Discrepancy in power prices fuels opponents of Cape Wind

By Jay Lindsay
Associated Press / March 28, 2011

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State lawmakers gave every Massachusetts utility the same order in 2008: Buy more power from renewable energy sources.

But the state’s two largest utilities came back with vastly different deals, especially in price.

National Grid estimates its deal with the Cape Wind offshore wind project will cost ratepayers $1.2 billion above the projected market price of comparable energy by the time it is done. Meanwhile, NStar says its contracts with three smaller, land-based wind farms are a total of $111 million below market price.

The $1.3 billion difference has fired up Cape Wind foes, who have asked the state Department of Public Utilities to reconsider its approval of the National Grid deal.

“Cape Wind is just an unnecessary burden for ratepayers,’’ said Audra Parker of the Alliance to Protect Nantucket Sound.

But National Grid says its deal with Cape Wind, the nation’s first offshore wind farm, will yield a good price for the benefits, including a uniquely large size for a renewable power project, proximity to an energy-hungry coast, and the fact that its 130 turbines are scheduled to soon go up in Nantucket Sound.

The utility also believes it is impossible to meet the region’s ever-growing renewable energy mandates without Cape Wind and large-scale projects like it, said Ron Gerwatowski, deputy general counsel for National Grid.

“We have to step out and get projects like Cape Wind into the mix,’’ he said.

National Grid estimates the deal will cost the average residential ratepayer (618 kilowatt hours per month) $1.50 a month in the first year.

“We really thought it was a small price to pay,’’ Gerwatowski said.

Cape Wind opponent Robert Rio of the Associated Industries of Massachusetts believes that estimate will prove far too low. He also said it does not account for the effects on larger customers who will also absorb the tens of millions in annual above-market costs.

“Frankly, as a person who represents business, I find it insulting that they’re using some little homeowner’’ for comparison, he said.

“It ain’t a $1.50 a month to our members.’’

The 468-megawatt Cape Wind project will cost $2.62 billion to build, according to an estimate from the Massachusetts attorney general’s office. Developers say it will power 200,000 homes in average winds, but the project is still shopping half its power and could be built smaller without another buyer.

Under a 2008 law, Massachusetts utilities must obtain increasing amounts of renewable power, and by 2025 renewables must make up 20 percent of their supply. The same law tries to make it easier for renewable projects to get financing by requiring utilities to seek long-term deals with them for at least 3 percent of their total demand.

The law requires the deals to be “cost effective.’’ State regulators made it clear when they approved the National Grid deal that did not mean cheapest, just a good price for the expected benefits, and Gerwatowski said National Grid chose Cape Wind from among of mix of higher and lower cost options.

Under the 15-year deal with National Grid, the utility pays 18.7 cents per kilowatt hour in the first year, with a 3.5 percent annual increase.

NStar’s deals with land wind farms in Massachusetts, New Hampshire, and Maine provide 109 megawatts, about 1.6 percent of NStar’s demand, leaving it with power to purchase to meet state requirements.

NStar will not disclose its pricing, but energy analysts, including New York-based consultant Bill Short, have made estimates. He said his calculations put the three projects’ average cost at 9.4 cents per kilowatt hour. The price remains flat during the contracts, which run 10 to 15 years.

National Grid directly negotiated its deal with Cape Wind. NStar requested bids — eventually receiving 74 qualified proposals — as part of a standard, state-approved process that put heavy emphasis on lowest price.

Offshore wind is more expensive than land wind in part because of the high cost of building and maintaining massive turbines at sea.