Offshore Wind Wire

By Peter Brennan

Offshore wind developer Cape Wind and electricity distributor and generator National Grid received a stern warning last week from Massachusetts’ top energy official regarding the power purchase agreement being negotiated by the two entities.

In a Feb. 17, letter addressed to Cape Wind President Jim Gordon and Thomas King, head of Electricity Distribution and Generation for National Grid, MA Secretary of Energy and Environmental Affairs Ian Bowles cautioned the two parties to keep ratepayers in mind during PPA negotiations.

Cape Wind, the proposed 130-turbine wind farm in Nantucket Sound, is in negotiations with National Grid for the purchase and sale of the resulting power. A power-purchase agreement with National Grid would be a crucial step forward for Cape Wind, which has been seeking approval and fighting detractors for over nine years. National Grid provides electricity to much of the Northeastern United States, and an agreed-upon PPA would make Cape Wind more palatable to investors.

However, any PPA would require the approval of Massachusetts officials, and Bowles’ letter gave the clearest indication to date of where these officials expect the price to be.  Bowles made specific reference to a PPA executed recently between National Grid and Deepwater Wind for the power generated by an eight turbine project off of Block Island, R.I. Under that agreement, National Grid will pay 24.4 cents per kilowatt hour for electricity from the turbines with the price increasing 3.5 percent a year.  The cost of an undersea cable between Block Island and the mainland could drive that purchase price even higher.

“Let me be clear,” Bowles wrote. “Our expectation is that the Cape Wind project must produce electricity at a substantial discount to the Rhode Island offshore wind project.”

In the letter, Bowles did not set a price point that the State would require for approval, but the comparison to the Rhode Island PPA was a clear indication of what costs will not pass muster.

The letter was not completely negative, however, as Bowles made a point to recognize the recent Charles River Associates study that claimed that a wholesale power market price reduction would result from the introduction of a new zero-fuel cost source. Bowles’ acknowledgement lent credence to the study, which has come under fire because it was funded by Cape Wind.

Despite affirming the potential benefits to the energy market and the environment, Bowles remained adamant that any PPA must first consider consumers.

“Notwithstanding these significant potential fossil fuel hedging and wholesale price reduction benefits, our priority remains cost effectiveness, including contract provisions to minimize impacts on Massachusetts ratepayers.”,  wrote Bowles.

Bowles also suggested including a provision in the PPA that would allow other Massachusetts utilities to buy into any contract between the entities.  Under Massachusetts’ Green Communities Act, passed by the Legislature in 2008, the state’s renewable portfolio standard requires utilities and other electricity suppliers to obtain 4% of their power sales from new renewable sources by 2009, rising to 15% in 2020 and 25% in 2025.

“The Green Communities Act set out a requirement as well as incentives for the four electric distribution utilities to enter into long term contracts to facilitate the development of costs effective renewable power in Massachusetts,” wrote Bowles, “We favor contract provisions that would allow the other utilities to meet this obligation by buying into the Cape Wind-National Grid contract.”

Bowles also hinted that the State would look more favorably on a PPA that made provisions for job creation within the state.

“We would like to see such economic benefits – including wind blade manufacture, component assembly, staging and shoreside services activities – accrue to Massachusetts” wrote Bowles.