Competition works

Long-term renewable energy contracts should be put out to bid

massachusetts is committed to the principle that approximately 20 percent of its existing electric generation capacity should be replaced by a combination of efficiency measures and renewable energy. On the demand side, this commitment has already spawned a boomlet of energy efficiency initiatives that are having a substantial impact on electricity demand.

On the supply side, progress is coming more slowly. Massachusetts, working through its largest utility, is on the cusp of making a long-term commitment to Cape Wind.  National Grid negotiated a 15-year contract with Cape Wind and, as I write this, is awaiting regulatory approval to recover the cost of that contract from its customers.

Cape Wind, for all of its issues, is an important step in the right direction. Renewable energy developers need long-term contracts for their power if they’re going to bring projects of sufficient scale online. But the contracting process in Massachusetts and across New England needs to move faster if we are to keep up with our obligations. It took Cape Wind years to land a contract. We need to step up the pace and approve a similar-size contract every year if Massa­chusetts and the other New England states are going to individually and collectively reach their renewable energy goals.

There are two questions for policymakers. First, what criteria should be used in selecting the next renewable projects and, second, how should the renewable projects be selected? I believe we should select the cheapest qualifying renewable projects that also create the greatest economic benefit for New England. And we should make the selections using a competitive procurement process.

In pursuing a cleaner electric system, Massa­chu­setts has defined renewable energy as wind, solar, small hydroelectric, and biomass. Generation from oil, coal, natural gas, nuclear, and large hydroelectric facilities was excluded. One can argue about the definition, but these were not random choices.

As a matter of state economic and environmental policy, the governor and the Massachusetts Legis­lature wanted as much of the renewable energy as possible to be generated within the state. They even set up special initiatives targeting Massachu­setts–based renewables. Cape Wind’s proposed contract with National Grid was the outgrowth of one of those initiatives.

The preference for in-state renewables is understandable. At both the federal and the state level, environmental policy is increasingly conflated with economic policy. Simply stated, we need jobs. A big push for renewable energy could create thousands of new and sustainable jobs. For that reason, we need to reframe environmental policy to take into account the number of jobs environmental initiatives may create. To the extent we make long-term commitments (and we will have to do so), the number of jobs created should be among the selection criteria determining which alternatives we pursue.

But we also have to keep in mind that a project’s selection shouldn’t be dictated by its location. We should select the projects that are cheapest first, wherever they happen to be located in the region, while taking employment effects into account. The key to successful development of renewable energy is competitive procurement of the long-term contracts that will have to be issued to get large-scale projects built.

There are three sources for the next wave of large renewable projects, each with its own employment consequences.

First, we could develop more offshore wind projects like Cape Wind. If done on a large scale (as is currently contemplated by other East Coast states), this could evolve into a huge industry, with thousands of high-skill, high-paying jobs. While early offshore projects will have understandably higher capital costs, these should come down over time. The development of offshore wind could have an enduring and even profound effect on the economies of the East Coast states, which have largely failed to develop a large, indigenous energy sector.

Second, we could import wind power from Maine, New Hampshire, and upstate New York, which each have excellent onshore wind prospects that (unlike Massa­chu­setts) can be developed on a large scale. This would also generate thousands of jobs for New England states.

Third, we could import hydroelectric energy from Canada. The choices are Quebec and Newfoundland. Unfor­tunately, these neighbors are locked in a bitter dispute over the rights of way needed to get their abundant hydroelectricity to the northeastern United States. While it would be ill-advised for Massachusetts to get involved in this dispute, both provinces would like the state and the region to make long-term commitments to the purchase of their hydroelectricity and for that power to count towards the states’ renewable energy targets. According to Massachusetts custom, however, large-scale hydro is not renewable. Perhaps more significantly, reliance on Canada for New England’s renewable energy means fewer renewable energy jobs in New England.

These projects all require some investment in transmission lines to deliver power from where it is generated to the population centers in southern New England where it is needed. Some have advocated for an elaborate regional or even national transmission system to carry this power, but it would be more cost-effective to build transmission lines on a case-by-case basis and bundle the lines and the power in one package.

Meet the Author
Only a competitive process will unleash the creative energies of our most innovative businesses—the Googles of electricity, in essence—by encouraging them to compete to provide New England with affordable, clean energy. We cannot, in other words, simply give this business to the first companies that walk in the door, or to utilities simply because these activities occur in their traditional service areas. The winners of this regulated competition will be specialists who will not be allowed to pass through cost overruns to electricity ratepayers, forcing them to bring their projects in on budget and on schedule. Non­competitively awarded projects, in contrast, typically come in behind schedule, well above budget, and with consumers unknowingly picking up the extra tab.  

Edward N. Krapels is the chief executive of Anbaric Holdings LLC of Wakefield, which has incubated several large, innovative transmission projects (see www.NeptuneRTS.com), and Smart Grid companies (see www.ViridityEnergy.com).