DPU approves Cape Wind-National Grid contract

DPU approves Cape Wind-National Grid contract

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Admitting that its power is “expensive in light of today’s energy prices,” state regulators on Monday approved a 15-year contract for Cape Wind to sell half its energy to National Grid, arguing the contract “is both cost-effective and in the public interest.”

The approval of the contract, which opponents said they plan to appeal, drew strong praise from some environmental groups and condemnation from opponents of Cape Wind who derided the decision as “politically motivated.”

Cape Wind, which would become the first off-shore wind farm in the country, plans to sell its power and renewable energy credits to National Grid for 18.7 cents per kilowatt-hour starting in 2013, a cost roughly 70 percent higher than other New England based on-shore wind projects. The price per kilowatt-hour will increase 3.5 percent annually for 15 years, under the terms of the agreement.

The Department of Public Utilities, in its order, said it appears the contract could increase bills of National Grid residential customers by 1.3 percent to 1.7 percent and large commercial and industrial customers by 1.7 percent to 2.2 percent.

The DPU also denied National Grid’s request for approval of a second power purchase agreement for the remainder of the wind farm’s energy output, finding that approving that contract at this time “would serve no clear purpose.

“The power from this contract is expensive in light of today’s energy prices,” DPU commissioners wrote in their decision. “It may also be expensive in light of forecasted energy prices — although less so than its critics suggest. There are opportunities to purchase renewable energy less expensively. However, it is abundantly clear that the Cape Wind facility offers significant benefits that are not currently available from any other renewable resource. We find that these benefits outweigh the costs of the project.”

State Energy and Environment Secretary Ian Bowles said the contract approval marked a “major milestone toward ensuring that the nation’s first offshore wind project will rise off the Massachusetts coast, and that the Commonwealth will gain the benefits in jobs and economic development that come with being the hub of offshore wind in the United States.”

The project, according to the DPU, is planned to generate an average of 162 jobs per year for the duration of the 15-year contract, as well as additional construction during the two-year build out.

Bowles said the contract approval also “paves the way for the state’s other utilities and power suppliers to buy the rest of Cape Wind’s power.”

Regulators said the project will help National Grid and state government meet legal renewable energy requirements and greenhouse gas emissions reduction requirements, as well as increase electricity reliability and help moderate system peak loads in both the summer and winter.

“Meeting those greenhouse gas mandates will require significant investments across all sectors of the economy, and especially from the electricity sector. We conclude that those requirements are unlikely to be met without the Cape Wind contract and the associated emissions reductions from the project,” the DPU stated in its order.

The contract offers National Grid the option of extending one time only for 10 additional years “at a price that covers the remaining costs of operating the facility plus a reasonable rate of return for Cape Wind.”

A spokeswoman for the state Executive Office of Energy and Environmental Affairs, which oversees the DPU, said she was not aware of any further steps that office must take in connection with Cape Wind.

“This positive decision from the DPU on Cape Wind is a giant leap forward as we finally and seriously participate in reducing the effects of climate change and send a strong message to the nation and international community,” Jack Clarke, director of public policy and government relations for Mass Audubon and Chairman of the U.S. Offshore Wind Collaborative, said in a statement.

“Cape Wind will begin to open global markets for offshore renewable energy in this country, and smooth the way for other offshore proposals in the Northeast, mid-Atlantic and Great Lakes,” he continued.

Not everyone, however, was happy with the decision.

“Unfortunately for Massachusetts ratepayers, the DPU has become nothing more than a rubber stamp on Governor Patrick’s misguided support of Cape Wind,” said Audra Parker, president and CEO of the Alliance to Protect Nantucket Sound. “This decision ignores a mountain of evidence that shows National Grid has failed to justify this $2 billion cost increase for consumers and refused to consider other less expensive renewable alternatives.”

Parker said the Alliance plans to appeal the ruling, noting that renewable energy from Hydro-Quebec is being sold to Vermont for 6 cents per kilowatt-hour and that the same company has contracted with 15 land-based wind developers for 2,000 megawatts of wind energy at an average price of 10.5 cents per kilowatt-hour.

Maine’s Kibby Mountain wind project is also expected to produce wind energy at less than 11 cents per kilowatt-hour, according to the Alliance to Protect Nantucket Sound.

Robert Rio, vice president of government affairs at Associated Industries of Massachusetts, said he expected the decision to be appealed to the Supreme Judicial Court, faulting the DPU for having “misread and misinterpreted several laws.

“This decision will not only raise costs for our members, but also establishes a dangerous precedent of regulatory approval of renewable energy contracts with absolutely no concern for the ratepayer,” Rio said.

Cape Wind President Jim Gordon said the DPU’s review featured an “unprecedented scope.”

“Massachusetts is now in a position to become a global leader in offshore wind power creating thousands of new jobs and a more secure, hopeful energy future,” Gordon said in a statement. “Today’s approval validates that Cape Wind is a good value, delivering clean energy without all the associated costs of fossil fuels. This long-term contract not only secures an abundant, inexhaustible clean energy resource but protects consumers from rising fossil fuel and environmental compliance costs.”

Barbara Hill, executive director of Clean Power Now, which intervened in the Department of Public Utilities proceedings, praised the ruling.

“Today’s announcement approving the Cape Wind project claiming that the project offers unique and significant public interest benefits, has significantly advanced our state’s ability to achieve the renewable targets set by the Governor as well as greenhouse gas reduction requirements of the Global Warming Solutions Act,” Hill said.

John Kassel, president of Conservation Law Foundation, said Cape Wind’s cost-stabilizing potential and the promise of reducing greenhouse gas emissions represents a “good deal” for residents of Massachusetts.

“The DPU’s decision to approve the Cape Wind power purchase agreement brings Massachusetts one step closer to realizing the economic and environmental promise of offshore wind energy,” Kassel said in a statement. “The decision is particularly significant in that it spells out for Massachusetts residents and businesses that power from Cape Wind will be less expensive than opponents have suggested, especially when one takes into account Cape Wind’s value in reducing the volatility of the price they pay for electricity.”