America Should Learn from Europe on Wind Power

June 20, 2013

As the Department of Energy considers a loan guarantee for the Cape Wind Project in Massachusetts, it should learn from Europe's failed wind energy experiments and from its own troubled experiences with renewable energy projects, says Iain Murray, a vice president at the Competitive Enterprise Institute.

Germany and Spain are waking up to the inevitable truth about renewable energy, especially offshore wind. They are now realizing the projects cannot survive without subsidies and that they make energy much more expensive to households and businesses.

When Germany decided to close down its nuclear power stations after the Fukushima disaster in Japan, the original plan was to replace most of the lost generating capacity with wind power.

  • However, wind power is expensive, and the growing size of the industry has meant that subsidies and energy bills have surged.
  • The growth in wind power meant that in January the surcharge increased to over 5 cents (euro) per kilowatt hour, representing 14 percent of all electricity bills.

German Chancellor Angela Merkel, realizing that wind power is economically unsustainable, has proposed capping the subsidy until the end of 2014 and capping further rises at 2.5 percent, 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.

President Obama has repeatedly said we should look to Spain and Germany for the lead on renewable energy policy. He is right, but not in the way he thinks. Consider the Cape Wind project on Nantucket Sound.

  • The project will cost $2.6 billion; it has secured funding for $2 billion from a Japanese bank.
  • However, this is loan believed to be subject to the project gaining a loan guarantee from the U.S. Department of Energy.
  • 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.

For the Department of Energy to grant the loan guarantee to Cape Wind would be a triumph of blinkered ideology over real economic and environmental concerns. The president, true to his word, should learn from Germany and turn down the loan guarantee to Cape Wind.

Source: Iain Murray, "America Should Learn from Europe on Wind Power," USA Today, June 13, 2013.

 

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