines will reach the end of their useful life before 20 years.

The Governor's larger vision banks on a hope that by being first with an operating project, Maryland would reap the benefits of becoming a regional manufacturing hub for offshore wind. He sees Maryland as jump-starting a new industry and insists the higher costs will return dividends in the form of private investment and more jobs.

His claims appear more hubris than real. Other states are vying for the same prize with Massachusetts already in the lead. And it's not clear whether the high price for offshore wind can be mitigated to the point where we will need more than one hub on the east coast.

There is also the question of future tax credits in an era of fiscal reform. The price caps built into O’Malley’s bill highlight the State’s concerns over cost. Without federal incentives, including the PTC and ITC, no wind will be built off Maryland’s shoreline. Both credits were extended for one-year as part of the fiscal cliff debate, but as federal legislators work to rein in costs, renewable subsidies are expected to be cut.

On the promise of job creation, it's likely O'Malley relied on NREL's JEDI modeling which reports only gross impacts and does not considered job losses or transfers associated with higher energy prices. Two-billion drained from an economy will have a negative impact.

In reading the bill's fiscal policy note, it appears the administration had two numbers it needed to make work -- the $190/MWh OREC price and the cap on individual ratepayers.

But even at $190/MWh it's not clear there's adequate revenue to build in deep waters at a scale that justifies private investment. It's time Maryland legislators recognize that other, more realistic alternatives exist that will deliver clean generation and not suck billions from ratepayers and taxpayers.

O'Malley's vision is bold but uncertain and he knows it. When asked whether it was possible for Maryland to see an offshore wind project by 2017, he responded this way: "There's a saying in the Koran that everything is possible in God's time, but nothing is for sure."

[1] Bundled pricing includes energy, capacity and RECs or environmental attribute.

[3] When Rhode Island's Public Utilities Commission (PUC) initially denied approval of the contract over cost, the legislature amended the law to constrain the PUC's ability to say no. Deepwater reapplied and the contract was approved, but the project is still not built. The high cost does not include transmission to deliver the energy.

[4] This cost only applies to the energy price increases per household or business. State government budgets are projected to increase by $2.1 million annually to cover added energy costs for state agencies and the University System of Maryland. In addition, Maryland consumers can expect commercial and industrial businesses to pass the higher costs on to their customers.

Tens of thousands of acres across New York State have been transformed into sprawling electric generating facilities -- 18 in total -- where nearly 1,000 industrial-scale wind turbines consume the landscape and threaten communities in their way.

Now consider that another 1,500 giant towers will need to be erected by 2015 in order to satisfy the state's 30% renewable energy mandate.

New York's Renewable Portfolio Standard (RPS) can be credited with most of the wind development in the state. Officials insist the policy has helped New York diversify its energy resources and will ultimately lower electricity prices but such claims are more rhetoric than real. New York's RPS has already exceeded original budget projections, it's current renewable targets are unrealistic, and claims that prices will drop are predicated on a flawed understanding of how the New York wholesale power market operates.

New York first enacted its renewable energy mandate in 2004 through regulations adopted by the Public Service Commission (PSC). At the time, about 19.3% percent of electricity retailed in the state was derived from renewable resources, with the vast majority coming from large-scale hydroelectric facilities upstate and in Canada. The PSC ordered the state reach a 25% renewables target by 2013 which meant an incremental increase of 10.0 million megawatt hours (MWh) from projects built after 2003.

Unlike market-driven programs in other states, New York's RPS[1] uses a government-administered central procurement system to acquire renewable "attributes" from qualified projects. Projects selected through a competitive-bid process receive long-term contracts to sell their renewable attributes to the state. One megawatt hour of generation produces a single renewable attribute. These payments[2] serve as an added revenue stream for project owners. Funding for the RPS comes from fees charged on the monthly electric bills of NY ratepayers.

When the RPS was enacted, the Public Service Commission established a budget of up to $741.5 million to acquire the renewable attributes. It also defined yearly incremental RPS targets measured in megawatt hours.

In a 2009 mid-course review of the program, a number of serious performance issues were raised.

The program had nearly exceeded its entire initial budget while just half of the renewable attributes anticipated at that time were under contract[3]. Other questions raised in the review involved the cost of necessary transmission to meet renewable goals and whether the program would ultimately reduce electricity prices as claimed.

But rather than scale back the RPS or take more time to fully assess the program's costs and benefits, the Commission insisted there were substantial qualitative benefits and ordered the goal increased to 30% by 2015[4] and the budget expanded.

At the start of 2012, New York had 4.67 million megawatt hours of large-scale projects under contract representing about 2% of the state's generation. Most NY-sited wind energy facilities were under contract[5][6]. In total, wind is the dominate fuel in the RPS, representing 80% of all renewable fuels.

Since projects are awarded RPS contracts before they're built, the state must estimate operating capacity factors on intermittent resources. For wind, if a project fails to meet a minimum obligation (80% of the contracted energy) for three consecutive years the contract amounts could be reduced. The Noble Clinton, Ellenburg and Bliss wind facilities were all reduced by one-third for this reason.

We reviewed the contracted figures against actual production for operating wind projects and found that, in all but one case, the state significantly overestimated project capacity factors (see table). If the inflated capacity factors were adjusted downward to more accurately reflect wind's poor performance, the state would need to contract even more generation to meet the mandates. In general, New York's wind resource has proven marginal with annual average capacity factors ranging between 22-23% across all projects.

State officials insist the RPS will reduce electricity prices through a mechanism known as 'price suppression' whereby renewables with no fuel cost displace more expensive power in the wholesale market.

This argument may sound convincing but completely ignores how the wholesale market operates in New York.

The New York power market uses 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 MWh of production. Significant penalties are applied if a generator is unable to meet his commitment.

Because of its intermittency, wind typically does not operate in the day-ahead market preferring the real-time (spot) market which carries no penalties for non-performance. The real-time market represents less than 10% of available generation Since the price paid over ninety-percent of the generation is established 24-hours in advance, any participation from wind will have only a marginal impact on prices limited to 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. 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 go largely unnoticed.

Ultimately, New York's RPS will cost ratepayers billions of dollars to support the construction of new generation. And if the state continues to rely on wind as the dominate resource, more turbines will be necessary to make up for low capacity factors. The program is up for review again in 2013. It's time for the PSC to remove the rose-colored glasses and acknowledge the program for what it is: Regulatory Capture at its finest.

1. NY's RPS supports two tiers of projects, Main Tier and Customer-sited Tier. Main Tier projects include those built to meet grid-scale energy needs. Customer-Sited Tier applications support smaller behind-the-meter renewable generation. The bulk of the electricity needed to reach the RPS mandate comes from Main Tier resources.

2. Attribute prices ranged from as low as $14.75/MWh in 2007 to as high as $28.70/MWh in 2011.

3. The PSC forecasted 5.79 million MWh by the end of 2009. The state had acquired 3.03 million MWhs.

4. The incremental increase of only 0.4 million megawatt hours needed to reach the 30% target assumes that New York reaches significant energy efficiency goals aimed at reducing electricity needs in the state. If energy efficiency were not included in the analysis, the state would require 17.0 million MWh of new renewable generation to meet the RPS.

5. New York typically signs 10-year contracts for 95% of the energy from large wind projects. The Cohocton/Dutch Hill contracted less. Maple Ridge 1 contracted 100%. (see table)

6. Actual annual generation (MWh) varies in NY due to the variable nature of renewable energy, including hydroelectric. Demand in NY also dropped since the RPS was enacted. Since the RPS was enacted, renewables in the state increased from around 19.3% to about 23% today, including all generation.

The Big Wind lobby has descended on Washington DC and its objective is singular -- secure a four-year extension of the Production Tax Credit ('PTC'), the 20-year ‘temporary' subsidy most credited for market growth in the wind sector. The PTC is due to expire at the end of this year.

For the last month, the industry poured millions of dollars into its nationwide campaign aimed at convincing the public that any lapse in the subsidy would prove a crushing blow to American jobs. Most of the ads targeted Congressional House members who resisted the industry's demands for their PTC earmark. The cry for action reached a fevered pitch last week as Congress negotiated the payroll tax bill, viewed by many as the last best chance to attach an extension of the PTC before November's presidential election.

Politicos from wind-friendly states like Iowa and Kansas wrote letters repeating the same tired talking points about jobs. It was embarrassing to see these politicians blindly repeat what they were told with no apparent understanding of the costs and impacts of their pro-wind policies. They clearly viewed their support of the PTC as safe politically. Not so fast.

Last week the American public proved that support of the PTC was, well, complicated. Thousands of Americans from eigtheen states signed letters to Congress asking their representatives to vote NO on extending the PTC.

