Tying Up Loose Ends
Cape Wind still needs financing
The first offshore wind farm proposed off the Northeast coast cleared a hurdle when another utility agreed to purchase some of its generation, but more than one-fifth of the output is unsold.
The Massachusetts Department of Energy Resources (DOER) and Nstar filed a proposed settlement with the Department of Public Utilities (DPU) that includes an agreement for the utility to buy 27.5 percent of Cape Wind’s energy as a conditions of NSTAR’s proposed merger with Northeast Utilities (NU).
That means 77.5 percent of the plant’s output will be under contract, which officials say is enough for Cape Wind to go to the financing markets.
“Even with the agreements for that much of the power, we’re going into the project finance phase with the expectation that the project will be fully built,” said Mark Rodgers, the Cape Wind spokesman.
Next steps are the conclude negotiations with Nstar. “Hopefully, they will conclude quickly,” Rodgers said.
There is a bit of time constraint. Connecticut regulators have until April 2 to conclude their merger review.
National Grid agreed to pay Cape Wind 18.7 cents a kilowatt-hour for half the output that the project produces. The price will increase 3.5 percent annually for the 15-year life of the contract.
State regulators have already said that the deal with National Grid is the framework under which subsequent power purchase agreements would be reviewed. Nstar had resisted that framework for more than a year maintaining that it had secured cheaper renewable resources onshore.
Hence, it was able to negotiate a PPA that commits it to significantly less than the remaining half of Cape Wind’s output.
Without an agreement in place for the last 22.5 percent of its power, Rodgers said the project will continue to market the remaining output to other potential customers and didn’t rule out my suggestion that it could be bid into the open market in ISO New England.
While projects along the east coast have been vying for the lead position in developing offshore wind, Rodgers said the agreement puts Cape Wind back in front.
Nstar agreed to purchase 129 megawatts of capacity from the planned 468-megawatt project as part of its $4.8 billion acquisition by Connecticut-based Northeast Utilities.
Massachusetts, under its Green Communities Act of 2008 and subsequent regulatory rulings, changed merger review requirements to include “net public benefits” that include environmental goals, which included more renewable energy in utility portfolios.
Cape Wind has spent a decade under review and fending off challenges, so development is by no means certain. If Cape Wind has not broken ground by 2016, Nstar has committed to purchasing an equal amount of clean energy from another source.
Also, under terms of the proposed settlement, if Cape Wind does not commence “physical construction” before December 31, 2015, Nstar can opt to terminate its power purchase contract with the wind farm.
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Comments
How does one justify $187/MWh?
In paragraph 8 is a statement that National Grid agreed to pay Cape Wind 18.7 cents per KWh ($187/MWh). I do not know much about energy prices in that part of the country but I averaged some wholesale electrical prices in ERCOT for the week of 24 through 31JUL2011 a notably hot time of the year when electricity is in greatest demand. I did throw out some odd, very high, and very rare jumps that occured when a large generating facility tripped and there was inadequate backup due to the dearth in new plants being built because of federal subsidies for wind farms. The peak power prices between 4 and 6 PM averaged between $60 and $65 per MWh. The lowest prices were seen between 4 and 6 AM and averaged around $25/MWh. How in the world does one justify paying $187/MWh for offshore wind power that will most likely not even be available when most needed? What happens to the retail consumers' cost of electricity when this travesty gets shoveled to them at 3 to 4X the contract rate?
That's how come they've been having problems selling the output!
Your comment illustrates part of the problem with the adoption of off-shore wind and renewable energy in general. As long as the external costs of generating electricity with conventional sources of energy aren't included in the price of the electricity, renewable energy is going to APPEAR more expensive.
That $60 - $65/MWh figure is the wholesale price of a system that still gets 99% of it's generation from non-renewable sources (87% from fossil fuels). If you factor in the external costs that come with using these fuel sources such as the increased health costs that are the result of the pollution produced by burning fossil fuels and the environmental costs of securing the fuel, renewable energy ends up being much cheaper!
Regarding the power being available when it's needed, you're right. Wind is a fickle thing when you only look at a specific gerographic location. Sometimes the wind blows and other times it doesn't! However, if you widen your view and look at where the wind is blowing at any particular time, there are always places where electricity can be generated by wind. Part of our challenge in adopting this environmentally friendly energy source is that we'll need to beef up our electrical grid in order to compensate when the wind isn't blowing at one particular location. There are also various utility scale storage technologies that are coming on line which also could help compensate for the intermittent nature of wind.
As far as the retail rate that consumers pay for electricity, the trick is to get the populace to understand that they are really paying more for their electricity than just what they see on their bill. The even bigger trick is to get them to see this AND to get their elected representatives to have the courage to support methods that result in the true costs of burning fossil fuel to be reflected in the cost of that fuel.
Bob "The Clean Energy Guy" Mitchell