Last week, we learned that Cape Wind will enter into negotiations with National Grid for a long term power purchase agreement for power from the long-awaited Nantucket Sound facility. This is only "an agreement to enter negotiations," so key details remain vague: it's unknown, for example, whether National Grid will buy all or some of the power, or (crucially) how much they will pay for it. In November, National Grid again rejected a long term PPA with Rhode Island's Deepwater Wind, required pursuant to Rhode Island law, when the utility was unwilling to pay Deepwater's price of between 25 and 30 cents per kWh (see our previous post on that project here). Costs should be lower for Cape Wind, which is in shallower water, (the economic model used in Cape Wind's environmental impact statement estimated a cost of energy of 12.2 cents per kWh) but still higher than its fossil-fueled powered competitors, most importantly natural gas, which sets the market clearing price in New England. National Grid will need approval from the Massachusetts Department of Public Utilities before it can enter into any long term contract for energy.
What's telling is the source of the announcement: the office of Massachusetts Governor Duval Patrick. Energy--in particular renewable energy and energy efficiency--has been a central focus of the Patrick administration, as exemplified by the Green Communities Act, and the Oceans Act, both passed in 2008. The former statute, along with Patrick's continued support, are responsible for the state's climb up the nation's energy efficiency rankings (Massachusetts is currently ranked number two, behind California). Construction of Cape Wind, potentially the country's first offshore wind project, would be the jewel in the crown of Governor Patrick's renewable energy efforts. It's not surprising that the Governor would take a special interest in the project.
While some are taking the announced negotiations as a sign that the project is viable, the active role of the Governor's office confirms what we already know: offshore wind— even in relatively shallow water—is very expensive, and the existing incentives (RECs, tax credits, etc.) are not enough to make it economically viable. To obtain financing, wind projects need long term PPAs that the market is slow to provide, and state governments will need to step in. Ultimately these projects are only as viable as the strength of their state-level support.
Comments