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NStar OKs top dollar deal with Cape Wind

But consumer impact projected as modest

By Erin Ailworth
Globe Staff / March 31, 2012
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Boston utility NStar has agreed to pay a starting price for power from the Cape Wind project that is substantially above the cost of conventional energy and will slightly increase the average customer’s monthly bill beginning the first year the offshore wind farm generates electricity, according to a 15-year contract filed with state regulators Friday.

The price, 18.7 cents per kilowatt hour, is the same as what National Grid agreed to pay when it signed a contract in 2010 to purchase half the power generated by Cape Wind. NStar’s deal is to purchase 27.5 percent of the wind farm’s total output. Since the Cape Wind power represents only about 2 percent of the energy distributed by NStar, it is expected to have a moderate impact on the average customer’s bill, $1.08 a month. Customers in the Boston area pay about $86 a month.

Cape Wind executives and advocates believe the project will, in the long run, help moderate regional energy costs.

The $1.6 billion contract still needs the approval of the Massachusetts Department of Public Utilities. NStar, with 1.1 million electric customers, has asked for a decision by the end of the year.

The utilities currently pay about 8 cents per kilowatt hour for electricity, and NStar originally balked at becoming a Cape Wind customer, arguing the wind farm’s cost was too high. That position changed last month, when, after nearly a year of negotiations, state energy officials agreed to endorse a proposed merger between NStar and Connecticut-based Northeast Utilities if NStar made several concessions, including buying power from Cape Wind.

“We know that it will take a diversified approach using all available renewable resources to meet the state’s climate change goals,’’ NStar spokeswoman Caroline Pretyman said. “We recognize that renewable energy has a cost associated with it but we see this as an investment in our state’s clean energy future.’’

The agreement left little room for NStar to negotiate the price it would pay for the energy, dictating, according to regulatory filings, that the utility’s purchase price “shall be substantially the same’’ as the price National Grid agreed to pay. NStar also committed to purchasing a comparable amount of power from another project, if Cape Wind has not begun construction by the end of 2015.

As with National Grid, the price that NStar pays for Cape Wind’s power will increase by 3.5 percent each year to adjust for inflation. By the end of the contract, NStar will pay just over 31 cents per kilowatt hour.

The strict stipulations on prices and terms led critics to question the state’s role in bringing about the deal.

“The ‘negotiation’ around this contract was a complete sham,’’ said Robert Rio, a spokesman for the Associated Industries of Massachusetts, a trade group that has long opposed the high price tag for Cape Wind’s power. “We’ll never know what the final [price] could have been because NStar was hamstrung in the negotiation process.’’

Renewable energy proponents, however, see the deal as a coup for Governor Deval Patrick, who insisted that NStar’s $17.5 billion merger to Northeast Utilities should promote cleaner sources of energy.

“These numbers don’t even take into account the added economic and societal value of avoided greenhouse gas emissions,’’ said Sue Reid, director of the nonprofit Conservation Law Foundation in Massachusetts.

In addition, Reid said, the premium NStar will pay for Cape Wind’s power is not as large as it may first appear since it includes a subsidy of about 6 cents per kilowatt hour that utilities must pay to promote renewable energy. That subsidy is not reflected in conventional energy prices.

The NStar contract is a milestone for Cape Wind, providing the project with enough assured sales to attract financing. The 130-turbine wind farm is expected to cost more than $2 billion to build in Nantucket Sound.

Despite the high price of Cape Wind’s power, supporters have argued that the project will help lower New England energy prices in the long run.

Cape Wind says the savings could be substantial. An update of a 2010 study commissioned by Cape Wind estimates that the wind farm will help the region save an average $7.2 billion on wholesale energy prices in its first 25 years of operation.

That’s because Cape Wind’s costs will be paid for by fixed contracts with the utilities. With no fuel costs when the turbines are rotating, it will displace power on the grid from energy sources with higher fuel costs, according to the study.

“Cape Wind would have a substantial impact in reducing spot market prices,’’ said Mark Rodgers, a Cape Wind spokesman. “That ultimately filters back to all of us electricity consumers in New England.’’

Rio, meanwhile, said he thinks that any such savings would actually be “incredibly minuscule.’’

“I don’t know if you’ll ever be able to make money on this thing,’’ he said. “It’s real fuzzy math.’’

Erin Ailworth can be reached at Follow her on Twitter @ailworth.

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