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Updated: Massachusetts Utilities Sign PPA for Wind Energy That Is Cheaper than Coal

Three utilities have grouped together to purchase more wind energy at a rate averaging less than $0.08 per kWh, which beats most other generation sources.

National Grid, Northeast Utilities (on behalf of its divisions NSTAR and Western Massachusetts Electric Co.), and Unitil (representing Fitchburg Gas & Electric Light Co.) have filed separate documents with the Massachusetts Department of Public Utilities (CPU 13-146 through 13-149) seeking to add 565 MW of wind energy from six projects across Maine and New Hampshire. The winners, securing PPAs of 15-20 years, include First Wind, Iberdrola Renewables, and Exergy Development, for projects all under development and slated to come online over the next three years. Here's how the procurement is being divvied up, based on distribution load: 45.9 percent to National Grid, 45.4 percent to NStar, 7.7 percent to WMECO, and the remaining 1 percent to Unitil.

Last fall the Patrick Administration enacted new legislation directing utilities in the state to jointly procure more renewable energy in a competitive process toward long-term contracts for up to 4 percent of their load, with twin requirements of cost-efficiency and low cost, explained Mark Sylvia, commissioner for the state's Department of Energy Resources. (Another facet of that process called for a 10 percent carveout for "qualifying technologies," which is still being worked out, he said.) Requests-for-proposals brokered by DOER and Attorney General's Office, and evaluated on a jointly agreed-upon set of criteria, were approved in April of this year, and in May resulted in 40 bids that were pared down to a shortlist in the summer, followed by separate contract negotiations with each utility and bidder.

That $0.08/kWh rate is among the lowest around. One report compares it favorably to other generation sources looking out several years: $0.09 for hydro, $0.10 for coal, $0.11 for nuclear, and $0.14 for solar.

These deals represents "a threshold moment for renewable energy in New England," showing for the first time that renewable energy, and wind energy in particular, can deliver competitive direct pricing at scale in this region, noted Matt Kearns, VP of business development at First Wind. The proposed PPAs for the company's in-development Oakfield and Bingham projects, slated to come online in 2015 and 2016 respectively, means the firm can now go out and get financing for them.

Kearns explained that the low PPA price is possible because of innovations and technical improvements in onshore wind turbine technologies, and also the length of time of these contracts drives down the cost per unit of electricity. On top of that, the state of Massachusetts' legislative boost in empowering utilities to "go out and see what the market can do, has driven the delivered cost way down," he said -- and lays out a template for other states. "There's a broad recognition that these kinds of contracts, particularly the timing around them, can result in significant benefits to taxpayers," he said.

The DPU will next evaluate the proposed PPAs with public comment periods and public hearings. The utilities are requesting to fast-track DPU approval, in part because the low prices depend on incentives, including the production tax credit (PTC) that is set to expire at the end of this year (unless it's extended yet again). Even if that deadline is missed and the incentive is lost, that won't change the price utilities will pay -- it'll be "our risk, not theirs," and the projects will still move forward, noted Kearns.


 

Update 9/24: One thing that evolved during the procurement process was that the bid prices were so unexpectedly good that the utilities decided to double their procurements from a planned 1.8 percent to 3.5 percent. "We were pleasantly surprised with the pricing, and we didn't want to miss the opportunity," Ronald Gerwatowski, senior VP of U.S. regulation and pricing at National Grid, told REW.com. "It was a no-brainer to do more." Also, ultimately in the end there wasn't much difference between any of the utilities' final contracts with the wind energy providers.

Acknowledging that projections of energy and REC prices are "a combination of art and science," Gerwatowski noted that assuming these wind projects all come online roughly in the same period, that $0.08 per kWh rate "is a savings to our customers right out of the box." Part of that is in the low rate, part of that is in savings from owning the RECs directly and not purchasing them out on the market.

Gerwatowski was quick to emphasize that these PPAs for cheap wind energy won't necessarily mandate what any future PPAs or suppliers should adhere to. (National Grid already has a PPA with the Cape Wind offshore project that's more than twice what this PPA rate is.) "It doesn't preclude other technologies that come in at a higher unit cost," he said, "but it does set the bar at a pretty nice place for customers."

Gerwatowski also expressed support for adding another renewable energy source that couldn't qualify for this round of PPAs: large-scale hydro, specifically what can be imported down from Canada. "We certainly have an interest," he said, and "it's something that should be pursued." He acknowledged that this puts a burden on the three northern New England states to develop the transmission infrastructure to make it happen, and there's some strong local opposition to the proposed Northern Pass project in New Hampshire, but he noted that there are three other potential routes to bring Canadian hydro down into the region, including one in New York. "It's a compelling story, if you can get the right deal," he said.

It also sets the stage for more long-term contracts for renewable energy in the region. "There's been a real convergence on what renewable energy power purchases look like in New England," Gerwatowski said. These deals represent "a great step forward to meet the [energy and policy] obligations of the future."

 

Read more wind energy news here.

Lead image: Friendly wager, via Shutterstock

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