1. Since the PTC was adopted in 1992, its annual cost has ballooned from $5 million a year in 1998 to over $1 billion annually today. The open-ended subsidy of 2.2¢/kWh in after-tax income represents a pre-tax value of approximately 3.7¢/kWh, which in many regions of the country equals, or exceeds the wholesale price of power!

2. If the PTC were to sunset, taxpayers would still be obligated to cover nearly $10 billion in tax credits for wind projects built in the last decade. This debt is in addition to the nearly $20 billion already accrued for wind projects built under Section 1603.

3. Despite the billions in public funding since 2008, the wind sector lost 10,000 direct and indirect jobs, bringing the total to 75,000 jobs.[1] In states like Vermont, government models have shown that above-market energy costs tied to renewables have the deleterious effect of reshuffling consumer spending and increasing the cost of production for Vermont businesses. These increased costs reduce any positive employment impacts of renewable energy capital investment.

Even if we accept that earmarks for big wind are still appropriate, the PTC is highly inefficient and should, at least, be updated to respond to current market conditions. For example, since it is uniform across the country the PTC supports poorly sited wind development in some areas while in other areas pays for projects that would have been built regardless of the credit.

The policy also ignores other crucial factors driving wind development in the U.S. including State mandates and energy prices. With more than half the states demanding renewable development, some policy experts question why projects receive benefits from both State renewable portfolio policies and the PTC. Good question!

Last week Congress listened to the American public and said 'no' to extending the PTC. By all accounts, the Big Wind lobby was stunned by the vote and has now pulled out all the stops to pressure Congress to vote for an extension as soon as possible. This time, their pressure will be met with an equivalent response from Americans nationwide who are determined to stop this unneeded, wasteful spending perpetuated by lazy, thoughtless politicians.

The message from taxpayers is simple: The cost of the PTC is excessive, the benefits elusive and, big wind's pitiful performance as measured against industry promises makes this entitlement an easy one to sunset.

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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.

If you haven't heard from the American Wind Energy Association (AWEA), you probably will.

Ominous, scary ads are running nationwide warning of the crushing blow to American jobs if Congress fails to extend the Production Tax Credit (‘PTC'), the 20-year ‘temporary' subsidy most credited for market growth in the wind sector. The PTC is due to expire at the end of this year.

Most of the ads target particular House members who, so far, have resisted the industry's demands for their PTC earmark. The pressure is particularly heated right now as Congress negotiates the payroll tax holiday bill, which is viewed by many as the last best chance to attach an extension of the PTC before November's presidential election.

AWEA is also leaning on its friends to do its bidding. Politicos from wind-friendly states like Iowa and Kansas have written letters to members of the Congressional conference committee that's now hashing out the tax bill. The letters repeat the same tired talking points about jobs.

It's embarrassing to see these politicians blindly repeat what they've been told with no apparent understanding of the costs and impacts of pro-wind policies.

Do you think Senator Harkin or Governor Brownback realize that since the PTC was adopted in 1992, its annual cost has ballooned from $5 million a year in 1998 to over $1 billion annually today. Or that this open-ended subsidy of 2.2¢/kWh in after-tax income represents a pre-tax value of approximately 3.7¢/kWh? In many regions of the country the PTC equals, or exceeds the wholesale price of power!

Even if the PTC were to sunset, taxpayers are still obligated to cover nearly $10 billion in tax credits for wind projects built in the last decade. This is in addition to the nearly $20 billion in debt already accrued for wind projects built under Section 1603.

Like AWEA's ads, our windy politicos complain about the loss of jobs if big wind is not coddled further by the government. How would they respond if told that despite the billions in public funding since 2008, the wind sector lost 10,000 direct and indirect jobs, bringing the total to 75,000 jobs? [1]

Or that States like Vermont have found that above-market energy costs tied to renewables have the deleterious effects of reshuffling consumer spending and increasing the cost of production for Vermont businesses". These increased costs reduces any positive employment impacts of renewable energy capital investment.

It takes only 0.1 jobs per megawatt to operate a wind plant. Most of the sector's jobs are temporary construction positions with less than 20,000 involved in the manufacture of industrial parts that could be used in turbines.

If we accept that earmarks for the wind industry are still appropriate, the PTC is highly inefficient and should, at least, be updated to respond to current market conditions. For example, since it is uniform across the country the PTC supports poorly sited wind development in some areas while in other areas pays for projects that would have been built regardless of the credit.

The policy also ignores other crucial factors driving wind development in the U.S. including State mandates and energy prices. With more than half the states mandating renewable development, some policy experts question why projects receive benefits from both State renewable portfolio policies and the PTC. Good question.

Finding politicians to mouth support for big wind is not hard. But the American public is not as easily manipulated. In a letter last week to a Nevada newspaper one reader responded to AWEA's call to action by contacting his Representative, Joe Heck, and asking him to "kill all the tax breaks and subsidies for wind, solar, and ethanol energy," adding that "if they cannot stand alone without government help, they will have to reinvent their technology or go out of business."

This weekend, a letter signed by over 200 ranchers and residents was sent to the Nevadan congressional delegation, asking that they vote NO on any further extensions of the PTC. Similar letters were sent from states across the U.S. representing over two-thousand signers.

When Enron (the parent of Enron Wind Corp.) declared bankruptcy in 2001, the government said no to a bailout, and 4,000 workers were laid off in Houston, Texas and elsewhere around the world. But on that day forward, economies became more efficient with skilled employees leaving failure to gain viable consumer-driven employment. Today, mirage "green" jobs can go to real jobs in the booming real energy industry.

The PTC is one earmark many Americans know about, and their opinion of it is remarkably consistent: The cost of the PTC is excessive, the benefits elusive and frankly, big wind's pitiful performance measured against industry promises makes this entitlement an easy one to sunset.

The wind industry is once again pressing Congress for a last minute extension of the Section 1603 subsidy.

And why not? 'Tis the season for giving and the approach of "Ask and ye shall receive" has worked pretty well for the industry so far, especially with a contingent of members happy to be led around by any entity cloaking itself in 'green'. Who better to do the leading than the American Wind Energy Association ('AWEA'), the trade group increasingly dominated by wind turbine manufacturers -- most of whom are headquartered in Europe and Asia. Any reasonable assessment of the 1603 grant program would be lost entirely on this crowd but there are facts that make any discussion of an extension foolhardy.

High Cost: The treasury reports it's already distributed $9.6 billion in cash grants during the period from 2009 to October 31, 2011. Of this, 80% ($7.6 billion) was awarded to wind developers. Since the grants are not public until projects are placed in service, taxpayers can not know the true cost of 1603 until 2014 or later. Based on projects currently under construction, total outlay for wind alone will reach nearly $20 billion. This is without an extension. If Congress agrees to extend 1603 by 1 year, this figure would be much larger. Remember, we are borrowing 40 cents on every dollar to pay for this program.

Exaggerated Job Claims: The wind industry insists 1603 is essential for creating jobs but this claim is not supported by the facts. It takes only 0.1 jobs per megawatt to operate a wind facility. Of the 12.3 gigawatts installed with 1603 funds, about 1200 permanent jobs were created. Most of the 75,000 jobs reported by the industry are temporary construction positions as evidenced by the number of jobs lost in 2010 when building slowed (10,000 jobs were lost).

Low energy production: The Treasury assumes that 1603-funded wind projects operate with a 30% capacity factor but this is not accurate. Five wind facilities in New York, for example, received $300 million in grants and operated 25% BELOW this level in 2010. Section 1603 imposes no performance criteria. Instead, the program substitutes government largess for private investment, but with NO accountability taxpayers are left carrying all the risk.

Inflated Turbine Pricing: Upfront cash grants provide minimal incentive to negotiate lower prices with suppliers. In fact, the higher the capital costs the more 1603 money available. With turbines representing 55+% of project costs, manufacturers are encouraged to keep prices high.

There are cheaper, more effective opportunities for achieving clean energy goals that will also help the economy. Direct cash outlays go in the wrong direction by rewarding higher construction costs, higher energy pricing, and marginal to poor performance. It's time for Section 1603 grants to expire.

Energy subsidies have proven fertile ground in the debt-ceiling debate now raging before Congress.

Congressional lawmakers arguing over how best to rein in spending, have set their sights on eliminating ethanol subsidies and oil and gas tax breaks. Renewable energy subsidies are also under pressure. Earlier this year, the Department of Energy's Section 1705 loan guarantee was cut. The popular Section 1603 cash grant program created under ARRA is expected to expire later this year. And some industry insiders indicate the federal production tax credit, in effect since passage of the Energy Act of 1992, will be allowed to sunset at the end of 2012.

Our recommendation to Congress: Eliminate all of the energy subsidies. Let the economics of a freer market prevail.

Doing so will create winners and losers, for sure, but the public is far better served when industries compete for market share and profits rather than fight for political favoritism and handouts.

If you doubt this economic truism applies to the energy industry, consider the US wind market, which has relied on public funding since its inception over 30 years ago.

