Governor Patrick recently approved a $17.5 billion merger between NStar, the utility that serves Cambridge, and Northeast Utilities of Connecticut. Two conditions were placed on the deal: the new company must purchase 27.5% of the output of Cape Wind, the wind farm in Nantucket Sound. Secondly the utility must freeze its rates for the next four years, and distribute a one-time rebate of $21 million to customers.
Patrick has received widespread praise for creating a supply of renewable energy and protecting ratepayers. Before opening the champagne, consider first that that $21 million rebate works out to a one-time payment of around $13. Try not to spend it all in one place.
Secondly, construction on Cape Wind has not yet begun, so a four-year freeze on electricity prices will most likely lapse before NStar starts purchasing that 27.5% of Cape Wind power.
Locking in prices is supposedly desirable because it will protect NStar customers from price volatility. Yet we are in the midst of a natural gas boom that promises to revolutionize America’s energy picture. Natural gas prices have plummeted from near $5 per MMbtu last summer to around $2.60 per MMbtu. According to the EIA, the energy equivalent of $3 natural gas is $18 oil. If our current prices are high, why would we want to lock them in?
Current rates reflect past efforts to add green energy to the mix, and a government edict requiring more wind-generated electricity won’t “protect ratepayers.” Wind power is expensive. Very expensive. Customers who choose the “NStar Green 100” option–100% of their electricity (in theory) coming from the Maple Ridge Wind Farm in upstate New York and Kibby Wind Power in Maine—currently pay a premium of 4.791 cents per kWh. On March 1, this premium will rise by 33% to 6.379 cents per kWh, an indication that the green power price trend is not following natural gas. My residential rate in Cambridge is 7.928 cents per kilowatt hour, which means that NSTAR is charging an 87% premium for land-based wind power. NStar claims:
For the average NSTAR Green 100 customer using 500 kilowatt-hours per month this will add approximately $8 to a total monthly bill when compared to recent electric bills.
Unfortunately this claim is simply false. 500 kwh times .06379 per kwh equals $31.89, four times greater than $8. An NStar customer service agent agreed that I was doing the math correctly, but was unable to explain where NStar got its figure of $8. NStar’s 500 kwh per month is also below the state’s average household use of 635 kwh/month, which would result in a premium of $40.50. And believe it or not, some Cambridge houses are above average in size, which could mean green premiums of $50/month or more.
Maple Ridge and Kibby are land-based wind farms, and when operations move offshore, prices get even steeper; offshore wind is one of the most expensive ways to generate electricity, second only to solar thermal. Wind turbines are notoriously difficult to maintain; imagine the expense of changing a burned-out transmission on a 300-foot tower on the open ocean. Cape Wind has already signed an agreement with National Grid to sell electricity for 18.7 cents per kwh, with a 3.5% increase every year over the next 15 years. This wind power therefore starts out at more than double the average Massachusetts rate of around 8 cents per kwh. The 3.5% increase compounded annually means that at the end of the 15 years, National Grid customers will be paying 31.3 cents per kwh, four times the current rate.
Since the deal is so profitable for Cape Wind, other companies are looking at getting into the game. If you build a trough and fill it with money, they will come. According to the Boston Globe:
Offshore power could be an immense economic resource for Massachusetts, and Cape Wind is already shaping up to be the nucleus of what could be a home-grown industry; earlier this month, federal officials began studying the possibility of another large new wind development south of Martha’s Vineyard.
These big wind projects will certainly generate construction jobs, but forcing utilities to purchase expensive offshore wind power will not lead to overall economic prosperity for the state. Rather, the opposite: Massachusetts businesses will be forced to relocate to states that have allowed market forces to supply them with cheap natural gas. By then, Governor Patrick will be long gone.
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