Several stories in the press this week caught our attention which we felt deserved responses.
Cape Wind agreement:
Windaction.org's editorial last week examined the above market cost of the Cape Wind project that would be passed on to ratepayers in the State of Massachusetts. National Grid and Cape Wind Associates have now released some of the terms of their agreement -- none of which changed our position. We plan to write further on this topic but thought it important to highlight a few of the facts omitted in press accounts covering the agreement:
1) Monthly electric bills. National Grid announced that the project will increase monthly electric bills by $1.59 for residential customers using 500 kilowatts hours of electricity. However, the average residential customer for Grid consumes 700 kilowatts hours monthly bringing the cost closer to $2.26. Still, none of the news stories considered a comparison of Cape Wind's costs to other renewable options in the region.
2) The 4 percent markup. The Massachusetts Green Communities Act of 2008 assures National Grid an annual remuneration equal to 4 percent of the annual payments under the contract to compensate Grid "for accepting the financial obligation of the long-term contract". The 4 percent markup increases the $207 per megawatt hour (20.7 cents per kilowatt hour) accepted by Cape Wind to $215 a MWh. Surprisingly, the State policy incents National Grid to negotiate higher contract prices.
3) REC prices. According to press accounts, Cape Wind secured a price for the renewable energy credits at $67 a megawatt hour (6.7 cents a kilowatt hour). Yet, Massachusetts' REC prices today are trading at around $18/MWh and future prices are not expected to rise above $25/MWh. There is no justification for locking in a REC price that is 3-4 times the future market value. Bear in mind, the REC price agreed to in the contract is also subject to the yearly 3.5% escalator.
Property value impacts:
Windaction.org has written about the Wirtz family in Wisconsin who abandoned their home due to noise and vibrations emanating from nearby wind turbines. Their home, which was appraised for $320,000 in 2007 sold in a sheriff's sale this week for $106,740. But don't expect this event to be included in studies examining the effect of turbines on home values. Michael McCann, of McCann Appraisal, LLC in Chicago provided Windaction.org this perspective:
The whole story is useful to understanding wind turbine impacts, because it proves that living near turbines is unbearable in some instances.
However, in every legal proceeding for which I have been involved, sheriff sales are not considered to be "arm's-length" or otherwise are not accepted by courts as a reliable indication of market value. Typically, such a sale is not admissible as evidence, and a jury will not be allowed to hear about it. From an appraisal perspective, however, this sale is excellent evidence of the "market reaction" rather than completely reliable "market value" proof, even if the value was discounted further due to the sheriff sale.
An open mind must wonder what could distress an owner (and their livestock) so much that they would abandon the home of their dreams. With an objective view, it seems obvious: The turbine impact.
Last December, a GE 1.5 megawatt turbine at the Fenner wind facility in Fenner, New York collapsed. An official report explaining the root cause of the collapse is still pending but news this week shed light on the situation. According to the article, "concrete core samples from the foundations preliminarily showed inconsistent aging and degradation".
Hank Sennott, director of corporate affairs and communications for Enel North America told the Madison County Courier "I don't know of any turbine foundation failures, but we were the first, so there is nothing to go back and research. This project was the largest built east of the Mississippi when we constructed it 10 years ago. There's no history for us to look at."
Frankly, Mr. Sennott's statements deserve to be challenged.
Foundation failure has been reported in the national media before, suggesting the industry is well aware of the problem. A Business Week article from August 2007 entitled "The Dangers of Wind Power" included this:
Even the technically basic concrete foundations are suffering from those strains. Vibrations and load changes cause fractures, water seeps into the cracks, and the rebar begins to rust. Repairs are difficult. "You can't look inside concrete," says Marc Gutermann, a professor for experimental statics in Bremen. "It's no use just closing the cracks from above."
(Editor's note: the Business Week article is worth reading in its entirety.)