The Wall Street Journal
NEW YORK—National Grid PLC plans to buy half of the power from what would be the nation's first offshore wind farm, a key step in the development of the long-planned project off the Massachusetts coast.
The announcement comes a week after the Cape Wind project won a crucial approval from the federal government as the developer looks to start construction later this year. The contract with the U.K. utility company's Massachusetts unit needs to be cleared by state regulators, and Cape Wind still needs to find buyers for the other half of its output. Legal challenges from opponents of the project remain as well.
The Cape Wind project would festoon a 25-square-mile section of Nantucket Sound with 130 generating turbines producing, on average, enough electricity to power about 200,000 typical homes.
Much of the focus since the project was proposed nine years ago has been on the site-permitting process amid vocal opposition from local groups worried about the impact on water views, fishing and tourism in Cape Cod. Yet the process of winning approval for power-purchase agreements can be difficult for wind-power developers, as well, since the output from an offshore farm can be considerably more costly than power from conventional plants fueled by coal or natural gas or existing nuclear reactors.
Under the terms of the deal, National Grid would buy output from the project starting in 2013 at 20.7 cents a kilowatt-hour to deliver to its customers. The price would increase 3.5% a year over the 15-year life of the contract. National
Grid estimates the agreement will increase the bill of a typical residential customer by roughly 2%, or $1.59, a month. "If we keep stalling on advancing forward because of the existing pricing scenario, we will never (move) forward in the United States" with renewable energy development, said National Grid President Tom King during a conference call.
The cost of power under the contract is more than double the 8-10 cents a kilowatt-hour state residents currently pay. Electricity prices in the Northeast are among the highest in the nation, though a slump in demand and a drop in prices for natural gas has driven a sharp decline over the last two years.
King said the agreed-to pricing is adjusted for inflation and includes the environmental benefits of wind generation, while locking in stable prices in the often volatile energy markets. The Northeast U.S. already requires generators to pay a price to emit greenhouse-gas emissions linked to climate change, a program that's being debated on the national level.
Other offshore wind-power projects have stumbled as state regulators, even some that back renewable-power generation in principle, find the price for rate payers too high. Rhode Island regulators this spring deemed the power contract for a much smaller project planned off the state's coast as not "commercially reasonable" with a price of 24.4 cents a kilowatt-hour. Costs also sank a proposal off Long Island, N.Y., four years ago, although state officials are pushing a new, larger project for the area.
Developers of wind projects, both on and off shore, need long-term sales agreements to get financing to build. Cape Wind executives are working on financing their project, including raising debt and signing up equity investors. They also are talking with other utilities and power retailers about buying the other 50% of Cape Wind's output.
The project expects to reach sales agreements for the remaining output in the coming weeks and months, said Jim Gordon, president of closely held Energy Management Inc., which is developing Cape Wind.
Cape Wind and National Grid plan to file their agreement with the Massachusetts Department of Public Utilities on Monday.
The announcement comes a week after the Cape Wind project won a crucial approval from the federal government as the developer looks to start construction later this year. The contract with the U.K. utility company's Massachusetts unit needs to be cleared by state regulators, and Cape Wind still needs to find buyers for the other half of its output. Legal challenges from opponents of the project remain as well.
The Cape Wind project would festoon a 25-square-mile section of Nantucket Sound with 130 generating turbines producing, on average, enough electricity to power about 200,000 typical homes.
Much of the focus since the project was proposed nine years ago has been on the site-permitting process amid vocal opposition from local groups worried about the impact on water views, fishing and tourism in Cape Cod. Yet the process of winning approval for power-purchase agreements can be difficult for wind-power developers, as well, since the output from an offshore farm can be considerably more costly than power from conventional plants fueled by coal or natural gas or existing nuclear reactors.
Under the terms of the deal, National Grid would buy output from the project starting in 2013 at 20.7 cents a kilowatt-hour to deliver to its customers. The price would increase 3.5% a year over the 15-year life of the contract. National
Grid estimates the agreement will increase the bill of a typical residential customer by roughly 2%, or $1.59, a month. "If we keep stalling on advancing forward because of the existing pricing scenario, we will never (move) forward in the United States" with renewable energy development, said National Grid President Tom King during a conference call.
The cost of power under the contract is more than double the 8-10 cents a kilowatt-hour state residents currently pay. Electricity prices in the Northeast are among the highest in the nation, though a slump in demand and a drop in prices for natural gas has driven a sharp decline over the last two years.
King said the agreed-to pricing is adjusted for inflation and includes the environmental benefits of wind generation, while locking in stable prices in the often volatile energy markets. The Northeast U.S. already requires generators to pay a price to emit greenhouse-gas emissions linked to climate change, a program that's being debated on the national level.
Other offshore wind-power projects have stumbled as state regulators, even some that back renewable-power generation in principle, find the price for rate payers too high. Rhode Island regulators this spring deemed the power contract for a much smaller project planned off the state's coast as not "commercially reasonable" with a price of 24.4 cents a kilowatt-hour. Costs also sank a proposal off Long Island, N.Y., four years ago, although state officials are pushing a new, larger project for the area.
Developers of wind projects, both on and off shore, need long-term sales agreements to get financing to build. Cape Wind executives are working on financing their project, including raising debt and signing up equity investors. They also are talking with other utilities and power retailers about buying the other 50% of Cape Wind's output.
The project expects to reach sales agreements for the remaining output in the coming weeks and months, said Jim Gordon, president of closely held Energy Management Inc., which is developing Cape Wind.
Cape Wind and National Grid plan to file their agreement with the Massachusetts Department of Public Utilities on Monday.
