Cape Wind and Offshore Wind Power Generation
On the face of it, it seems hard to imagine a better match between a region and its energy needs than New England and the Cape Wind offshore wind farm power project. The six-state area produces few natural resources with which to generate its own electricity to provide for its 14 million inhabitants. A large percentage of this electricity is currently produced by nuclear plants, which in the area are controversial to say the least. The remainder of New England’s power generation capacity consists primarily of relatively small-scale hydro, fossil fuel, biomass, and trash-to-energy facilities. Meanwhile, just offshore is a seemingly inexhaustible supply of power, in the form of wind (which, as many of us Yankees will attest, always seems to blow every day throughout the coastal region). And offshore wind power is a proven technology, generating electricity in Europe for years. It seems little wonder that an opinion poll indicated that over 80% of adults in Massachusetts are in favor of the project, with environmental groups such as Greenpeace and the Audubon Society voicing support. Thus if any enterprise appears to have a bright economic future, it would appear to be Cape Wind.
Why then does it seem that any news item about Cape Wind almost invariably includes the word “controversial” to describe the project? And why in a recent interview did Jim Gordon, Chief Executive Officer for Cape Wind Associates, cite legal opposition from project critics as one of the major challenges to the enterprise? To answer these questions, we must examine several critical factors, some specific to Cape Wind, others perhaps applicable to any renewable energy technology that proposes to produce large-scale electricity in the near future.
Cape Winds at a Glance
Briefly, Cape Wind is a $2.5+ billion dollar project to build 130 wind turbines in Nantucket Sound, off the coast of Cape Cod. After 10 years of development, much of it spent in court responding to critics, the project recently received approval from the U.S. government to begin construction, which is slated to start over the next several years. A major milestone was last year’s announcement that National Grid signed a 15 year agreement to purchase 50% of Cape Wind’s output, at 18.7¢/kWh. When completed, the wind farm is projected to supply around 75% of the energy needs for residents of Cape Cod and the islands of Nantucket and Martha’s Vineyard, with no greenhouse gas or other polluting emissions, no consumption of water, and no other discharge of waste.
In addition to providing power, Cape Wind promises to offer a boost to the local economy. Mr. Gordon estimates that during its construction phase, the project will hire between 600 and 1000 workers; when operational it will employ 150 full-time staff.
One of the primary groups opposed to the development of Cape Wind is the Alliance to Protect Nantucket Sound (APNS), whose membership and supporters have included former U.S. senator and Democrat presidential nominee John Kerry, former governor and potential Republican presidential nominee Mitt Romney, and the late senator Ted Kennedy. Readers will recognize that those names appear to cut across otherwise wide political boundaries, which may indicate opposition to Cape Wind is not based solely on ideology. It may also be instructive to recognize that some of those names have generally been counted among those in support of environmental and green energy initiatives, which may be further evidence of how divisive an issue the project has become.
APNS and its supporters maintain their objections to Cape Wind are based on a number of legitimate concerns, including safety, damage to the environment, and aesthetics. Its critics, on the other hand, claim the group’s environmental stance is overstated, and that its primary motivation is in actuality a well-heeled, well-connected form of NIMBY. Whatever the case, APSN has spent much of the last 10 years making life difficult for Cape Wind, raising numerous court challenges. Recently, they along with several other groups filed initial briefs with the Massachusetts State Supreme Judicial Court to appeal the state’s Department of Utilities’ November 2010 approval of the project. And a recent sighting of North Atlantic right whales in Nantucket Sound provoked fresh APNS criticism of the wind farm on ecological grounds.
Although APNS is probably the most high-profile group opposed to Cape Wind, they are not alone. For example, included in the aforementioned legal filing is the group Associated Industries of America (AIM), who believes the 15-year contract between National Grid and Cape Wind unfairly distributes the project’s costs to ratepayers. Others have also criticized the additional burden consumers will have to pay for their electricity, since the cost of power produced by the wind farm will be considerably higher (at least in the near future) than that produced by current technologies. Although this additional cost may not be overly excessive for individuals (one estimate projects this as around $1.50 per month per average household), for larger consumers such as Wal-Mart the increase could be substantial. And some have questioned the commercial viability of Cape Wind, pointing out that 50% of their potential power output still remains unsold.
Thus far, Cape Wind appears to maintain an optimistic outlook towards these court challenges. In a recent interview, Mr. Gordon characterized the situation as “we’ve been at this for 10 years, and we have met our opponents in courts or in regulatory arenas for that time, and our record has been 15 and 0.” Nevertheless, at a minimum answering such challenges consumes time and expense. Further, years of legal wrangling would likely delay the eventual financial return for any hypothetical venture capitalist contemplating investing in a project such as this.
In some ways, Cape Wind can be considered a bellwether project for offshore wind farms in America. Recently, the U.S. Federal Energy Regulatory Commission (FERC) conditionally approved the Atlantic Wind Connection. This $5 billion project (which includes internet search giant Google as a major investor) proposes to create an offshore transmission line that would connect up to 6,000 MW of offshore wind power to the US east coast, from Virginia to New Jersey. Although Cape Winds would not be connected to this project, its success (or lack thereof) may serve as a model for Atlantic Wind Connection and other offshore wind-based initiatives.
Ultimately, it appears more likely than not that Cape Wind will surmount its legal and regulatory challenges, and eventually go online to provide power to regional customers (although given the project’s history, exactly when that will happen remains less than clear). In the interim, many will continue to watch the project closely, as potentially symbolic of the future of offshore wind power generation in the U.S. And beyond this, Cape Wind may offer an instructive example of how even the seemingly most logical of commercialization and investment opportunities can be dampened by a relatively small opposition — if that opposition is sufficiently equipped to promote its cause.
Dick McCarrick is an analyst with Foresight Science & Technology.
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