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Offshore wind power: Can Maine afford it?

Electricity from wind farms off the Maine coast is likely to cost more than what customers now pay, experts say, and a power purchase deal for a proposed offshore wind project in Rhode Island is raising questions about how much.

A Rhode Island power deal points to higher rates, but advocates say deepwater wind farms will pay off.

Electricity from wind farms off the Maine coast is likely to cost more than what customers now pay, experts say, and a power purchase deal for a proposed offshore wind project in Rhode Island is raising questions about how much.

New Jersey-based developer Deepwater Wind LLC last month signed a 20-year agreement with National Grid, which serves Rhode Island, to buy power from a 30-megawatt wind farm three miles off Block Island. The Block Island Wind Farm is the first offshore power purchase deal in New England, so it offers some indication of what ocean wind power could cost in the region.

The rate is 24.4 cents per kilowatt hour, escalating 3.5 cents per year. That starting rate is roughly 60 percent more than what home customers in Maine and Rhode Island now pay on their total bill for energy and distribution. In Maine, home customers on average pay 15.4 cents per kilowatt hour. Roughly 9 cents of that is for energy.

But it's inaccurate to compare the Block Island Wind Farm to the large-scale wind projects Maine wants to attract to deep water off its coast, according to Habib Dagher,... more [truncated due to possible copyright]  

A Rhode Island power deal points to higher rates, but advocates say deepwater wind farms will pay off.

Electricity from wind farms off the Maine coast is likely to cost more than what customers now pay, experts say, and a power purchase deal for a proposed offshore wind project in Rhode Island is raising questions about how much.

New Jersey-based developer Deepwater Wind LLC last month signed a 20-year agreement with National Grid, which serves Rhode Island, to buy power from a 30-megawatt wind farm three miles off Block Island. The Block Island Wind Farm is the first offshore power purchase deal in New England, so it offers some indication of what ocean wind power could cost in the region.

The rate is 24.4 cents per kilowatt hour, escalating 3.5 cents per year. That starting rate is roughly 60 percent more than what home customers in Maine and Rhode Island now pay on their total bill for energy and distribution. In Maine, home customers on average pay 15.4 cents per kilowatt hour. Roughly 9 cents of that is for energy.

But it's inaccurate to compare the Block Island Wind Farm to the large-scale wind projects Maine wants to attract to deep water off its coast, according to Habib Dagher, the University of Maine professor spearheading the state's effort.

Rhode Island's eight-turbine wind farm is a demonstration project in shallow water, he said, too small to take advantage of the economies of scale needed to reduce costs. Any comparison also ignores the fact that fossil fuel prices are low today, but likely will rise when the economy recovers.

"We're not planning for today," Dagher said. "We're looking five years down the road. That's where we need to be thinking."

Having said that, there's no consensus on what the first offshore wind projects, planned for later this decade, might cost in Maine.

A consultant hired by Maine's Ocean Energy Task Force estimated in November that it will take 10 to 15 years for deep offshore wind to compete with natural gas. That report was followed a few weeks ago with more optimistic calculations by Gary Hunt, a University of Maine economist. Hunt is projecting that Maine could bring large offshore wind projects on line for 8 to 10 cents/kwh in 2015. Adding the cost of running power cables to shore, the total price would work out to 12 to 15 cents/kwh, Dagher said.

A European study cited by Dagher noted that offshore wind capacity is about 50 percent more expensive than onshore wind power. Some land-based wind power now is being developed in the 8-cent range. But the cost of land-based wind has been cut in half during the past 20 years, Dagher said, and he expects offshore costs also will fall as capacity grows.

Maine has joined Rhode Island, New Jersey and Delaware in aggressively working to develop an offshore power industry on the East Coast. Maine's Ocean Energy Task Force has just finished its final report for Gov. John Baldacci. It picked three deepwater demonstration sites in state waters to test floating turbine platforms.

But while there has been plenty of scrutiny about the impact of wind energy on fishing, marine life and tourism, less is known about what this power may cost.

THE PRICE OF INNOVATION

Cost comparisons become even more complicated when external benefits are factored in. The task force report notes that, unlike natural gas, wind power has a fixed cost that remains constant into the future. Other benefits include cuts in emissions associated with climate change and the potential for local jobs and economic development.

As it is in Maine, economic development is a big issue in Rhode Island, where the state is trying to kick-start a green-jobs industry. The Block Island Wind Farm could help do that.

Block Island isn't connected to the mainland and pays very high rates for diesel-fired electricity. Wind power at 24.4 cents would be a bargain. Block Island also would serve as a proving ground for a commercial, 106-turbine project that Deepwater Wind wants to build 15 miles east of the island.

The smaller Block Island project would cost $200 million. It would be financed through a combination of debt and private equity. Key investors include First Wind Holdings of Newton, Mass., and one of its financial backers, the D.E. Shaw & Co. global investment firm. First Wind is Maine's largest wind power developer and helped form Deepwater Wind in 2008.

The Rhode Island projects are being led for Deepwater Wind by Maine native Paul Rich, who recently oversaw the development of underwater transmission cables between New York and New Jersey. Rich also was involved with Maine's ocean task force and has expressed possible interest in a project here.

Hearings on the Block Island project begin this month at the Rhode Island Public Utilities Commission. A decision is expected by month's end. If Deepwater Wind gains all approvals, power could be flowing by 2013.

National Grid estimates that each home customer will pay an additional $16.20 in the first year of the contract. In Rich's view, that's a reasonable premium for launching a new industry. He's eager to hear public reaction at the PUC.

"That's one of the biggest areas of interest I have," he said. "What is the public commitment to embracing renewable energy, particularly in challenging times?"

Deepwater Wind tried unsuccessfully to negotiate contracts with National Grid for 30.7 cents, and then 25.3 cents/kwh. Investors finally settled on 24.4 cents.

"It all comes down to what's an acceptable rate of return, based on the risks we're taking," Rich said.

POWER AND PROFIT

Deepwater Wind has the first power agreement in New England, but not in the country. That distinction goes to Bluewater Wind, a company trying to build a 79-turbine wind farm off Delaware.

Bluewater signed a contract with Delmarva Power for roughly 14 cents/kwh in 2008. But the $1 billion project has been stalled in part for financial reasons, which may have eased recently after Bluewater was purchased by NRG Energy Inc., a global energy provider.

Analysts have questioned how the project can be profitable at 14 cents. Dagher, however, says the Delaware costs are realistic and in line with what he expects to happen off the Maine coast.

The outcomes in Rhode Island and Delaware are being watched closely by Beth Nagusky, co-chairwoman of Maine's ocean task force.

Much of what's known about the cost of developing shallow-water wind projects is based on experience in Europe, Nagusky said, where the price is subsidized by a premium on electric bills. That concept, known as a feed-in tariff, was proposed but not adopted last year in the Maine Legislature.

The ocean task force recognizes, however, that some form of tariff will likely be needed to bring large-scale, offshore wind power to Maine, Nagusky said. That's why the group's final report proposes an electric heat pump conversion program for Maine. The idea would be to switch thousands of homes and businesses from oil to high-efficiency electric heat, through a surcharge on electric bills that also would go to subsidize wind development.

In tandem, the task force is recommending that Maine solicit bids for a developer to build a 200-megawatt pilot offshore wind project with a 20-year contract.

"The rate impact would have to be reasonable," Nagusky said, "and it would be up to the Legislature to decide what's reasonable."


Source: http://pressherald.mainetod...

JAN 3 2010
https://www.windaction.org/posts/23950-offshore-wind-power-can-maine-afford-it
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