The history of governmental handouts to the wind industry dates back over 30 years to the Carter Administration. Billions in public dollars have poured into the wind industry since that time and more is obligated every year for the next decade. Yet for all the promises made, we have little to show for the money spent.

Promise #1: Meeting US Electricity Needs. A 1976 study by the Department of Energy estimated that wind power could supply nearly 20% of all U.S. electricity by 1995. By the end of 1995, wind represented only one-tenth of 1% of the US market. Today, wind delivers about 2% of the US electricity market. DOE now claims we will reach 20% wind power by 2030. Moving the goal post does not address the logistical and cost barriers to reaching the 20% goal. These barriers are significant and it's time DOE considers the realities of what a 20% wind world would look like. It's unlikely the scenario will ever be realized.

Promise #2: Reducing Cost. In the mid-1980's wind power sold at around 25 cents per kilowatt hour. By 1995 prices dropped dramatically but were still double the cost of gas-fired generation, even after allowing for the production tax credit (1.5 cents per kwh in 1995). Today, wind pricing is even higher relative to natural gas, despite continued federal support (figure 22, 2010 Annual Wind Market Report). Promises of technology improvements that could drive down costs have not translated into energy price improvements.

Wind's intermittency still means that high upfront capital costs are spread over fewer hours of operation which places upward pressure on the price of the energy sold. Cost pressures are also tied to policies on renewables. Aggressive renewable policies have placed developers in strong negotiating positions relative to energy buyers. They know full well that state regulators will approve their pricing demands and pass through the higher costs to ratepayers (footnote 50, 2010 Annual Wind Market Report). And with power purchase agreements now a requirement in order to attract investor financing, above-market energy prices are locked in for extended terms ranging between 10-20 years.

Promise #3: Improved Performance. In 1994, ninety percent of the US wind energy capacity was located in the State of California and operated at a 24% annual average capacity factor. In 2010, the capacity-weighted average capacity factor for Californian projects in 2010 was only 27.2%. In most regions of the US, wind operated at under 30% capacity factor. New York State wind performed at 22.7% last year. While newer technology has resulted in modest production improvements, US wind has failed to meet the promised 35% capacity factor

Promise #4: Jobs creation. Over eighty-percent of the nearly $6 billion in Section 1603 grants paid out in 2009 and 2010 went to wind energy projects. Yet by the end of 2010, the American Wind Energy Association reported jobs declined from 85,000 to 75,000. 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.

Fourteen years ago, energy expert Robert Bradley wrote "Wind power has proven itself to be a perpetual 'infant industry' with its competitive viability always somewhere on the horizon."

This week GE's ecomagination VP Mark Vachon said this: "Without clean-energy mandates or tax subsidies, wind struggles to compete with cheap natural gas. And there's uncertainty about those subsidies, particularly in the U.S. where Congress is looking to manage budget deficits."

The American Wind Energy Association insists wind is now a mainstream energy resource but blames the 50 percent drop in US installations between 2009 and 2010 on a lack of long-term, predictable federal policies. After 30 years of paying the way for this infant industry, apparently the public has still not done enough to create a market for its product.

Call Congress. Remind your representatives that wind energy has yet to deliver on any of its promises. And history has shown we have no reason to believe things will change.

Eliminate all wind energy subsidies as part of the debt ceiling compromise. Let's finally move on to energy solutions that can deliver on their promises.

Last week, the New England Energy Alliance in Boston, released the results of its annual survey of New England energy consumers. Paul Afonso, executive director of the Alliance and a former Massachusetts utility regulator, summed the results up this way: "Overall, the main concern of New Englanders continues to be the economy and pocketbook issues. If voters think any policy - private or public - will bring down the cost of energy, they will support it."

If that's the case, than the survey's findings reflect a sentiment that's entirely contrary to New England's current energy policies.

The six New England states have aggressively pushed for renewable energy development in the Northeast, with particular emphasis on wind power. Five of the states, Vermont excluded, have adopted Renewable Portfolio Standards (RPS) mandating that a percentage of the electricity sold retail into the region come from renewables.

RPS obligations for 2010 were about 14% of demand -- an amount satisfied through a combination of existing, qualified resources in New England and renewable energy imported from neighboring New York and Canada. However, these percentages are slated to reach over 20% by 2020 with most of the energy coming from projects not yet built. Meeting the growing renewable obligation with new generation will be substantially more difficult. Critical adjustments in RPS policies are needed now or skyrocketing energy costs will severely cripple New England's economy.

New England currently claims 48 wind energy projects totaling 318 megawatts. Maine has the most wind installed at 266 megawatts; Connecticut the least at 0.1 megawatts. Assuming a generous 30% annual capacity factor, wind in New England produced around 836,000 megawatts hours (MWh) in 2010, substantially below other fuel options including natural gas which produced over 50 million MWh (half the region's demand).

New England would need to add 23 million MWhs of new renewable energy in order to satisfy state mandates by 2020. Since wind energy is the primary resource proposed to be built in the region, and the resource most favored by New England's 'ruling class', future RPS obligations will likely be met by in-region wind power.

Meeting 2020 obligations dictated by state laws will require a 28-fold increase (9000 megawatts) in wind energy over the amount installed today. Measured in actual turbines, nearly 3000 3-megawatt turbines would be needed by 2020 or 300 new turbines erected every year for the next 9-10 years.

Nearly every wind project proposed in New England has encountered substantial opposition. Historically, opponents argue local siting concerns including the impact of the turbines on the natural environment and properties in proximity to the towers. Local opposition will certainly intensify. But wind development on the scale necessary to meet RPS mandates will also trigger region-wide fights with complaints expanding to cost and the impact on New England's economy.

In December 2010, the ISO-New England [1] released the findings of its New England Wind Integration Study (NEWIS). The study, conducted by General Electric, assessed the operational effects of integrating large amounts of intermittent wind power into the ISO's control area. The NEWIS study concluded that significant wind resources could be added to New England's power grid but for a price.

Existing Power Plants. Despite adding thousands of megawatts of new wind to the grid, the NEWIS study assumed the existing fleet of New England's power plants would remain with no significant plant retirements relative to capacity resources. The study also assumed that new capacity resources proposed to be built would be brought online and the grid's regulation capacity requirement would grow to 313 MW, nearly 4-times the current level.

Twenty-percent wind in New England would not result in the decommissioning of existing capacity nor would it negate the need to build new generation. While wind might displace fossil fuel, primarily natural gas, it cannot replace it.

Transmission. Since many favorable sites for wind development are remote from New England's load centers, development of these distant sites would require significant transmission development. According to NEWIS, 20% wind in New England would require 4,095 miles of new lines at an estimated cost of between $11 and $15 billion dollars. [2]

This cost would be in addition to the $5 billion already approved in New England to address existing reliability requirements. None of the wind-related transmission has been proposed to date nor has any public discussion been initiated on who would pick up the tab. The survey cited above found that New Englanders disliked high-voltage transmission lines even more than wind turbines.

Energy Costs. The NEWIS report is mainly silent on the effect of large-scale wind integration on energy prices, but it does acknowledge two important points.

1) A wind plant's revenue may be below its annual total cost which could require the plant owner to secure higher than market value power purchase agreement(s);

2) By displacing conventional generation, primarily natural-gas-fired resources, revenues for displaced plants would decrease and their economic viability put at risk. Increases in capacity market payments may be necessary to ensure these plants do not shut down.

Adding large amounts of wind to the region may reduce marginal electricity prices since wind has no fuel cost, but the costs passed on to ratepayers are derived from power purchase agreements negotiated between utilities and wind plant owners. Onshore wind currently demands between 9-11 cents per KWh, more than twice the wholesale price of natural gas. Offshore wind is even more expensive at over 18 cents a KWh. More wind in the fuel mix will cause upward pressure on energy prices for the life of the power purchase agreements. As these agreements expire in 15-20 years, prices may drop but by that time the turbines will be coming to the end of their operating life.

Other significant integration costs will also be imposed on the region to accommodate wind's intermittency, including billions in new transmission.

Measuring Benefit. According to the NEWIS study, 20% penetration of wind in New England will reduce yearly CO2 emissions by 12 million tons per year, a 25% decline. This percentage is significant but placing a value on the savings paints a very different picture.

Currently, RGGI carbon allowances are trading at the reserve price of $1.89, which would place the value of the benefit at $22.7 million per year -- a fraction of the transmission costs alone, even if paid out every year for 20 years, the life of the wind plants. In fact, just to break even on the $15 billion in new transmission costs, the price of carbon would need to be over $60/ton. Clearly, there are less costly, more appropriate methods of reducing carbon emissions.

