National Grid makes second Cape Wind deal
It will assign rest of power output to a customer
National Grid, the utility that agreed to purchase half of Cape Wind’s power, has made a second deal to help the controversial energy project lock down construction financing until it finds buyers for the rest of the electricity it will produce.
Last week, National Grid revealed a roughly $3 billion, 15-year contract to buy 50 percent of the electricity that will be produced by Cape Wind. The utility also signed a second, similar agreement that gives it authority to assign the remaining portion of Cape Wind’s power output to another customer.
Who that might be is an open question. Industry insiders said likely prospects include other retail suppliers, municipal utilities, and utility companies like National Grid competitor NStar, which is based in Boston.
“There’s a range of potential buyers out there,’’ said Dennis Duffy, vice president of Cape Wind Associates. “NStar is certainly close to home and a major utility, but by no means the only company that would be a potentially suitable purchaser.’’
NStar has given no indication that it is considering an agreement with Cape Wind.
“We have not spoken to Cape Wind regarding a contract,’’ spokeswoman Caroline Allen wrote in a statement to the Globe. “Our position on Cape Wind remains the same. We are very supportive of wind power and renewable power in general, but as an energy delivery company, we don’t endorse specific projects.’’
State law requires the four investor-owned utilities in Massachusetts — National Grid, NStar, Western Massachusetts Electric Co., and Unitil Corp. — to buy a steadily increasing percentage of the power they sell to customers from renewable energy providers. The utilities also are obligated by the state to enter into long-term contracts with renewable energy suppliers, and to give some preference to local providers.
Under the contract signed last week, National Grid will pay 20.7 cents a kilowatt hour for 50 percent of Cape Wind’s energy when it first comes online in 2013, and will increase the price by about 3.5 percent a year for 15 years, for about $3 billion in potential revenue for Cape Wind. The price, which includes a state-mandated renewable energy subsidy of 6.1 cents per kilowatt hour, is well above the current price of electricity from conventional power sources. To provide basic residential service, National Grid currently pays 8.11 cents per kilowatt hour for the power alone, not counting distribution or transmission charges, according to the company’s website.
That means rate payers would essentially be paying a premium for environmentally friendly wind power, equal to about one-third of the contract costs, according to numbers in a National Grid filing made to the Massachusetts Department of Public Utilities this week.
Industry insiders said the second agreement — a so-called mirror contract — allows National Grid to act as a stand-in for any future electricity buyer interested in Cape Wind power. And that, they added, is a huge favor to the offshore wind project. As they seek the financing needed to build in Nantucket Sound, Cape Wind developers can demonstrate to potential investors that 100 percent of their future output is spoken for. And new buyers would not need to negotiate from scratch, but would be able to take from National Grid rights to Cape Wind power.
“I think it was a good faith thing, to put it forward to show other buyers they don’t have to go through protracted negotiations,’’ said Sue Reid, a lawyer with the nonprofit advocacy group Conservation Law Foundation. “They’ve laid the groundwork for another buyer to come in much more easily.’’
National Grid lawyer Ronald Gerwatowski said the mirror contract does also give the utility the option to purchase more of Cape Wind’s power, but that is not the company’s plan. Rather, Gerwatowski said, National Grid will hand contracted rights to the power to whatever purchaser might next step forward. That buyer would then be under the same obligation as National Grid to buy power at a starting price of 20.7 cents per kilowatt hour.
Nothing, however, prevents another buyer from coming in and trying to hash out a better price, and if it did, National Grid’s price would drop accordingly. “We wouldn’t expect that Cape Wind would be negotiating a lower price with somebody, but, hypothetically speaking, if they did, there are contract provisions in the agreement where we would get the same benefit,’’ Gerwatowski said.
Should the remaining power be sold to other buyers at the same price, the two contracts together would total roughly $6 billion. Tom King, National Grid president of US operations, defended the contract when it was unveiled last week.
“We will be reducing environmental impacts by relying less on fossil fuels,’’ he said. “Some people may say, ‘We can’t afford this right now.’ I say we can’t afford not to act. We must move forward.’’
Cape Wind representatives have declined to provide an estimate of how much it will cost to build the wind farm, which received federal approval to proceed late last month, or discuss who they are negotiating with to back the project.
“We’re out in some very competitive negotiations with contractors and component suppliers, and it would alter our negotiating position to discuss what our internal costs looked like,’’ Duffy explained.
Erin Ailworth can be reached at email@example.com.