November 10, 2007
Delaware
Delaware
A new report commissioned by Delmarva Power says average electricity customers will pay between $21 and $34 more per month if a proposed offshore wind farm is built.
The report, done by PACE Global Energy Services, a Virginia-based consulting firm, says the project would be financially unstable because the developer, Bluewater Wind, has opted to absorb increases in commodity costs instead of passing them on to customers.
“Given the magnitude of the impact to our customers, we felt it was important to bring in a fresh perspective,” Delmarva President Gary Stockbridge said in an interview Friday, when the report was released. He said the report was unbiased and would hold up to scrutiny.
The PACE study came under immediate and heavy scrutiny from Bluewater and its allies, who questioned the consultant’s methods and assumptions.
Bluewater Wind spokesman Jim Lanard said the report was “sloppy” and had “many flaws that should be of concern to any serious reader.”
Bluewater wants to build a 150-turbine wind farm 11.7 miles off the coast of Rehoboth Beach, and sign a 25-year power purchase agreement with Delmarva Power for its residential customers.
Four state agencies are expected to discuss the proposed wind farm at a meeting on Nov. 20 at Legislative Hall.
The report says the wind farm, standing alone, would result in a $22-per-month increase to the average Delmarva customer. If the project is backed up by a natural gas plant, it would cost $34 per month if NRG Energy built the backup, and $21 per month if Conectiv built it, the report said.
Buying on-shore wind would cost $11 per month above market prices, the report noted.
PACE’s report identifies a higher “green premium” than the one outlined in a Public Service Commission staff report last month, which suggested the wind farm alone would cost the average ratepayer $11.71 per month over market.
The difference is largely because the PACE report projects a lower price for buying traditional electricity off the grid, said Greg Adams, who co-wrote the report for PACE.
University of Delaware researcher Jeremy Firestone said the report also assumes Delmarva Power would be buying more electricity from Bluewater than the PSC staff report identified. That would boost the price, he said. He called the report “not particularly transparent.”
Adams confirmed the larger electricity estimate, saying it was based on independent research the company had done from federal wind data.
PACE recently gained attention for authoring the report that effectively sank the Long Island Power Authority’s proposed offshore wind farm in Uniondale, N.Y., by noting electricity from that project would cost twice the amount of buying from traditional sources.
The Long Island report was commissioned by the Long Island Power Authority, which had originally championed the proposed wind farm there. Conversely, the Delaware report was commissioned by Delmarva, which has consistently fought the wind farm project.
The Delaware report notes that the Long Island offshore wind farm would have resulted in an increase of just $5.75 per month for LIPA customers, compared with the $21 to $34 Delaware premiums.
But the Delaware wind project would deliver more wind power to a smaller population. LIPA wanted to build a wind farm less than one-third the size of the Delaware project, spread out over more than three times the population.
On a per-megawatt-hour basis, the Delaware project is less expensive, the report said.
Long Island project developer Florida Power & Light offered an average levelized price of $291 per megawatt hour, according to PACE’s Aug. 22 report on that project. That’s compared with the Bluewater cost of $172 per mwh.
In September, Bluewater and Delmarva had agreed to allow the price of wind power to increase as the commodities used to build a wind farm, such as steel, increase. The PSC staff said that could create massive cost overruns. On Tuesday, Bluewater announced it would agree to remove the “escalators.”
But even with the “escalators” gone, the Bluewater proposal has risks of price instability, the consultants wrote. Instead of increasing the price of wind power as commodities go up, Bluewater takes the risks upon itself, adversely impacting the company’s credit and the stability of the project itself, the consultants wrote.
Removing the “escalators” allows Bluewater to begin its project and seek more money at a later date as commodity prices “financially impair their financial condition.”
“This creates a large and uncapped risk for Delmarva,” the report says.
“The risk doesn’t go away, and may come back to affect Bluewater’s ability to maintain the project’s viability,” Adams said.
Lanard replied that Bluewater’s parent company owner, Babcock and Brown, believes any risk is “narrow,” and it is a large enough company to honor its price despite any changes in the market.
The report describes other risks to the Bluewater project, including the possibility of the cancellation of a federal tax credit, volatility in the offshore turbine market, and the possibility of stranding Delmarva ratepayers with higher costs while customers leave for competing suppliers.
The report says it made no effort to quantify the health benefits of a wind farm in dollar figures.
Lanard said the state has the power to address stranded costs; the federal tax credit would be locked in once the turbines begin construction, he said.
“It’s just one series of what-ifs after another,” Lanard said.
By Aaron Nathans
The News Journal
10 November 2007
URL to article: https://www.wind-watch.org/news/2007/11/10/report-on-wind-power-cost-disputed/