Renewable energy: Two wind deals. One loser?
Renewable energy mandate from Massachusetts causes two utilities to make deals. One renewable energy deal might save ratepayers money. The Cape Wind project will cost them $1.2 billion.
State lawmakers gave every Massachusetts utility the same order in 2008: go 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's done. Meanwhile, NStar says its contracts with three smaller land wind farms are a total of $111 million below market price.
The $1.3 billion gap has fired up Cape Wind foes, who've asked the state Department of Public Utilities to reconsider its approval of the National Grid deal.
But National Grid says its deal with Cape Wind, the nation's first offshore wind farm, is a good price for its benefits, including a uniquely large size for a renewable power project, proximity to an energy-hungry coast, and the fact its 130 turbines are scheduled to soon go up in Nantucket Sound.
The utility also believes it's 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 doesn't 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 home owner (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 a Massachusetts attorney general's office estimate. 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 it 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 didn't 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 won't disclose its pricing, but energy experts, 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. Gerwatowski said it was clear to National Grid that finding the lowest cost projects couldn't be the only priority if it was going to take the state's broader goals on renewable energy seriously.
The utility analyzed projected supply and demand of renewable energy, and says that showed offshore wind — and projects as large as Cape Wind — were critical to meeting those goals. It estimated the equivilant of nine projects the size of Cape Wind would be needed by 2025.
Gerwatowski said the utility knew less expensive projects than Cape Wind were out there — he calls them "low-hanging fruit."
"The question is, 'What's the goal?'" he said. "Is it to just meet 3 percent and move on? Or is it to actually try to implement the policies that are trying to achieve some pretty ambitious objectives to get a substantial amount of power in this region from renewable resources?"
NStar spokeswoman Caroline Allen said all renewable contracts help meet the state's larger renewable goals. She declined to discuss comparisons between the two companies' deals.
Rio noted NStar received bids for several times the amount of renewable power it sought and said that proves there's a vibrant market that could grow to meet future renewable energy needs. There was no reason for National Grid to commit to a more expensive renewable project now, he said.
Cape Wind spokesman Mark Rodgers said a focus on price is too narrow, given the benefits National Grid identifies, and also project spin-offs that show how Cape Wind will pay off regionally. For instance, a proposed New Bedford facility where the project's turbines will be assembled will bring an estimated 600 to 1,000 badly needed jobs during Cape Wind's construction, he said.
"There's a lot of benefits here for the state of Massachusetts ... that a wind farm in northern Maine just does not provide," he said.