We do not object to the findings of the NEWIS report that large quantities of wind can be injected into the region. As an academic analysis, the report is reasonable. However, the requirements necessary to meet a 20% wind scenario in New England are wholly unrealistic. Each state can try and overrule local opposition to individual wind projects and fast-track approvals under the pretext of 'public benefit', but the effect of above-market power purchase agreements, high-priced transmission construction, and other related integration costs will crush the region's economy.

Unless changes are made to current RPS policies, New England is headed for an energy crisis of its own making. But who will press for change? Those making energy policy decisions are driven by ideology and appear unaware of the pending costs. And those likely to benefit financially from the policies, including big utilities wanting to build big transmission, are happy to play along. Unfortunately for New England's energy consumers, no one is watching out for their interests.

[1] The ISO-NE is a non-profit entity tasked with managing the New England grid system and ensuring the day-to-day reliable operation of the region's bulk power generation and transmission.

The United Kingdom has long been regarded as having the best wind resource in Europe.

A 2005 analysis of hourly wind speeds collected from sixty-six locations across the UK, identified three characteristics of the wind resource that proponents rely on to justify an expansive build-out of wind energy facilities.

The study concluded that over a 35-year period from 1970 to 2005, there was never a time when the entire country was without wind, the wind always blew enough to generate electricity somewhere in Britain and that the resource tended to blow more strongly when demand was highest, during the day and winter months. The analysis found that wind would operate at an annual average capacity factor of 27% -- above levels found in Germany and Denmark -- and low wind speeds affecting most of the country (90%) would only occur for one hour every five years.

The United Kingdom's leading wild land conservation charity, the John Muir Trust, released a report that examined wind power's actual contribution to the UK's energy supply. The findings, based on real-time energy production, were sobering. Wind generated at substantially below the 27% capacity factor and low wind events (defined as output falling below 10% of capacity) occurred over one third of the time, or almost nine months in aggregate.

The report created a firestorm for those tracking wind development. Legislators and energy policy experts immediately questioned whether the same reality existed in their area. Since preconstruction forecasts for wind power performance are based on wind speed data, what if the modeling overstated actual generation?

In 2005, the New York State Energy Research And Development Authority (NYSERDA) worked with General Electric to release a study aimed at assessing the impact of large-scale wind generation on the reliability of the State's bulk power system and to understand the operational and economic effects of deploying 3,300 megawatts of wind (10% of New York's peak load).

The study concluded that New York could support a 10% penetration of wind into its grid system with turbines reliably operating at 30% average capacity factor or better. To its credit, NYSERDA acknowledged that most of the high wind output would occur during nighttime hours with some overlap occurring "late in the day when the wind output is picking up before the loads have fully dropped off."

Several years of wind generation data are now available and we took a look at how well NYSERDA and GE predicted output levels. We were particularly interested in project performance after developers had a year or more to address start-up issues.

By the end of 2010, New York State claimed fifteen wind energy facilities totaling an installed capacity of 1,275 megawatts. The projects are geographically distributed in the northern and western regions of the State but typically away from denser population centers including New York City with the highest demand for electricity.

Twelve of the fifteen projects comprise the bulk of the nameplate capacity (1225 megawatts). These facilities went into service in the years between 2006 and February 2009. Less than 50 megawatts of wind was installed prior to 2006. Since early 2009, wind development in the State has been largely stagnant with only one wind project built in the last two years. Iberdrola's 74 megawatt Hardscrabble project went online in February 2011.

The lull in construction has provided a valuable opportunity to evaluate two full years of wind generation and to assess whether the promises of New York wind have been realized.

The below table, prepared using the New York ISO's Gold Book data, provides an important glimpse at wind performance in New York in the years 2008-2010.

No wind project in New York achieved a 30% capacity factor and most are operating at well below this figure including Maple Ridge 1 and 2 touted by wind proponents as a premier wind site. Maple Ridge was forecasted to have a capacity factor of 34% prior to construction but has consistently operated around 25% -- a significant performance reduction.

Noble Environmental's projects produced at even lower levels. When the company sought community acceptance of its projects in upstate New York, John Quirke, an officer and founder of Noble, insisted their projects would operate at 30-35% of their nameplate capacity. In the tax agreement signed with Clinton County, New York, Noble went so far as to sweetened the deal by offering to pay a bonus of $1000/MW every time the annual capacity factor of any of their projects exceeded 35%. Clinton County officials had no way to verify the sincerity of Noble's offer since preconstruction wind data was confidential, but Noble certainly knew the truth. Noble's upstate projects operated with a 20% to 22% capacity factor in 2010.

When determining whether a wind energy project is worth the financial risk, a credit analysis is prepared based on conservative wind production. This production amount, known as the annual energy yield prediction, represents the average wind speed forecast for a project with a 90% confidence (P90). In other words, the wind production level that the project is expected to operate at 90% of the time.

The P90 figure needs to be within 12% to 15% of the average production figures in order to catch a bank's attention. If the difference between the average capacity factor (P50) and P90 is off by 20% or better, a project would be considered 'unfinanceable'. We can't know the P90 figures presented to investors for most of New York's wind projects, but our guess is that most of these projects would have been considered unworthy had actual production numbers been available. We'd be interested in knowing whether those who fronted the money for the projects would bother again.

NY ratepayers who are subsidizing wind development in the State are also receiving considerably less than promised. Square miles of New York's most rural areas have been transformed into industrial power plants, communities and families are split over project opposition, and homeowners have been driven from their homes due to turbine noise, shadow flicker and other nuisances. If tax revenue agreements with communities were negotiated based on inflated capacity factors, actual payments will be lower.

State and local officials have long encouraged wind as an economic development tool for rural areas, but at some point the public needs to know whether the projects are delivering on the primary plan i.e. to see more renewable energy on the grid. At capacity factors in the low- to mid- 20% range, many more wind turbines and related infrastructure (transmission) will be needed to meet State mandates which will increase costs and impacts.

Our review only looked at average annual capacity factors and did not consider the hourly and daily variability of the resource and whether the wind helped meet peak demand needs. But looking at average performance alone is enough to suggest New York's wind is not worth all the fuss.

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.

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.

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.

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.

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?

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.]

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.

Late last week, the House of Representatives passed HR-1, the Continuing Resolution legislation needed to fund federal government operations through to September 30, the end of the 2011 fiscal year.

The bill includes the largest single discretionary spending cut in U.S. history eliminating $100 billion in spending from what the Obama administration asked for last year. It also initiates spending reductions that will occur throughout the next year. Unless there is another temporary measure, the final continuing resolution must be passed by the Senate and signed by the President by March 4 in order to avoid a government shutdown.

The full text of HR-1 as introduced in the House (prior to any amendments) can be found at this link. The members filed 162 amendments of which sixty-eight were rejected or withdrawn. The majority were accepted.

Windaction.org advocated for an amendment to the bill that would eliminate $5 billion from the budget by prohibiting the use of funds to support the Section 1603 Cash Grant program. This program enables wind developers to secure direct monetary outlays from the Federal government to cover 30% of a project's qualifying cost, no questions asked.

Unfortunately, we were unable to get the amendment in place, but there will be other opportunities this year to make our case known.

However, HR-1 did take an important step toward weakening the Guarantee Loan Authority program administered by the Department of Energy. Section 3001 of the bill rescinds all balances allocated under the stimulus bill for the 1705 loan guarantee program.

Under the program the Department of Energy pays the credit subsidy costs of loan guarantees and provides a guarantee for up to 80 percent of a loan for qualifying renewable energy systems, electric power transmission systems or leading edge biofuels projects. Thus, a significant portion of the risk is shifted to the American public rather than where it belongs, with investors and their shareholders.

The impact of this action is likely to be significant on whether investment funding will be available for renewable energy projects, but for now the wind industry is declaring this part of the law dead on arrival.

But maybe not. Recall the October 2010 memo to the White House by Carol Browner, Ron Klain and Larry Summers which raised concerns over the "relatively small private equity (as low as 10%) developers put into projects" thanks to the loan guarantee.

With the Continuing Resolution now behind them, our House Representatives are home this week meeting with their constituents. This is an opportunity to meet with your representative and make your concerns known.

If you contacted your representative last week about cutting Section 1603 from the Continuing Resolution ask why no such amendment was offered. If not, take the time to discuss this important budget and policy issue with him/her. Our representatives need to understand that there are cheaper, much more effective opportunities for achieving clean energy goals. Instead, with Section 1603 funding we've succeeded in adopting an energy policy that drives up construction and energy costs while eliminating any incentive to build projects that meet the highest performance standards.

California has one of the most aggressive Renewable Portfolio Standards ('RPS') in the country requiring 33% of the electricity sold in the state come from renewables by the year 2020. A ruling this month upped the ante on utilities by mandating that 75% of the energy come from projects located in the State[1]. Despite the enormous pressure on utilities to meet the RPS standards, the State has demonstrated that not every project should be built.

