Turbine is not a need, therefore it’s too risky
The debate about the Jamestown wind turbine project should not revolve around the desirability of increasing renewable energy in the United States – most people think it is desirable.
It is also amusing, but only of passing interest, to learn that residents in towns with turbines have an “almost spiritual” experience when in their presence, as Harley Lee noted in his latest article (“Turbines accepted after construction,” Feb. 23). Rather the debate should focus on whether this specific wind turbine project is right for Jamestown. Concluding that it is not should not be viewed as a general rejection of wind energy projects.
The wind turbine proposal is unique because no one to date has articulated just why we need to build it. Typically when a town goes into debt it is to build something that meets a need. A new school, improved roads or even a new highway barn are examples. However, because it makes no sense for the town to pay well above the market rate for electricity, the Town Council is now working with a model that will have all of the turbine’s output sold off island. What need is the turbine then addressing?
This project has instead been pitched as an investment that promises steady cash returns. If that is the case it should be recognized that investments entail risk, especially ones using 100 percent borrowed money. Using the basecase scenario presented to the Town Council, Jamestown will be putting at risk $4.3 million of borrowed money. In my Viewpoint article (“Risks are too great to build win turbine at Taylor Point,” Feb. 6) it was suggested that the ability to receive a profitable price for the electricity over the life of the project was one risk. A small reduction in the received power price would generate losses that could reach a couple million dollars.
Other areas of risk include building the turbine to budget, operating costs and the manufacturer’s ability to stand behind its warranties. A less obvious risk is that the new indebtedness may limit the town’s flexibility should a future need be identified that requires additional borrowing.
Of course risk is balanced against expected return. Unfortunately this is where the investment case unravels. The problem is that the town will be borrowing 2012 dollars and getting paid back in cash flows that stretch out to 2032. A dollar earned 10 and 20 years from now is worth a lot less than a dollar today. Popeye’s sidekick Wimpy understood this well when he stated, “I will gladly pay you tomorrow for a hamburger today.” Assume a 2.5 percent rate of infl ation and the turbine generates a negative return.
To make this project financially viable Jamestown will need to attract private sector money. On top of all the subsidies, private investors also receive tax breaks that are not available to municipalities. If individuals come in as equity investors this will reduce the debt level and the risk. This would also give some local wind turbine proponents an opportunity to participate directly in the project.