Windfall profits: Proposed Cape Wind towers on generous government subsidies
Boston, MA (PRWEB) May 19, 2006
A study published this week by the Beacon Hill Institute at Suffolk University finds that a wind farm proposed for Nantucket Sound Energy would give higher profits the average of its developer thanks to hundreds of millions of dollars in public subsidies. In its analysis, the institute concluded that the developer, Cape Wind Associates, would receive a 25% return on equity, 2.5 times the average for all companies.
said David G. Tuerck, executive director of the Beacon Hill Institute: “We knew the project was in line to receive massive subsidies The aim of our study was to determine the size of subsidies would be and how Cape Wind. benefit from them. We found quite remarkable. Cape Wind is to receive grants of $ 731 million, or 77% of the cost of installing the project and 48% of the revenues it would generate. The political question that this amount of subsidy raises is whether the benefits of the project is worth enormous public subsidies that the developer gets. “
wind farm planned by Cape Wind plans to install 130 turbines in Nantucket Sound, each 426 feet tall and visible from Cape Cod, Martha’s Vineyard and Nantucket. The project, which would cost $ 950 million to build, would generate about 2.5% of the electricity used by Massachusetts, the equivalent of 1% of that used by New England.
In 2008, if, as expected, the wind power plant is nearing completion, Cape Wind would be eager to receive three grants that at different stages during the life of 25 years of the project: (1 ) Federal production tax credits, (2) Massachusetts green credits and (3) a tax break through the function of accelerated depreciation on federal tax code.
Because these subsidies vary in size and timing on the life of the project, it is necessary to compare them to “present value” terms, ie according to their value to the developer in 2008, updated to reflect the time value of money. Thus, for example, grants received during the first 10 years of the project through the federal tax credit on total production would be $ 337 million, but would be worth $ 180 million in present value. Massachusetts green credits, totaling $ 1.7 billion over the entire lifetime of 25 years, would be worth $ 487 million. The function of the accelerated depreciation tax code would be worth $ 65 million in present value. Adding these amounts leads to the estimated total grant $ 731 million (excluding the suburbs).
Cape Wind would pay taxes to federal, provincial and local. She should pay taxes during the life of the project would have a present value of $ 151 million in 2008. Subtracting this amount from the $ 731 million in subsidies leaves a “net subsidy” of $ 581 million. Yet it is the $ 731 million “gross” of the subsidy (subsidy before taxes) that seems most to question of what Cape Wind would cost taxpayers and electric ratepayers. Businesses that generate average profits at or above their average investors usually pay income taxes without the benefit of any subvention. If that $ 950 000 000 Cape Wind would invest in this project had been invested elsewhere, there would be a similar contribution to the list of taxpayers without any need for public subsidy.
wind farm is currently under review by the Minerals Management Service, U.S. Department of the Interior. “Before the project gets approval, taxpayers and taxpayers must know what they have to pay subsidies so that Cape Wind can provide a very small fraction of the energy needs of the region,” said Tuerck. “We suspect they will be surprised at how much they pay.”
Beacon Hill Institute received any financial support for this study.
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