Massachusetts approves Cape Wind PPA

Throughout 2010, I've been watching the Cape Wind project work its way through the development and regulatory processes.  The project has generated controversy over a variety of issues, including siting (should the project be built in Nantucket Sound? if so, where?) and cost (should ratepayers be on the hook for a long-term power purchase agreement for the project's output? if so, at what price?).  This latter issue falls under the jurisdiction of the Massachusetts Department of Public Utilities.

[Photo: the Martha's Vineyard ferry crosses Nantucket Sound this summer, west of the Cape Wind site.]

This week the DPU issued a decision approving a 15-year power purchase agreement between Cape Wind and National Grid.  (The order itself is 374 pages.)  Under the deal, National Grid will buy half of Cape Wind’s output for 18.7 cents per kilowatt-hour, with a 3.5% annual escalator in each of the 15 contract years.  Some consumer advocates note that this is significantly higher than the most recent average annual wholesale power price in the region: 5.5 cents per kilowatt-hour.  Proponents of the project point out that the 18.7 cent price includes the energy itself, capacity value, and renewable energy credits.  A closer analysis of this suggests some flaws: the value of capacity plus renewable energy credits generally may not be worth the $132 per MWh price increase.  Arguably the difference and that offshore wind has a social or intrinsic value that makes the price worth it.

The DPU acknowledged that the pricing is high:

The power from this contract is expensive in light of today?s energy prices. 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 abundantly clear that the Cape Wind facility offers significant benefits that are not currently available from any other renewable resource. We find that these benefits outweigh the costs of the project.

One of the many benefits that Cape Wind provides is that it will assist National Grid and Massachusetts in meeting the renewable energy requirements of the Green Communities Act, as well as the greenhouse gas emissions reduction requirements of the Global Warming Solutions Act. Meeting those greenhouse gas emission mandates will require significant investments across all sectors of the economy, and especially from the electricity sector. We conclude that those requirements are unlikely to be met without the Cape Wind contract and the associated emissions reductions from the project.

If 18.7 cents seems high, it is nevertheless among the lowest of the many of the recent proposed prices for offshore wind.  It's worth noting that 18.7 cents per kWh is lower than the price set in previous proposed iterations of this contract.  In May 2010, National Grid agreed to a deal at 20.7 cents per kWh (subject to DPU approval, which was withheld).  The May proposal in turn was lower than the initial Deepwater Wind proposal off Rhode Island's Block Island, which proposed 24.4 cent per kWh power escalating 3.5% annually for 20 years to a final price of 48.6 cents per kWh.  (And even that price was lower than the one Deepwater initially offered National Grid: 30.7 cents per kWh.)

The next step for Cape Wind is to look for a purchaser for the other half of its power.  What kind of power purchase agreement will they find?  If the DPU's approval of this contract establishes a pricing trend, we may see similar pricing in the second PPA.