Selling Cape Wind’s Future Wares

 

Associated Press Tom King, right, president of National Grid, and Jim Gordon, left, president of Cape Wind Associates, announced a power purchase agreement between the two companies.
 

Cape Wind, the huge offshore wind farm that recently won federal permission to build near Cape Cod, Mass., announced on Friday that it had signed a deal to sell half the project’s output to National Grid, a New England utility, for a price beginning at 20.7 cents a kilowatt-hour.

The next hurdle, which may be tough, is to persuade Massachusetts regulators to approve the deal. Retail rates for electricity in Massachusetts are now around 9 cents. And the 20.7 cents is just a beginning: The price is supposed to rise by 3.5 percent a year for the 15-year life of the contract.

In March, the Rhode Island Public Utilities Commission voted down a similar deal in which National Grid, the same utility, would have bought power from a project called Deepwater for 24.4 cents a kilowatt-hour, also escalating by 3.5 percent a year. The commission thought the deal was too expensive compared with conventional power. Retail rates in Rhode Island now run around 13 cents per kilowatt-hour.

Tom King, the president of National Grid, said in an announcement at the company’s headquarters in Waltham, Mass., that the contract was a hedge against price fluctuations for natural gas and other fuels, and that subsequent offshore wind farms would be less expensive, because of experience gained building the first one.

“We have to advance forward with a cleaner energy tomorrow, for generations to come,’’ Mr. King said. “It’s so important that we take the action, and so important that someone steps up and takes leadership.’’

The contract would give National Grid 3 to 3.5 percent of its energy, he said, and add $1.59 to the average residential customer’s monthly bill.

Asked what the total value of the contract was, Mr. King replied, “The number I’d like to focus on today is the $1.59 average impact.’’

Jim Gordon, the president of Cape Wind Associates, divided further. It came to a nickel a day for a typical household, he said.

But Audra Parker, a spokeswoman for the Alliance to Protect Nantucket Sound, a group based in Hyannis that opposes the project, said the extra cost would be $443 million over the 15 years. She called it a huge rate increase “at a time of high unemployment and economic turmoil.”

Cape Wind is going to have to sell the other half of its output before it can borrow money and build. But Mr. Gordon said that if this contract, to be formally filed on Monday, were to be approved, it would be a model for a contract to sell the rest.

While a price above 20 cents is far higher than sales prices for wind machines on shore, reflecting higher construction costs, this project does have an advantage over terrestrial wind farms, its builders said: It is in a spot where winds blow hardest at times of peak demand.

Mountaintop winds are strongest at night, when power demand is low, but coastal wind blows in the afternoons, when demand is high. The reason is that the sun heats the air over land faster than the air over water, and as the hot air on shore rises, wind from offshore blows in to take its place, creating ocean breezes.

Data from a test tower indicates that on five peak days in the summers of 2005 and 2006 when New England recorded its highest power use, the project would have produced more than half its maximum capacity on four of them.

In contrast, on hot summer days some projects on land produce less than 10 percent of their peak capacity. And a kilowatt-hour produced at a peak demand hour is worth far more than one at an off-peak hour.

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