Posted by: bmeverett | October 19, 2010

More on Cape Cod Wind Power


On August 8, I posted a piece on wind power on Cape Cod (“Hot Air on Cape Cod”). I subsequently converted that post into a September 13 op-ed in the Cape Cod Times, which you can find at http://www.capecodonline.com/apps/pbcs.dll/article?AID=/20100913/OPINION/9130319. The op-ed included a criticism of the wind turbine at the Massachusetts Maritime Academy (MMA). Admiral Richard Gurnon, President of the MMA, took strong exception to my view in his own Cape Cod Times op-ed, published on September 21, which you can find at http://www.capecodonline.com/apps/pbcs.dll/article?AID=/20100921/OPINION/9210331. Since the Times was not terribly interested in continuing this exchange in print, I sent Admiral Gurnon a private note, which you can find at the end of this post. In response, I received a gracious invitation to meet with him and a couple of his colleagues to discuss renewable energy. Admiral Gurnon is an experienced, intelligent and thoughtful person and the meeting was both enjoyable and constructive. After considerable debate, we reached agreement on several points.

First, his argument that wind power is needed to help us reduce our dependence on oil is not really valid. The US uses almost no oil in power generation any more. There are a few old fuel-oil power plants in the Northeast, but most oil is used either for peak shaving, back-up generators or in remote areas not connected to the grid.

Second, Admiral Gurnon conceded that, on balance, oil is a heavily taxed, not a heavily subsidized fuel. Subsidies represent a few pennies per gallon, while excise taxes on gasoline average over $0.40 per gallon in the US, often several dollars per gallon in other countries.

Third, we agreed that research into alternative energy sources is a sensible activity. The MMA is at heart an engineering institution. Students, many of whom become merchant marine officers, learn an array of technical skills, many related to electricity and propulsion. Having a number of state-of-the-art energy systems on campus, including diesel, jet, wind, solar, tidal and other systems is an excellent teaching tool and a perfectly appropriate activity for the school.

We did not agree, however, on the broader social and economic implications of renewables. Admiral Gurnon and his colleagues argued that expanding the use of large-scale wind and solar power would help those technologies reduce costs and become more competitive. I argued that these technologies are simply too expensive and that forcing them into the marketplace simply raises consumer costs with little if any benefit. In fact, allowing companies to sell uncommercial technologies at a profit may hamper, rather than facilitate further technological progress.

Overall, the conversation was very positive, and I offer Admiral Gurnon my public thanks for his courtesy. The MMA is an impressive institution making a real contribution to our society. We agreed to stay in touch and continue the dialog.

Letter to Admiral Gurnon follows:

September 21, 2010
Admiral Richard Gurnon
President
Massachusetts Maritime Academy
101 Academy Drive
Buzzards Bay, Massachusetts 02532

Dear Admiral Gurnon:

I read with interest your recent “My View” article in the Cape Cod Times with your response to my criticism of wind power on the Cape and at the MMA in particular. I have written a short reply to the Times, but wanted to respond to you at greater length regarding the arguments you made.

First of all, I stand by my statement that wind power economics are poor, and your own numbers support my argument. The turbine cost $1.47 million in 2006 and will save roughly $170,000 per year over 20 years ($3.4 million divided by 20). There will be some operating and maintenance costs, for which I cannot find any data. The wind projects I have researched generally incurred annual O&M of about 4% of initial capital costs. Furthermore, many of these turbines suffered increasing O&M costs with age. (I would be grateful if you could direct me to actual data on this point.) To be fair, let’s assume that O&M for your turbine is 2% of capital cost or about $30,000 per year. That estimate may be wrong, but O&M is certainly not zero. These numbers generate an annual payout of $140,000 on an initial investment of $1.47 million – an internal rate of return of 7.2%. This calculation omits the fact that NSTAR must retain – at ratepayer’s expense – backup generating capacity to supply the MMA when the wind turbine is not working. No private investor would make such an investment, and I strongly suspect that such a return is below the Commonwealth’s cost of capital.

