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Globe Editorial

DPU should vet it closely, but Cape Wind still makes sense

August 30, 2010

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MUCH AS GM’s $41,000 price tag on its electric Volt delivered a high-voltage sticker shock to car buyers, Cape Wind blew away National Grid’s 1.2 million Massachusetts customers when they learned that their power from Cape Wind will cost at least 25 percent more than National Grid’s conventional electricity. Even though the wind power will be just 3.5 percent of the utility’s total load and the impact on an average monthly bill will be about $1.24, consumers are justified in asking if the state is right to require utilities to bring on costly renewable power like Cape Wind’s. The answer is no if the goal is simply to keep utility costs as low as possible in 2010 — but yes if Massachusetts wants to be a future leader in renewable technology.

Still, the state Department of Public Utilities should look closely at all the data behind the proposed contract between National Grid and Cape Wind when it begins hearings next month. One indication that Cape Wind’s owners are not taking advantage of the utility or its customers is a comparison with offshore wind power costs in the United Kingdom. The average 2009 price of such electricity is 20.9 cents a kilowatt hour, well above the 18.7 cents Cape Wind will be getting if it goes on line as planned in 2013.

Critics, though, also point to the annual 3.5 percent inflation adjustment escalator Cape Wind will receive over the contract’s 15 years. Cape Wind says that reflects expected increases in operating costs and that, without it, the start-up kilowatt-hour costs would be higher. Under no circumstances will Cape Wind pocket Goldman Sachs-level profits: If, when all the construction costs are known, its rate of return reaches 10.75 percent, the price of its electricity will be lowered.

Some of the resistance to the gap between the cost of conventional power and Cape Wind’s undoubtedly has to do with expectations. In the first eight years of the project’s extended march through state and federal regulatory hurdles, the price of conventional power generation rose 400 percent in lockstep with escalating prices for natural gas. That climb, brought to a screeching halt by the recession, made the project’s 130 turbines look like an answer both to homeowners’ high utility bills and to the need to reduce the greenhouse gases of fossil fuel power plants.

Now that gas prices are down, the high capital costs of anchoring huge turbine towers in Nantucket Sound make Cape Wind less of a bargain — in the short term. In the longer term, consumers will get a power source with zero fuel costs, a welcome hedge against the unpredictable fluctuations of natural gas prices. And as high as fossil-fuel prices can go, they still don’t reflect the health and environmental costs of their production or their emissions, a lesson the country just re-learned with a vengeance in the Gulf of Mexico.

Critics of the contract between National Grid and Cape Wind frequently blast it as a no-bid deal. In fact, National Grid did consider alternative ways to meet its state-mandated requirement to derive more of its power from renewable sources. But it chose Cape Wind over competing smaller projects, including land-based wind, solar, and biomass.

The Legislature has mandated greater use of renewables both to reduce the Commonwealth’s carbon footprint and to give a boost to state and regional clean-energy companies. Last week’s announcement that a wind-turbine blade maker will open a plant in Fall River illustrates the potential. With energy policy in the country as a whole paralyzed by congressional stalemate, Massachusetts at least has a chance to make itself a leader in clean-energy industries. That includes high-tech batteries, hydrogen fuel cells, cellulosic ethanol, and — since the Northeast is the Saudi Arabia of wind — wind energy.

Calculating that dividend from the National Grid/Cape Wind deal might not be within the purview of the DPU, but it is a major reason why the project continues to deserve the Commonwealth’s support.

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