Massachusetts regulators today gave their long-expected approval to Cape Wind’s 15-year contract with National Grid, concluding that the contract’s high cost was acceptable given the project’s ability to help the state meet its renewable energy goals.
Those goals, set at a time when energy prices were at all-time high and renewable energy fervor was strong, appear nearly unattainable today with natural gas prices low and the economy in the tank.
In its 351-page order, the Department of Public Utilities said the state will need the equivalent of nine Cape Winds over the next 15 years just to meet the renewable energy goals of the Green Communities Act. Given that need, the DPU said the high price of Cape Wind electricity was acceptable.
“The power from this contract is expensive in light of today’s energy prices,” the DPU said in its ruling. “It may also be expensive in light of forecasted energy prices — although less so than its critics suggest. There are opportunities to purchase renewable energy less expensively. However, it is absolutely clear that the Cape Wind facility offers significant benefits that are not currently available from any other renewable source.”
The project’s primary benefits are its size (468 megawatts), its proximity to areas of the state that use a lot of electricity, and its ability to generate power during peak demand periods. But its biggest benefit is its ability to help the state meet the renewable energy requirements of the Green Communities Act and the greenhouse gas emission mandates of the Global Warming Solutions Act. “We conclude that those requirements are unlikely to be met without the Cape Wind contract and the associated emissions reductions from the project,” the DPU wrote.
The DPU said demand for renewable energy will far outstrip supply over the next 15 to 20 years, despite optimistic projections about the future of renewable energy from the Patrick administration. The DPU said biomass is on the back burner, solar is likely to remain expensive, and land-based wind, “although a promising resource, in many instances faces significant siting and transmission constraints in order to serve Massachusetts load.”
Cape Wind’s contract with National Grid became a flashpoint in the race for governor, with Gov. Deval Patrick saying the project was needed to reduce dependence on fossil fuels and kickstart a renewable energy industry in the area. His Republican opponent Charlie Baker called the Cape Wind deal a no-bid contract that would saddle electric ratepayers with higher costs at a time they could ill afford them.
Under a provision of the Green Communities Act, National Grid, the state’s largest utility, negotiated the contract with Cape Wind. Both parties subsequently agreed to lower the initial contract price 10 percent to win Attorney General Martha Coakley’s support.
The deal calls for National Grid to buy half of Cape Wind’s power output starting in 2013 at a price of 18.7 cents a kilowatt hour, double current prices. The contract calls for the price to rise 3.5 percent a year over the 15-year life of the contract. The DPU estimated Cape Wind would boost the bills of National Grid residential customers by roughly 1.3 to 1.7 percent and the bills of commercial and industrial customers by 1.7 to 2.2 percent.
The price of Cape Wind power could increase to as high as 23.5 cents a kilowatt hour if the project fails to qualify for two federal tax credits and could decrease slightly if financing proves less expensive than predicted. The DPU order also caps Cape Wind’s rate of return at 10.75 percent.
The DPU said the offshore wind project should support 162 net jobs on average each year during the 15-year contract.
The project, according to the DPU ruling, is expected to cost between $1.6 to $1.8 billion and have a market value of $1 billion. Using those calculations, state officials estimated the above-market cost of the project would range between $544 million and $782 million. But the officials also said the zero fuel cost of the project should dampen prices in regional power auctions, yielding an actual above-market cost of between $420 million and $695 million.
The DPU’s approval of the Cape Wind-National Grid contract was one of the last major hurdles the project faces, but it still is pursuing some federal permits and a buyer for the other half of the project’s power output.