Second, you repeat the incorrect argument regarding subsidies that Mr. Richard Elrick made in his letter to the Times of September 16. You state that “for every federal dollar spent incentivizing wind, $13.50 is spent on enticements for coal, oil and natural gas.” Your citation was incomplete, but I did dig through the Texas Comptroller’s website and found the numbers to which I believe you are referring at http://www.window.state.tx.us/specialrpt/energy/subsidies/index.php#Exhibit28-8. According to this information, in 2006, the federal government gave direct $3.5 billion in direct subsidies to the oil and gas industry and $2.8 billion to the coal industry for a total fossil fuel subsidy of $6.3 billion. In the same year, federal subsidies to wind power were only $460 million, which does indeed approximate your ratio of 13.5 to 1. That calculation, however, ignores the issue of scale. According to the Energy Information Administration, in 2006, the US consumed about 100 quadrillion Btus of energy, equivalent to about 800 billion gallons of gasoline. Of that amount, 677 billion gallons were fossil fuels and about 2 billion gallons were wind power. Thus, federal fossil fuel subsidies were less than 1¢ per gallon of gasoline equivalent (6.3 divided by 677), while wind subsidies were 23¢ per gallon (0.460 divided by 2). In other words, wind subsidies per unit of energy were more than 20 times fossil fuel subsidies.

Furthermore, the Texas Comptroller’s numbers omit the rather considerable tax revenue extracted from oil sales at both the state and federal level. The federal government taxes gasoline at 18.4¢ per gallon and diesel at 24.4¢ per gallon. Much of this money goes to the Highway Trust Fund, but some is spent in other ways. In addition, the Commonwealth of Massachusetts imposes a tax of 23.5¢ on both gasoline and diesel. Overall, governments make, rather than lose money on fossil fuels. There are to my knowledge no taxes on wind energy.

I certainly agree with you that our dependence on oil imports raises foreign policy and national security concerns. I also do not like sending money to Middle Eastern dictators. However, oil currently accounts for less than 1% of our electricity generation, primarily for peaking systems, back-up generators and small systems in rural areas with no access to the grid. Looked at another way, about 1% of our oil consumption is for power generation. We have a few remaining large fuel oil plants such as the horrible old Sandwich plant on the Canal, but these dinosaurs can and should be replaced with modern combined cycle plants using domestic natural gas supplies. For the foreseeable future, virtually every kWh of wind power will replace domestic natural gas supplies, not imported oil.

This situation could change of course, if electric vehicles were to become economically viable. They are not now and are unlikely to be viable until we make a break-through in battery technology, a development we have been working on for well over 100 years. A $41,000 Chevy Volt with the size, performance and styling of a $17,000 Toyota Corolla is just not going to work for the average American.

You note the additional efforts of the MMA in installing photovoltaic systems and geothermal heating and cooling. These systems too are poor investments from an economic standpoint. I am proud that the MMA is here in Massachusetts and happy to support it with my tax dollars. As a taxpayer, I would much rather the MMA focus on its mission of “preparing women and men for exciting and rewarding careers on land and sea,” at which you have no equal, rather than being “a leader in the green/renewable energy field.” You are more than welcome to your own personal views on green energy or any other issue. I fail to see, however, why the MMA as an institution should use taxpayer funds to advocate for a highly controversial political agenda with which many of us disagree. Teaching your students the analytical skills necessary to reach sound conclusions on the important issues of the day is a worthy and important goal. Indoctrinating them into sharing your personal vision of a “different energy future” seems questionable to me.

As a final point, Sir, I was quite disappointed that you chose to attack me personally and publicly rather than simply addressing the arguments I offered. You and I have never met, yet you suggest that I am somehow dishonest or unreliable because of my oil industry background. Important issues ought to be argued on their merits, and I have offered a straightforward analysis in support of my arguments. Ad Hominem arguments have become much too common in our political discourse and have contributed to the coarsening of our politics. It seems to me that we should commit ourselves to a search for the truth, not an effort to win the debate by whatever means possible.

Please accept my very best regards. I would be more than happy to discuss these issues further with at any time.

Very respectfully,

Bruce M. Everett

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