At a time when the U.S. seems utterly unable to rein in runaway energy prices, what could two small islands possibly do? The answer is blowing in the wind.
Since 2004, the price paid for electricity on Vinalhaven and North Haven islands has risen from 18 to 28 cents per kilowatt hour, an increase of 56 percent. The Fox Islands Electric Co-op, which serves both islands, buys electricity from the New England grid, which has doubled its price to the co-op since 2005. The Co-op’s payments on a large loan, needed to replace an old undersea cable used to bring power to the islands, also have boosted the retail electricity price.
The co-op’s interest in wind power began in 2002, when the University of Massachusetts’ Renewable Energy Research Lab came to Vinalhaven to study its wind resources. The lab found that Vinalhaven’s strong winds could efficiently operate wind turbines.
On July 28 the co-op presented a wind power plan to its members, who voted for it with overwhelming approval, 382 to 5, with strong support from both year-round and seasonal island residents.
Other communities presented with wind turbine projects have often split. Why, in contrast, do Fox Islanders support this plan almost unanimously? Several unusual features of the co-op’s plan are the keys to the answer.
The first key feature: the plan is designed to insulate the community from future price increases.
The co-op’s plan envisages two or three wind turbines with a total generating capacity of roughly 4 megawatts. These turbines will produce over 10,000 megawatt hours of electricity each year, about the same as the islands now use – hence the islands will be self-sufficient over the course of a year. At times, though, the co-op will have to import power through its undersea cable and pay for it. This will most likely happen in the summer, when consumption is high and the wind relatively weak. In winter, when strong winds will generate more power than the islands consume, the coop will sell power to the mainland over its cable.
Remarkably, any future mainland electricity price hikes will not affect the islands’ prices. This results from the matching of year-round purchases and sales: If prices rise, the co-op will have to pay more for the electricity it buys, but this will almost be totally offset by the higher prices it will charge when selling power back to the mainland. Better, wind generation might prove so efficient that the co-op will be able to decrease energy prices. No wonder islanders strongly support the project.
These financial prospects may be unique: We know of no other wind power project that insulates a community from future price increases by offsetting electricity purchases almost exactly with sales.
A second key feature of the Fox Islands plan goes even further toward explaining community support: Because both costs and benefits will be confined to the two Fox Islands, the project’s benefits will flow to the very people who bear the costs. This is called “co-location” of costs and benefits.
Other wind projects lack this feature. The disadvantages of wind turbine projects – possible obstruction of views and a slight whooshing sound occasionally audible to nearby residents – affect mainly local residents, while the advantages – lower electricity costs, reduced greenhouse gas emissions – mainly benefit other people who live hundreds or even thousands of miles away.
So the islanders’ overwhelming support is hardly surprising; although they will pay the project’s costs, they know they also will reap its benefits.
Though we cannot examine here all of the plan’s other features, we should briefly mention these:
Major Federal tax benefits, amounting to several hundred thousand dollars a year in tax credits, will be available to attract private funding to the project. The co-op has already identified a company interested in a passive investment of 40 percent of project costs in return for the tax benefits.
The project’s capital costs probably will be financed partly by the advance sale of renewable energy credits – “green credits” – to other energy companies.
Risks from uncertain future electricity prices are virtually eliminated, as noted, by the matching of future electricity purchases and sales.
Though the project’s financial soundness rests on forecasts of uncertain construction costs and future wind speeds – and thus electricity generation – steps can and will be taken to mitigate these risks.
Depending on the wind resources and other circumstances of a particular community, these features – economic self-sufficiency and insulation from price hikes, co-location of costs and benefits pre-sale of energy credits and investment by passive tax investors – could be replicated elsewhere. Maine state laws should be reviewed and amended to encourage replication.
Clearly Vinalhaven and North Haven people have an incentive to “think locally and act locally.”
Better still, Fox Islands residents can do more than simply help themselves; they also can help solve the daunting problems of energy shortages and global warming. It’s hard to imagine a more clear-cut “win-win” outcome.
Edwin Dean, an economist and seasonal resident of Vinalhaven, writes monthly about economic issues. His co-author for this column, George Baker, a Harvard Business School economist and seasonal Frenchboro resident, is on a leave of absence from Harvard, working to explore the feasibility of wind energy production on the Maine coast.
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