Cape Wind cuts key deal

After more than five months of negotiations, the state's largest electric utility has agreed to buy half the power generated by what could be the country's first offshore wind farm.

Under the deal, National Grid will pay 20.7 cents per kilowatt hour for the power from the 130 turbines that Cape Wind Associates LLC wants to build in Nantucket Sound and for renewable energy credits associated with the project. The price would increase by 3.5 percent each year over the 15-year life of the proposed contract.

Opponents of the project say the cost for National Grid's customers will be far more than what they currently pay.

National Grid delivers electricity to nearly 13,000 customers on Nantucket and 1.2 million customers statewide, but the company does not sell electricity on Cape Cod and Martha's Vineyard.

"Today, we are pleased to announce our agreement to enter into a long-term power purchase contract with Cape Wind," National Grid president Tom King said during a press conference yesterday at the company's Waltham offices. The agreement is a "landmark event" that is important for moving the state and country forward in the development of renewable energy sources, he said.

The cost to ratepayers is roughly 12.5 cents per kilowatt hour in today's dollars, when adjusted for the price of the renewable energy credits National Grid must purchase under state law and the monetary value placed on the stability of the long-term contract, according to Cape Wind officials.

The so-called "power purchase agreement" must be approved by state regulators. The agreement will be filed Monday with the state Department of Public Utilities, King said.

If the deal goes into effect in 2013, it will mean a monthly increase of $1.59 for a residential National Grid customer who uses 500 kilowatts of electricity, King said.

The price reflects the cost of electricity only and not the price of delivering the power and other charges on a typical electric bill.

Cape Wind fully expects to sell the remainder of the electricity from the project and has heard from other utilities and retail electric power marketers, Cape Wind president Jim Gordon said. Gordon said he hopes NStar and the Cape Light Compact, which both sell power on Cape Cod and Martha's Vineyard, will be interested in buying the electricity.

Assessing the deal

Despite what appears to be a cost that is much higher than National Grid's current residential rate of 8.1 cents per kilowatt, other components of the deal must be weighed in judging the pact, Gordon said.

"This 20.7 (cents) price not only includes energy but it includes capacity, renewable energy credits, all environmental attributes as well as the hedge value," Gordon said. "If you break out the value of these other products that we're providing, we're not too far off the existing price today."

A hedge value is assigned to a contract because of the stable prices it provides, he said.

The renewable energy credits are valued at 6.7 cents per kilowatt hour.

Costs such as the impact of pollution and greenhouse gases from other sources of energy must be "weighed and balanced" as customers consider the cost of Cape Wind, Gordon said.

Gordon and King declined to discuss the total value of the deal, saying other details would be included in the filing with the state.

If National Grid did not buy the renewable energy credits from Cape Wind they would have to buy them somewhere else, state Secretary of Energy and Environmental Affairs Ian Bowles said. "You already pay for those renewable energy credits anyway," he said of the reason the credits should not be included in comparing the price of electricity from the deal to the cost of other sources of power.

Under terms of the 2008 Green Communities Act, electric utilities must supply 5 percent of their load from renewable resources or make up the difference with renewable energy credits. Cape Wind would make up as much as 3½ percent of National Grid's total load, King said.

Under the law, National Grid also would receive an incentive of 4 percent the annual cost of the deal for entering into a long-term contract. The stable rates offered by a long-term contract are preferable to the "roller coaster" of natural gas prices that have driven the New England market, Bowles said.

But opponents of Cape Wind jumped on the $1.59 monthly consumer price hike figure, saying it is suspect and, even if valid, a substantial increase.

Without an understanding of what National Grid's forecast is for the price of power in 2013, it is impossible to assess the increase, said Wayne Kurker, owner of Hyannis Marina and one of the founders of the anti-Cape Wind group the Alliance to Protect Nantucket Sound.

National Grid's forecast for the price of electricity in 2013 without Cape Wind's power is proprietary, according to a spokeswoman for the utility.

Even if Cape Wind's figures are valid, they do not take into account other costs of the project such as federal stimulus money that will go into the wind farm, Kurker said.

The total cost of the project in the first year of its operation would amount to a $23 million rate hike, Alliance president and CEO Audra Parker said. "I think that today's announcement proves that Cape Wind has mislead the public and that their power is extremely expensive at 2½ times current rates," she said.

Parker also questioned whether the state Department of Public Utilities could make an impartial decision on whether to approve the contract given a $44 million rate hike the agency recently approved for National Grid and Gov. Deval Patrick's support for Cape Wind.

The Alliance included the renewable energy credit in their calculations and the group assumes flat growth in the cost of electricity without Cape Wind, a claim that has no basis in historical data on energy pricing, Bowles countered.

Impact on Nantucket

A deal between National Grid and a wind energy project off Rhode Island was rejected by regulators there because the power, at 24 cents per kilowatt hour, was considered too expensive. The deal also failed to account for transmission costs, which raised the price to more than 30 cents per kilowatt hour.

Cape Wind's pricing seems similar to the Rhode Island deal, said Barbara Gookin, chairman of the Nantucket Energy Study Committee.

For Nantucket residents, who already pay the highest electricity rates in the state, the cost could be a difficult burden, she said, adding that the island also faces additional charges because of the cables that connect it to the mainland.

"We will need to look at those numbers," she said of the proposed power purchase agreement.

For a home that uses 500 kilowatts of electricity a month, the current residential rate on the supply side of a National Grid bill equals $40.55, according to company officials. The delivery side of the bill, which is not part of the contract with Cape Wind, is an additional $32.69.

With an agreement in hand, Cape Wind can move forward in talks with investors and banks to pay for the estimated $2 billion cost to build the project.

Cape Wind continues to work on financing the project with Theodore Roosevelt IV, a former managing partner at Lehman Brothers who is now the managing director of Barclays' investment banking division, Gordon said.

Last month, U.S. Interior Secretary Ken Salazar gave the federal government's stamp of approval to the project, but Cape Wind needs to begin construction by the end of the year to access millions of dollars in federal subsidies.