Last year, California utility Pacific Gas and Electric Company ('PG&E') submitted an application to the State's Public Utility Commission seeking approval to acquire, develop, and construct the Manzana Wind Energy facility, a 246 megawatt wind plant proposed in the Tehachapi region of Kern County, CA. A year earlier, Iberdrola Renewables had negotiated to sell the to-be-built project to PG&E for $911 million after years of delays due to transmission issues and the economic downturn. Although PG&E's application requested approval to build the facility on 7,000 acres of land, Iberdrola had obtained local development permits and land leases sufficient for just 189 megawatts. The final project could ultimately be less than that requested, but still represented one of the largest wind projects proposed in the State.

PG&E's application sought State approve to pass on all costs of building the project to ratepayers, as well as any cost overruns due to project delays, regardless the reason, thus leaving PG&E shareholders and Iberdrola free of any financial culpability.

The California Division of Ratepayer Advocates ('DRA') objected to the application from the outset. In testimony filed with the PUC, the Division rightfully complained that "PG&E's ratemaking proposal does not provide any protections for ratepayers in the event the project is delayed or commercial operations are stopped for reasons relating to an actual or protential violation of the federal or California Endangered Species Acts." The project has already experienced construction delays and given existing problems of transmission and serious concerns voiced by federal and state agencies over impacts to the California condor, it was prudent for the DRA to assume costs would rise.

These findings stand in direct contrast to what we've witnessed in orders issued by States in the eastern region of the U.S. most notably the Cape Wind and Deepwater Wind offshore proposals reviewed by Massachusetts and Rhode Island respectively.

This statement in ALJ Ebke's decision provides insight into how projects should be measured:

"In short, although the project would contribute to the California renewable generation goals, given the availability of other lower-priced renewable projects in the competitive market that could impose far less risks on ratepayers, PG&E has failed to demonstrate a need for this project."

We are also encouraged by Ebke's acknowledgement of risk to the federal and state endangered California condor.

The final Environmental Impact Report (EIR) prepared on behalf of Iberdrola insisted that "as turbines are in an area with high visibility, condors could be expected to be able to avoid collisions with wind turbines at the project site" and that "no suitable foraging or nesting habitat were identified at the project as a result of more than 5,000 hours of biological surveys conducted at the site."

ALJ Ebke addresses the seriousness of condor mortality in her decision, but limits the discussion to the risk to ratepayers in the event of project shutdowns or other operational adjustments should there be a loss. We may argue about her emphasis, but the point is clear: the risk to endangered species is very real and the costs/risks of mortality must be borne by the project owner, not the public. The same position is warranted in states across the U.S. where endangered species are at risk from wind development.

Iberdrola has canceled its plans to sell the project and PG&E withdrew its application.

With green energy policies now promoted as economic opportunity and jobs programs, governmental incentives have shifted the bulk of project risks onto rate- and taxpayers. Sixty-five percent or more of a project's monetary costs and risks are presently met through governmental subsidies, including cash grants, DOE loan guarantees, and premiums on energy prices. Whether intended or not, the American public has become the largest buyer/developer/investor of renewable energy while the profits remain privatized. This has created an environment where the likes of PG&E, Iberdrola, turbine suppliers and all other parties involved in a project's construction and O&M are free to inflate prices but share limited, or even no responsibility for meeting performance standards. This is exactly what we can expect for the Cape Wind, Deepwater Wind, and other renewable projects across the country. We can't blame PG&E or Iberdrola for taking advantage of the current system, but let's hope our legislators and regulators look to California for lessons learned.

[1] There are 1,008 in-state power plants (69,709 megawatts installed) now operating in California; renewables represent 13.9% of the mix including 2.4% from wind energy.

The headlines were abuzz last month following Energy Secretary Steven Chu's talk at the National Press Club where he dubbed the global race for clean energy our new "Sputnik Moment" and warned that the U.S. risked falling behind other countries. In this imaginary race, our competition is no longer the Soviet Union, but China, which now leads in the manufacture of wind turbines and solar panels.

The Sputnik analogy is inappropriately applied for obvious reasons. The U.S. space program of the mid-twentieth century was an outgrowth of our military at a time when the United States and Soviet Russia were researching long-range ballistic missiles. The program was a high-cost, high-risk venture that never achieved economies of scale, nor was it intended to. There's no question the race advanced us technologically and the productization of its research benefited generations of Americans. But, contrary to Chu's message, it was not a jobs program, its objectives were not imposed on private industry, and its work did not interfere with the lives of everyday Americans.

In the case of energy, we already have a competent and competitive energy market run by the private sector. Its role in not to innovate, but to keep this country reliably powered at a reasonable price so that others can.

Chu's problem is with the fuels used to power the U.S. and that's what he wants to change.

He doesn't hide his agenda to boost wind energy in the United States and he will do what's necessary to shift the economics in wind's favor, including sponsoring policies meant to drive up the price of fossil fuels and mandate renewables. By teaming up with Interior secretary Ken Salazar, Chu expects to fast-track building hundreds of thousands of megawatts of wind nationwide including the shallow waters just off our eastern seaboard.

The problem for the rest of us is that Chu is an ideologue who, like the department he rules, refuses to publicly acknowledge the cost of his ideas or engage on whether his vision is even realistic.

While Chu delivered his sermon in Washington, ratepayers in the State of Massachusetts experienced a glimpse of his vision in action when the state's Department of Public Utilities (DPU) approved the power purchase agreement between National Grid and Cape Wind at 18.7[1] cents a kilowatt hour -- a price that's three times the cost of in-region natural gas and at least double the cost of other renewable options.

Last week, TransCanada and the Associated Industries of Massachusetts filed separate appeals of the DPU's approval hoping to see the decision overturned.

After nine years of debate, the reality of Cape Wind's high cost is what caught people's attention. And this project represents just a fraction the megawatts Secretaries Chu and Salazar expect to see built. Imagine 115 Cape Wind equivalents -- 15,000 turbines -- located offshore within 10 miles of our east coast, consuming 3,000 square miles of open water. The eastern seaboard from Florida to Maine is only 1,342 miles. The environmental and societal impacts are not even modeled, but Massachusetts offers us some idea of the economic impact.

Dr. Chu told his audience in Washington that his department would continue to "develop and nurture the technologies to help industry go in the right direction." Frankly, his definition of the "right direction" is highly suspect. And his apparent blind embrace of high-price wind schemes suggests he lacks even a fundamental understanding of how his vision will impact state and regional economies -- or maybe he doesn't care. With the Cape Wind experience in mind, perhaps the best thing the Department of Energy can do right now is emulate NASA by focusing on research, not implementation, and letting competition and private enterprise drive the energy market. Only then will the public have some hope of seeing the best product delivered at a realistic price.
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[1] The approved 18.7 cent cost does not include 4% paid National Grid as prescribed by state law for agreeing to be a party to the contract or the 3.5% yearly escalator. See our editorial on the cost.

The American Wind Energy Association (AWEA) is on a mission to keep its members fat and happy as they bloat up at the public trough. The goals are simple:

1) Create a set-aside power market that pays a premium for wind energy and eliminates competition from lower-cost, more reliable fuel options;

2) Encourage policies that pave the way for wind-related transmission development at the expense of rate- and taxpayers; and

3) Make permanent the free-flow of public subsidies for renewables and shield the funding spigot from changing political and economic tides.

In the last two years, AWEA's had some success. On the power market front, more than half the States have RPS programs mandating that a percentage of their electricity needs be met with renewable energy. Senator Bingham (D-NM) introduced a bill seeking the same non-compete set-aside for the entire country that he hopes will be acted on during the lame-duck session. On transmission, the Federal Energy Regulatory Commission (FERC) issued a notice of proposed rulemaking (NOPR) that considers amending transmission planning and cost allocation processes to facilitate broader public policy goals -- i.e. a national grid system to deliver wind power. This deviates from current rules that look mainly at grid reliability. And Obama's $787 billion stimulus passed in February 2009 authorized billions be spent on renewable energy and energy efficiency initiatives which kept the wind industry from collapsing when the big investment banks needed bailing out.

The debates surrounding a national RPS policy and FERC's transmission priorities are not settled and will likely come down to cost. But the stimulus programs that spent lavishly on pet wind projects -- while a success for AWEA members -- are proving to be a waste for the public.

Under the stimulus, we saw the investment tax credit (ITC), which was popular back in the 1980's, brought back again. The ITC enables developers to obtain direct cash outlays from the government for up to 30 percent of their costs. Any company or person who qualifies and applies for the money can get a grant. (Greenwire October 14), The qualification criteria are not onerous, the grant amounts are unlimited, and the Treasury Department which doles out the cash is prohibited by law from ranking the projects.

Between direct cash payouts, federal loan guarantees, existing state tax credits and State RPS policies that assure premiums for renewable energy, wind developers can't fail.

