Friday is the deadline for Delmarva Power to release details of agreements with three power companies to provide stable-priced electricity for the next 25 years.
The most anticipated of these agreements is between Delmarva and Bluewater Wind, which wants to build a wind farm off the coast of Delaware. It could be the first offshore wind farm in the nation.
Homeowners, environmentalists and state officials are awaiting data to see if the wind farm will offer a competitive price, as well as whether the wind farm will be big enough to make a sizable contribution to the state’s electricity supply.
Tomorrow is the deadline for the state to receive a summary of the power purchase agreement, which should include the price of power, the number of turbines, how much electricity they are likely to produce, its proposed location, and their planned startup date.
Also on Friday, agreements for backup power from a natural gas plant are expected to be released. NRG Energy and Conectiv Energy, Delmarva’s sister company, are competing for a contract with Delmarva. Only one of those is expected to be chosen.
The state ordered Delmarva to draw up the agreements after Delmarva raised residential electricity prices by 59 percent last year. Delmarva raised prices after state price caps expired.
In March, Delmarva officials fretted about the price of offshore wind energy, which they said would cause residential customers to pay $11 more per month over the open market.
On Friday, Delaware residents could receive some insight into whether that estimate was accurate.
But Delmarva spokeswoman Bridget Shelton said it’s unclear whether her company will have the data broken down into an average monthly bill for residential customers by Friday.
“There will be numbers in these documents. We’ll have to do a full analysis of what these numbers mean,” Shelton said.
Barry Yerger, alternative energy analyst for Jesup & Lamont Securities in Wilmington, said a lot of factors will determine whether Bluewater’s price for wind energy will be competitive.
Wind power is typically more expensive than coal, but that’s in today’s market, Yerger said. In the future, government controls on carbon emissions, which could take the form of taxes or credits, could help level the playing field, he said. And it’s hard to tell what the price of oil will be several years from now, he said.
The agreement between Delmarva and Bluewater may show what Delmarva pays for electricity. But “what’s it going to do to the residential person, that’s a question that may be up for debate for a while,” he said.
Christine Real de Azua, assistant director of communications for the American Wind Energy Association, said offshore wind projects can be more expensive than onshore wind farms, but have their advantages. Offshore, there is steadier, stronger wind, she said, and they can be built closer to the coastal areas of high demand. But offshore wind farms require more maintenance and higher startup costs, she said.
Jeremy Firestone, assistant professor of marine policy at the University of Delaware, said that under a contract with Bluewater, state residents could end paying a little more for clean energy, or they could be getting a bargain. No one knows how it will turn out, he said.
“I wouldn’t call it a gamble. I’d call it a prudent investment. If we end up paying a little more, you can think of it as an insurance policy against the risk of higher prices,” Firestone said.
The federal government currently provides a tax credit to renewable energy producers, and that credit comes up for renewal next year, Yerger said. That could affect the long-term profitability of a wind farm, he said.
Then there is the matter of Delmarva’s comfort level with the agreement. Delmarva was a reluctant player in negotiations, participating only because four state agencies ordered it to do so.
The company prefers to operate on the open market, and it filed a lawsuit seeking to overturn the order by the PSC to negotiate. But Delmarva agreed to stay the lawsuit pending the outcome of negotiations.
State Treasurer Jack Markell, a Democratic candidate for governor, said he hopes Delmarva stands behind its agreement. He said Delmarva needs to demonstrate its “understanding of this issue to our health, our environment and our future energy needs.”
“Competition is obviously a good thing, but at the same time, in this business, it is incredibly capital intensive,” Markell said. “If you have a lot of small players that aren’t able to construct facilities where there will be a critical mass, it’s not clear what the pricing will be.”
By Aaron Nathans
13 September 2007
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