From the Boston Herald’s Business and Market Blog:
By Jay Fitzgerald
Thursday, January 7, 2010
National Grid customers will experience sticker shock after the giant utility negotiates a long-term electric contract with Cape Wind developers, energy experts warn.
Business groups worry that a National Grid contract with Cape Wind, which needs a long-term deal to secure funds to build a giant wind farm off Cape Cod, could add tens of millions of dollars per year to electric bills.
They point to a recent price agreement between National Grid and a Rhode Island wind-farm developer as cause for alarm.
The Rhode Island deal calls for National Grid to pay an eye-popping 24 cents per kilowatt hour for electricity from Deepwater Wind’s proposed wind farm off Block Island for 20 years. That’s three times higher than the current price of natural-gas generated electricty – and the Rhode Island deal includes a 3.5 percent annual price increase over the life of the contract.
Rhode Island officials have estimated the small Deepwater contract will add about $1.35 per month in the first year to an average residental customer’s bill – and it will add far more to the bills of big energy-using companies.
Analysts say a Cape Wind contract could come in at about 15 cents per kilowatt hour – about twice as high as current prices for natural-gas generated electricity.
“It’s still double the price – and the ratepayers will be picking up the tab for it for 20 years,” said Robert Rio, a senior vice president at Associated Industries of Massachusetts.
One source, who supports the Cape Wind project, said officials are hoping National Grid can negotiate a price at about 12 to 14 cents per kilowatt hour in the first year – but that’s still far above today’s 6 to 8 cents for natural-gas generated electricity.
Dennis Duffy, a vice president at Cape Wind, cautioned that the price of natural gas is volatile and was much higher only a few years ago, before the global recession dramatically reduced energy prices.
Cape Wind stands by its assertion that it will eventually save customers an average $25 million a year, when the long-term advantage of free wind starts to exert competitive pressure on other power generators, Duffy said.
The $1 billion-plus price of building and installing Cape Wind’s 130 giant turbines on Nantucket Sound will have to be paid for, he said. But the long-term price and environmental benefits of wind farms will a huge plus, he said.
Peter Beutel, an analyst with Cameron Hanover, said he agrees wind farms are “worthwhile in the long run” for energy markets.
“But can I justify (wind energy) financially today? No I can’t,” he said.