Spanish energy giant Iberdrola Renewables, Inc., who received nearly a billion in cash grants alone, argues the money helped create more development which led to jobs and economic opportunity but according to Gilbert Metcalf, a Tufts University professor who teaches energy economics and tax policy: "Any time you use subsidies to encourage new investment, you're always going to end up giving money to people who would have done the project anyway." (Greenwire October 14) And that appears to be exactly what happened.

A preliminary evaluation of the ITC grant outlays published earlier this year by the Lawrence Berkeley National Laboratory found that 61% of the grant money distributed through to March 2010 "likely would have deployed under the PTC [production tax credit] if the grant did not exist." In many cases, money went to projects that were already under construction and, in others the wind facilities were already producing electricity.

So what did the public receive in return for all the money spent? High risk and overpriced carbon reduction benefits.

That's according to an October 25 White House memo penned by chief economic aide Larry Summers and senior policy aides Carol Browner and Ron Klain. The memo uses the 845-megawatt Shepherds Flat wind energy facility in Oregon to illustrate the problem. Shepherds Flat will be the largest wind plant in the country consisting of 338 GE wind turbines. According to Summers, the $1.2 billion in governmental subsidies covered 65% of the cost and risk for the project while its equity sponsors incurred only about 11% with an estimated return on equity of 30%. That's a hefty return for a project where the American public is absorbing the bulk of the risk.

Summers makes clear in the memo that the project would likely have "moved without the loan guarantee" since the "economics are favorable for wind investment given the tax credits and state renewable energy standards". Examining the carbon reduction benefits, the memo concludes that the reductions "would have to be valued at nearly $130 per ton CO2 for the climate benefits to equal the subsidies (more than 6 times the primary estimate used by the government in evaluating rules)".

The Wall Street Journal published an informative editorial on the memo that's well-worth reading.

The White House memo enumerates several options for reining in the free spending and shifting risk back to developers, but frankly, tweaks made at this level are misguided.

It's time for Capitol Hill to take a hard look at the renewables feeding frenzy underway and adopt policies that better suit the public's needs. For starters, let the funding programs set to expire this year do just that -- expire! Remaining programs (i.e. PTC) should be adjusted to reward projects that can deliver energy according to time of day or seasonal demand requirements and that are built close to load centers.

There are cheaper, much more effective opportunities for achieving clean energy goals without coddling the wind industry -- an industry that peddles a low-value electricity product and which, after decades of public handouts, has yet to show it can survive on its own.

This week, we were treated to the Department of Energy's latest advocacy on wind energy: the release of a new report proclaiming the benefits and feasibility of developing wind power along the coastal waters of the United States. The report adds little to the claims touted in DOE's "20% Wind Power by 2030" published in 2008 but this time the focus is on 54,000 megawatts of wind off our eastern seaboard, the Gulf of Mexico, and the Great Lakes. Water depths on the Pacific Coast, according to the DOE, still pose a "technology challenge". [1]

Currently, there are no operating offshore wind plants anywhere in the country. The controversial Cape Wind (130 turbines) project proposed nearly ten years ago is still under fire. Wealthy property owners on Nantucket and Martha's Vineyard were joined by Wal-Mart, the Associated Industries of Massachusetts, and wind developer TransCanada among others in protesting the no-compete, high-priced power purchase agreement under review by the State of Massachusetts. In Rhode Island, approval of Deepwater Wind's pilot project is under appeal by the state's Attorney General and others over alleged illegalities by the legislature in pushing the project through. Delaware's Bluewater Wind project is in limbo due to poor economics and growing public opposition to expensive renewable energy. A fight sparked in Michigan over a 1000 megawatt wind facility in Lake Michigan packed hearing rooms with angry protests. And the same response came from communities along northern New York after NYPA sought bids to build turbines in Lake Ontario and Lake Erie.

None of these projects, in total, match the scale and cost of what DOE claims can be built. And frankly, we question the reality of 54,000 megawatts of offshore wind. This would mean 115 projects equivalent in size to Cape Wind's 468 MW -- 15,000 turbines -- located within 10 miles of our coastlines and spanning 3,000 square miles of open water. The eastern seaboard from Florida to Maine is only 1,342 miles.

Obvious environmental and visual impacts are only a part of the issue. Problems with the technology and the economics of offshore wind are very real.

In 2005, all eighty of the Vestas V90 turbines at Denmark's offshore Horns Rev facility had to be removed and repaired owing to the effect of salty water and air on the generators and gearboxes. The problem appeared after only two years of operation. A similar repair was reported on thirty Vestas turbines off the UK coast requiring a change of rotor bearings.

Turbine failures offshore are harder to repair and are often addressed on an aggregated basis. It's not unusual to wait as long as three months before turbines are fixed, leading to lower equipment availability. While wind conditions, in theory, are better for energy generation, one report claims the tough environment could mean turbines are only able to transfer power for 160 days of the year.

Earlier this year, another issue was reported having to do with the underwater foundations holding the turbines in place. Hundreds of European offshore wind turbines were found to have a design fault that caused the towers to slide on their bases. The problem was universal and not specific to any one project or turbine manufacturer.

The Cape Wind project is expected to cost $2.5 billion for 468 megawatts -- an enormous expense for any individual power plant, especially one expected to deliver only 39% of the time with no guarantees the generation will arrive when most needed. With high upfront costs and fewer hours to spread the cost over, offshore wind is not economically viable without significant public support, higher electricity rates, and severe constraints imposed on more reliable sources of generation.

The DOE admits its analyses are preliminary but it's the assumptions that worry us. The report includes this paragraph:

The authors insist that such an undertaking will revitalize our manufacturing sector and create more than 43,000 permanent, well-paid technical jobs, but DOE ignores the negative economic effects.

Earlier this year, Vermont's Department of Public Service published a report on the economic consequences of setting mandatory prices for only 50 MW of renewable energy technologies.

While the State's analysis found the feed in tariff program would increase Vermont capital investment and create jobs, it also found that other 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.

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". This issue was also highlighted in testimony submitted on the Cape Wind and Deepwater Wind projects.

The DOE report does not bother to model the impact of higher energy costs on the overall economy.

As for obstacles to development cited in DOE's report, the authors demonstrate how little they've discussed their ideas with real people in this country.

On visual effects, the authors acknowledge that coastal dwellers might object to the turbines and recommend added study to understand coastal communities and their ability to accept changes to the seascape. Regarding property values, DOE relies on the poorly defined Hoen/Wiser study to claim no impact but admit more work is needed for offshore properties. On tourism, they concede that evidence is ambiguous but still claim, "actual effects appear to be minimal". And finally, on marine safety they admit collisions may pose a potentially significant risk to the marine environment or to human safety but offer cold comfort that no incidents have occurred to date.

There have been recent cries for a national energy policy in the United States, but public policy requires credible analysis with an objective eye on reality. If the best DOE has to offer is an advocacy report steeped in wishful thinking, then perhaps for now our better approach would be no policy at all.

[1] About 950 wind turbines are now sited off the coasts of Europe and China. Half of these turbines were erected in 2009 and 2010.

Senate Jeff Bingaman, chair of the Senate Energy and Natural Resources Committee, signaled he's determined to see a national renewable portfolio standard ("RPS") passed in the Senate before the members recess for the fall campaign season. Joined by majority leader Harry Reid (D-NV) and twenty other co-sponsors including three Republicans: Sens. Sam Brownback of Kansas, Susan Collins of Maine and John Ensign of Nevada, Bingaman introduced new RPS legislation that will require retail suppliers of electricity to secure a percentage of their generation from renewable energy resources.

Bingaman's apparent explanation for pushing the bill now, according to a press announcement this week, is hardly convincing: "I think that the votes are present in the Senate to pass a renewable electricity standard. I think that they are present in the House. I think that we need to get on with figuring out what we can pass and move forward."

Is that the best he can muster to justify a mandate for purchasing renewable energy and setting aside 15% of the electricity market solely for wind, solar, and other preferred forms of generation?

Perhaps he's relying on AWEA's Denise Bode to make his case with her boast that a national RPS "is the single most important thing we can do to grow jobs here in the United States and keep 85,000 American wind energy workers on the job." Denise must have missed the latest press on green jobs that explained, again, how the hype surrounding green projects is not matching reality. What's missing entirely in the discussion is how much a 15% RPS will cost the American ratepayers and how many jobs in every other sector in the country will be lost due to higher energy rates.

More than half of the U.S. States has already adopted RPS legislation in the last decade and a number of these programs are up for review to determine whether their promises of job growth and low impact on electricity rates have been realized. Wouldn't it be prudent to understand the costs and benefits of these programs before launching into new, farther reaching mandates?

