Grid strikes  Cape Wind deal

Grid strikes Cape Wind deal

State’s largest utility agrees to pay significant premium for wind power

The largest electric utility in Massachusetts today agreed to buy half of the power output of Cape Wind over the next 15 years, paying a significant premium over current prices.

The deal, which requires approval from the Department of Public Utilities, is designed to give Cape Wind a guaranteed, long-term revenue stream to reassure lenders and investors who might be willing to finance construction of the 130-turbine project off the coast of Cape Cod.

National Grid agreed to pay Cape Wind 20.7 cents per kilowatt hour starting in 2013, a price that would rise 3.5 percent a year for the life of the 15-year contract. In 2028, that would mean the price would be just under 35 cents a kilowatt hour.

The initial 20.7-cent price includes renewable energy credits worth about 5 to 6 cents that the state uses to subsidize renewable power. Subtracting those, the power cost of the deal is about 15 cents, which is 6 to 7 cents more than what Grid currently pays for electricity. Grid customers also pay for transmission and delivery of the power they receive. Officials estimate the typical Grid customer would pay about $19 more during 2013 if the Cape Wind contract is approved.

“The question is whether folks are prepared to pay 5 cents a day for a better energy future.”Tom King, the president of National Grid’s US operations, and Jim Gordon, the president of Cape Wind, said during a press conference at Grid’s headquarters in Waltham that their deal was less about the money than the future of the country. King was adamant that the United States needs to invest in clean technology to keep pace with investments in renewable energy being made by China and northern Europe.

 “Some people will say we can’t afford this right now. I say we can’t afford not to act,” King said. He added later: “The future has got to be green.”

Gordon said Cape Wind will generate a total of about 182 megawatts of power a day. He said the power will displace more expensive power and save regional ratepayers billions of dollars over the coming decades. He, too, downplayed the cost of the project to Grid ratepayers, saying it amounts to about 5 cents a day on the typical residential bill.

“The question is whether folks are prepared to pay 5 cents a day for a better energy future,” he said.

Gordon said he is talking to other utilities, other power purchasers, and even the federal government about purchasing the remaining half of his power. He noted his wind power would become more attractive financially if the cost of more conventional fossil fuels rises.

State law compels utilities like Grid to attempt to negotiate long-term contracts with renewable power suppliers to help them establish a foothold in the market. Grid and Cape Wind began negotiating in December and finished yesterday. King declined to go into specifics of the deal, saying details will be disclosed when the proposed contract is filed with the DPU on Monday.

If the deal is approved, Grid will roll the cost of the contract into its rate base and also collect a 4 percent fee on the total annual value of the contract. Gordon said he didn’t know the annual value of the contract, and even got mixed up telling reporters how to calculate it. He said the project will generate 1.5 billion kilowatt hours of electricity a year, of which 750 million would go to Grid. At a price of 20.7 cents a kilowatt hour, the contract’s value in 2013 would be $155 million and Grid’s fee would be $6.2 million.

Grid negotiated a similar contract with an offshore wind developer in Rhode Island that was rejected as too expensive by that state’s DPU. The Rhode Island project involved just eight turbines and was located in much deeper water. The negotiated price in that deal was 25.3 cents a kilowatt hour, escalating 3.5 percent a year over the 20-year lifespan of the contract. The negotiated price in that deal for just the electricity was about 25 cents a kilowatt hour, escalating 3.5 percent a year over the 20-year lifespan of the contract. Unlike the Cape Wind deal, the Rhode Island price did not include transmission costs.

King called the Rhode Island rejection unfortunate. “It’s unfortunate because Rhode Island is not able to move forward,” he said.

Meet the Author

Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

UPDATE: Ian Bowles, the Massachusetts secretary of energy and environmental affairs, said the Cape Wind deal is actually about half the price of the Rhode Island one. He presented an array of statistics and charts indicating the Cape Wind deal was a good one for the Massachusetts, but he stopped short of urging the DPU, which he oversees in the state’s organizational chart, to approve the contract.