Obama Should Learn from Germany about Cape Wind

I have an op-ed online in USA Today today entitled “America should learn from Europe on wind power.” In it, I outline how Europe has begun to come to its senses about the unsustainable cost of wind energy:

However, wind power is expensive, and the growing size of the industry has meant that subsidies – and energy bills – have surged. The German subsidy is paid for by a surcharge on household electricity bills. The growth in wind power meant that in January the surcharge increased to over 5 cents (euro) per kilowatt hour, representing 14% of all electricity bills.

In Germany, Chancellor Angela Merkel, realizing that wind power is economically unsustainable, has proposed capping the subsidy until the end of 2014 and capping further rises to 2.5%, with the probability of further significant reform after the federal elections this year. It’s a similar story in Spain, where subsidies have been cut so much that the chairman of the country´s Association of Renewable-Energy Producers said recently: “Spain’s government is trying to smash the renewable-energy sector through legislative modifications.”

As it happens, President Obama has repeatedly said we should look to Spain and Germany as examples of how to handle renewable power. Indeed, and he should apply this thinking to the loan guarantee application for the Cape Wind project:

The project will cost $2.6 billion, and it has secured funding for $2 billion of that from a Japanese bank. But this is believed to be subject to the project gaining a loan guarantee from the U.S. Department of Energy. And there is every reason to believe that this would be as bad a bet as its loan guarantee to Solyndra.

The contracted cost of the wind farm’s energy will be 23 cents a kilowatt hour (excluding tax credits, which are unlikely to last the length of the project), which is more than 50 percent higher than current average electricity prices in Massachusetts. The Bay State is already the 4th most expensive state for electricity in the nation. Even if the tax credits are preserved, $940 million of the $1.6 billion contract represents costs above projections for the likely market price of conventional power. Moreover, these costs are just the initial costs, and like in Germany, they are scheduled to rise by 3.5 percent annually for 15 years.

In fact, one major Massachusetts employer estimates that each 1 cent increase in the cost of energy per kilowatt hour will cost the company $4 million, creating a major incentive to relocate, costing the state jobs and revenue.

When you consider that the Cape Wind project would also inflict environmental damage to cause Massachusetts residents and businesses to pay more for their energy, the case becomes a “no-brainer.” This is one case where the President could do with being a little more European in his outlook.