According to a March 2007 study released by the Lawrence Berkeley National Laboratory, adoption of State RPS policies hinged on state-sponsored studies that projected the costs and benefits of programs. However, across all state studies, the methodologies used in determining projected electricity rate impacts, environmental effects, and public benefits were limited and failed to account for key costs including:

1. transmission and integration costs for wind energy*,
2. fluctuating capacity values,
3. increasing capital costs for the turbines, and
4. likelihood that coal-fired generation, not natural gas, will drive wholesale market prices in some regions.

*The bulk of the renewable generation is expected to be satisfied by wind according to the report.

In an interview, Berkeley Lab researcher Ryan Wiser said that "many of the studies were designed with the explicit intent to either influence legislative processes or, alternatively, to potentially affect the design of RPS policies as established by regulatory agencies."

The "disparity between study expectations and current market reality suggests that the actual cost impacts of state RPS policies may significantly exceed those estimated in our sample of studies, especially if higher wind costs persist."

There are other practical considerations of a national RPS that suggest a 15% mandate will have serious negative consequences.

A national RPS is a bad idea for three reasons. First, "renewable" and "low greenhouse gas emissions" are not synonyms; there are several other practical and often less expensive ways to generate electricity with low CO2 emissions. Second, renewable sources such as wind, geothermal, and solar are located far from where most people live. This means that huge numbers of unpopular and expensive transmission lines would have to be built to get the power to where it could be used. Third, since we doubt that all the needed transmission lines would be built, a national RPS without sufficient transmission would force a city such as Atlanta to buy renewable credits, essentially bribing rural states such as North Dakota to use their wind power locally. However, the abundant renewable resources and low population in these areas mean that supply could exceed local demand. Although the grid can handle 20% of its power coming from an intermittent source such as wind, it is well beyond the state of the art to handle 50% or more in one area. At that percentage, supply disruptions become much more likely, and the highly interconnected electricity grid is subject to cascading blackouts when there is a disturbance, even in a remote area.

Renewable energy sources are a key part of the nation's future, but wishful thinking does not provide an adequate foundation for public policy. The national RPS ...would be expensive and difficult to attain; it could cause a backlash that might doom renewable energy even in the areas where it is abundant and economical.

As it stands, subsidies for wind dwarf most fuel types at $23.37 MWh not including state and local tax breaks and subsidies for project owners, tax- and ratepayer funded transmission costs, and other public perks thrown at the industry. It's time to step back and consider what's best for us as a Country and demand that Congress stop picking favorites and stand behind a free energy market where companies succeed by building cheaper, better products than competitors. Saying NO to a national RPS would be an important first step.

This week, Wisconsin's Wind Siting Council submitted its final recommendations for the proper siting of wind energy facilities to the Public Service Commission. The standards promoted by the Council are some of the weakest Windaction.org has reviewed, especially for a State with a history of turbine complaints reported by its residents.

For more than five years now, communities throughout Wisconsin worked within State law to establish local regulations that would protect their residents from improperly sited wind energy projects. Different study committees statewide collected volumes of evidence on the effects of smaller[1] renewable energy projects. New local laws were passed that established larger setbacks and more comprehensive sound-level limits. Wisconsin's local laws stood as models for other communities worldwide.

But Wisconsin State legislators viewed these efforts as nothing more than delay tactics and moved to nullify local jurisdiction on any size projects. In September 2009[2], the legislature passed Senate Bill 185 placing all wind energy oversight in the hands of the Wisconsin Public Service Commission ("PSC"), thus negating the local regulations. Thousands of man-hours invested by communities were potentially erased, but for one opportunity: The bill required that an advisory panel of wind developers, local government officials, environmentalists and landowners be formed to guide and advise the Commission on proper siting standards. Commission spokesman Tim LeMonds insisted in the press that the standards would be based on science.

Since March, the Council heard and debated evidence submitted on the impacts of existing turbine facilities on people and their animals. Expert testimony provided by Epidemiologist Carl V. Phillips concluded "There is ample scientific evidence to conclude that wind turbines cause serious health problems for some people living nearby. ...The reports that claim that there is no evidence of health effects are based on a very simplistic understanding of epidemiology and self-serving definitions of what does not count as evidence. Though those reports probably seem convincing prima facie, they do not represent proper scientific reasoning, and in some cases the conclusions of those reports do not even match their own analysis."

Acoustics and noise control expert Richard D. Horonjeff, explained how and why turbine noise differs from other types of noises within a community and Dr. Herbert S. Coussons, a physician, laid out the medical reasons why the Council should be conservative in determining setback distances from where people live, work, and attend school.

The final recommendations of the Council were released this week, and it's not good.

The recommended guidelines deviated little from the conditions placed on the Glacial Hills wind project approved by the PSC earlier this year. Setback distances from property lines were recommended to be 1.1x the total height of the tower measured from any property line, residence, or occupied community building, noise limits were set at 50 db(a) during the day and 45 db(a) at night, shadow flicker permitted up to a whopping 40 hours in the year and no property value protection plan.

Only minimum standards on sound and shadow flicker were deemed needed based on the Council's finding "that the scientific evidence does not support a conclusion that wind turbines cause adverse health outcomes."

On property value impacts, the report found "there is not sufficient evidence to warrant requiring a property value protection plan for properties neighboring wind turbines." However, they conceded some risk to adjacent property owners and offered "developers should, as a standard practice, offer non-participating landowners a financial stake - a wind easement - in a project."

But this should not surprise anyone. Those observing the Council throughout this process informed Windaction.org that the fix was in even before the Council's first meeting.

Its membership[3] was dominated by individuals who either worked for companies involved in wind energy development or were vocal proponents of the industry. To be blunt, the majority had some financial interest in the outcome of the rules. It was a clear case of the wind industry drafting its own regulatory guidelines.

The defining moment came during the Council's June 9th meeting when the Chairman, Dan Ebert of WPPI Energy, a utility in the State, presented his "straw proposal" for what he thought the siting standards should be. A transcript of Ebert's speech that day suggests a leader trying to move the process forward. But the details of his proposal prove his real intent -- his relaxed standards were a gift to the industry.

After that, Ebert had no interest in working toward consensus. Why should he? With the Council now focused on his minimum standards, he needed only to act as gatekeeper deciding which changes warranted inclusion and those that could be ignored. It was an easy task since ten others at the table supported his position. And, as anticipated, Ebert's standards ultimately defined the final report. Mission accomplished.

It's clear now that the only reason for forming the Council was to create an air of legitimacy around industry-favored recommendations. From this point forward, the Council's report will serve as the hammer to silence the public, and bind the Commissioners' hands for years to come.

It's difficult to anticipate what's next for Wisconsin communities trying to protect their residents from their own State. But there is one shining light in this story.

The four members of the Council who did not agree with Ebert and his ilk prepared a minority report where they highlighted their concerns, including the industry bias in the Council's membership. The minority report, which appears at the end of the final document, deserves careful consideration by readers trying to evaluate the veracity of the majority's view.

[1] Smaller projects are those under 100 megawatts in size. Projects that were 100 megawatts or larger fell under the jurisdiction of the Wisconsin Public Service Commission.

[2] Senate Bill 185 was a second attempt by the legislature to remove local authority. The first bill, rushed in early 2008, did not have enough votes to pass.

[3] The following people were appointed to serve on Wisconsin’s Wind Siting Council:

Dan Ebert, WPPI Energy
David Gilles, Godfrey & Kahn (former WI PSC general counsel)
Tom Green, Wind Capital Group
Jennifer Heinzen, Lakeshore Technical College (President of RENEW WI)
Andy Hesselbach, We Energies
George Krause Jr., Choice Residential LLC
Lloyd Lueschow, Green County
Jevon McFadden, University of Wisconsin School of Medicine & Public Health
Tom Meyer, Restaino & Associates
Bill Rakocy, Emerging Energies of Wisconsin, LLC
Dwight Sattler, Landowner (3,700 feet from a turbine)
Ryan Schryver, Clean Wisconsin
Michael Vickerman, RENEW Wisconsin
Larry Wunsch, Landowner (1,100 feet from a turbine)
Doug Zweizig, Union Township

Against a backdrop of oil spewing into the Gulf of Mexico, the Obama administration stepped up its campaign to pass national climate change legislation. Senate Majority Leader Harry Reid, D-NV announced last week that he plans to bring a comprehensive energy and climate bill to the Senate floor by the end of the July. The bill, still to be written, is expected to include a cap on carbon emissions produced by the nation's electricity providers.

But before the U.S. embraces such a program, Congress - and the public - would be wise to examine the early performance of the Regional Greenhouse Gas Initiative (RGGI), the nation's first mandatory greenhouse gas cap and trade system.

Bottom line, the program has raised electricity prices, created a slush fund for each of the member states, and has had virtually no impact on emissions or on global climate change.

The federal government has been debating national climate legislation since 1992. Over one-hundred heads of state attended the United Nations Conference on Environment and Development, where it was assumed that man-made global warming was a problem and deserved public-policy action.

