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National Grid & Cape Wind Sign 15-Year PPA

On Friday, National Grid and Cape Wind announced that they will file a contract with the Massachusetts Department of Public Utilities (DPU) on Monday under which National Grid will buy power from the nation's first large-scale, offshore wind farm, which is expected to come online by the end of 2012. This follows the recent decision from U.S. Interior Secretary Ken Salazar to approve the project.

Under the terms of the contract, which must be approved by the DPU, beginning in 2013, National Grid would purchase from Cape Wind 50 percent of the wind farm’s output including electricity, renewable energy certificates (RECs), and other potential market attributes for US $0.207 cents per kilowatt-hour (kWh).

That price, which assumes existing federal tax incentives, would increase 3.5% per year during the 15-year term of the contract. Based on its forecasts of what customers will pay for electricity in 2013, National Grid projects this will translate to a total monthly bill increase of $1.59, roughly two percent per month, for a typical residential customer who uses 500 kWh per month. Cape Wind estimates that the project will produce 1.5 billion kWh per year. If this production figure it reached, National Grid's 50 percent off take would result in approximately $119 million in revenue for Cape Wind in 2013.

“It’s truly fitting that the next milestone in our nation’s clean energy revolution is taking place in the Bay State and New England. We believe this project will provide long-term economic and environmental benefits here, throughout the region and across the nation,” said Tom King, National Grid's president. “We absolutely must develop our homegrown renewable energy resources if we are to meet state and federal renewable goals, secure our energy future and seize the leadership position in the global clean energy economy.”

Jim Gordon, president of Cape Wind stresses that the price outlined in the PPA includes not only the kilowatt-hours that will be generated, but also the REC prices, transmission and other associated costs. Gordon also said that he's pleased to have a PPA in place only nine days after federal approval of the project and expects to sell the other 50 percent in the coming weeks.

“Cape Wind looks forward to working with National Grid to diversify their energy portfolio with pollution-free, inexhaustible wind off our shore,” Gordon said. “National Grid’s decision to move forward with this agreement helps put Massachusetts at the forefront of this emerging industry and provides their customers with secure and stable-priced renewable energy.”

Monday’s filing actually includes two contracts. The first, if approved, would enable National Grid to purchase 50 percent of the output of the wind farm for its customers. The second contract would facilitate the purchase of the remaining 50 percent by another party or parties.

According to King, by agreeing to purchase 50 percent of Cape Wind’s output, National Grid will be able to meet the three percent renewable energy long-term contracting requirement of the Green Communities Act. Under the Green Communities Act, all of the Commonwealth’s investor-owned utilities are required to enter into long-term contracts to purchase at least three percent of their electricity supply from renewable generators.

In December, Massachusetts Governor Deval Patrick announced that National Grid and Cape Wind had agreed to enter into negotiations. The negotiations continued until earlier this week, when the final agreement was reached.

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