The Kyoto Conference followed in 1997. The conference resulted in the proposed Kyoto Protocol, a treaty to reduce greenhouse gas emissions ("GHG") through either a cap-and-trade or a carbon tax program in developed nations, and through carbon emission subsidies for underdeveloped nations.

The Protocol established the concepts of Joint Implementation ("JI") and Clean Development Mechanism ("CDM") as means to fund GHG reductions in the developing world. With Kyoto, "carbon finance" was born.

Major compromises in Kyoto included setting 1990 as the baseline to get Eastern European buy-in and exempting the underdeveloped world. The 1997 Byrd-Hagel Resolution, which passed the U.S. Senate by 95-0 ensured the U.S. would not sign onto Kyoto. It was the sense of the Senate, as cited in the resolution, that the protocol would "result in serious harm to the economy of the United States."

Ten years later, in 2008, the Regional Greenhouse Gas Initiative ("RGGI") was launched. RGGI was the first mandatory system in the country aimed at capping and reducing CO2 emissions over time. The region consists of ten Northeastern states: New York, New Jersey, Delaware, Maryland, and the six New England states.

Member states agreed to an initial emissions cap of approximately 188 million tons of CO2, representing the total amount of CO2 that power plants in the ten states were expected to emit in 2009, the first year RGGI went into effect. This cap is to remain in place until 2015 and then drop by 2.5% per year from 2015 to 2019 - a total drop of 10% by 2019. At the time the RGGI caps were set, stakeholders assumed that business-as-usual emissions from electric generation would grow roughly 1% each year.

Over two-hundred generators are subject to RGGI within the ten states, including all fossil fuel-fired power plants (coal, oil, and gas) with a capacity of at least 25 megawatts.

Each state is allocated a quantity of CO2 allowances according to previous emission history. New York State, for example, received 64 million allowances while Maryland received 38 million etc. up to the 188 million tons.

One allowance is equivalent to one ton of CO2. Generators within the respective states are required to purchase, through auction or directly from the state entity managing the program, a single allowance (permit to emit CO2) for every ton of CO2[1] they emit. RGGI requires that at least 25% of the allowances be auctioned by the states with the proceeds to be spent for consumer benefit and strategic energy projects.

A minimum price for RGGI allowances, known as the "reserve price," was set at $1.86 per ton. This floor price prohibits allowance prices from dropping to zero when emission limits are met, thus ensuring minimum revenues for state supported energy programs.

Quarterly, online auctions are conducted by World Energy Solutions which returns the proceeds to the member states. The initial RGGI auction, held September 2008, raised $39 million for the member states. Total proceeds raised to date, including the most recent RGGI auction (June 9, 2010), stand at $662.8 million.

Auction participation is not limited to power generators. Allowance trading can also occur within a secondary market that is expected to lower transaction costs and provide power plants an opportunity to acquire allowances at any time rather than through the quarterly auctions. Unsold allowances are made available for sale in future.

In its annual report on RGGI (October 2009) member State New Hampshire described the program in only positive light:

But a closer look at the program should give the public and federal legislators pause.

Superficially, the good news is that RGGI's initial year saw emissions from participant power plants fall 34% to just above 120 million tons of CO2. This figure is well below the 188 million ton cap and even below the program's 2019 goal of 10% reductions from 2005 levels[2]. However, most objective observers do not credit RGGI for the precipitous drop in overall emissions. Mild weather, the current economic downturn and lower natural gas prices caused a significant drop in electricity consumption.

The distribution of RGGI revenues did little to raise public confidence. In New Hampshire, columnist Fergus Cullen wrote that too many of the twenty-one projects funded so far with RGGI proceeds were tainted by what he called "cronyism and corporate welfare."

Clean Air Cool Planet , the global warming alarmist group whose aggressive political lobbying is credited with the state joining RGGI, received over $1.2 million through two grants, including $813,402 to be shared with the University of New Hampshire to create the Carbon Challenge website. The state's descriptions of the two grants ("to provide residents and communities with the information, tools and support necessary for households to make substantial reductions in their energy consumption and thus greenhouse gas emissions") are vague and the money unlikely to translate into measurable results.

A $470,000 grant was funneled to Fraser paper mill in Gorham, NH, to help reduce the mill's oil consumption. The company declared bankruptcy in 2009, and this month it is expected to divest of all its assets, raising doubt that the money spent will have any long-term public benefit.

New Hampshire is not alone. Maine allocated ten-million dollars in RGGI revenues to form Efficiency Maine Trust, a public entity whose purpose is to help residents save on electricity and use less heating oil. Each of the 10 member states describe their allocations of the money in similarly vague terms.

Actions this year by four member states demonstrate that RGGI is little more than an energy tax to be spent as politicians see fit. In Maryland, legislators voted to take 50% of the RGGI revenues and distribute the money to lower income residents to help pay their power bills. New York's Governor David Patterson will use $90 million of revenue to address state budget deficits. New Jersey followed suit and grabbed $65 million to cover a shortfall in last year's budget. New Hampshire closed its budget gap by diverting $3.1 million from RGGI funds.

Under RGGI, the cap was purposely set low and compliance has already been met through 2019 and beyond due to fortuitous circumstances. While the cost per allowance is also low (now selling at the floor price of $1.86 per unit) participant states have managed to amass over half a billion dollars in proceeds since September 2008.

Yet it is very doubtful whether projects receiving RGGI grants have achieved anything except for superficial "feel-good" results. With the decline in the economy, Maryland, New York, New Jersey, and New Hampshire redirected the money to cover budget shortfalls - thus cementing the view of skeptics that cap-and-trade is nothing more than another government program aimed at taxing energy.

Senate negotiators are currently considering an initial carbon price of around $20 dollars a ton, rising as high as $50 per ton by 2050. The Wall Street Journal recently reported that a national cap and trade system could generate between $1.3 trillion and $1.9 trillion during fiscal years 2012 and 2019.

Regional disparities in fuel uses, if not addressed in the law, will unfairly burden residents in coal-powered states like Kentucky, while favoring others in New England (natural gas, nuclear) and the Pacific Northwest (hydro). Although there is some indication from the White House that money would go toward a tax cut for the "middle class," RGGI proves there will likely be substantial wiggle-room to use the money to promote more government growth.

RGGI is Exhibit A against a national cap-tax-and-spend program. Americans should understand this program and run in the other direction.

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[1] In the New England region, 1 CO2 allowance equates to 2 megawatt hours of generation from a combined-cycle natural gas plant and 1 megawatt hour of coal-fired generation.

[2] Barring changes in the cap, CO2 allowances are valued at the $1.86 floor price and will likely remain in surplus through to 2019.

Earlier this year, the Rhode Island Public Utilities Commission (PUC) disapproved the terms of the a power purchase agreement negotiated between utility giant National Grid and Deepwater Wind LLC. 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 agreement contained an initial bundled energy price (energy, capacity, renewable credits) of $244 per megawatt hour (24.4 cents a KWh) with a 3.5% escalation factor each year. According to testimony submitted to the PUC (RI PUC Docket 4111), long-term prices for renewables located elsewhere in the region were significantly cheaper at $80 and $120 per MWh. The RI PUC ultimately found the agreement was not commercially reasonable and withheld its approval.

Absent a signed agreement, Deepwater could not secure investors and the project stalled.

Outraged by the decision, Rhode Island's Governor Carcieri backed a hastily drafted bill introduced by State Senator V. Susan Sosnowski that would pave the way for the power purchase agreement to go into effect without approval of the PUC. Backers of the bill (S2819) argued the PUC misinterpreted the standard for determining what was commercially reasonable; the new legislation removed the Commission from the regulatory process.

The bill was an obvious attempt to circumvent established process allowing the Governor to ram through his pet renewable on the backs of Rhode Island ratepayers. Even supporters of the wind project found this legislative action untenable.

By mid-May the bill was held up by the Senate Environment and Agriculture Committee. Chairwoman Sosnowski announced she was awaiting amendments to the bill that would give Carcieri what he wanted and still placate objectors.

Yesterday (Jun 7), with just three days left in the legislative session, the Committee released an entirely revamped S2819. The new text, tailor-made for Deepwater, reintroduces the PUC back into the process but with legal constraints that all but force the Commissioners to approve the purchase agreement.

Attorney General Patrick C. Lynch issued a statement where he correctly stated the new bill would make the PUC "Deepwater's rubber stamp for a pre-rigged outcome that will be disastrous for Rhode Island ratepayers and businesses, costing them nearly $400 million above the market price of electricity over the next two decades."

The message is clear and corrupting: renewable generators need only apply and Rhode Island will approve, no matter the cost, benefit, or impact of your project.

This action by the Governor and the legislature should be widely denounced by the public, ratepayer advocates, other energy providers, and in particular by those who still believe governmental process has purpose beyond satisfying the narrow wants of those in power.