National Wind Watch: Wind Energy News » NStar’s Cape Wind pact pays $940M over market

The Massachusetts utility NStar has agreed to buy power from the proposed Cape Wind offshore wind farm for more than double what electricity from conventional sources is projected to cost during the 15-year term of the deal.

The contract filed with state regulators on Friday totals about $1.6 billion, assuming the project obtains hoped-for tax credits. According to estimates in the contract, that’s $940 million above the market price of conventional electricity during that period.

Critics of Cape Wind, which aims to be the nation’s first offshore wind farm, have long said its power is far too costly. The NStar contract is more evidence state ratepayers will be “gouged” by the 130-turbine project, which would be located 5 miles off Cape Cod in Nantucket Sound, said Audra Parker, president of the anti-Cape Wind group the Alliance to Protect Nantucket Sound.

“It’s hard to imagine that the state could have forced a more expensive and burdensome agreement on Massachusetts households, municipalities and businesses,” she said.

In Cape Wind’s earlier, nearly identical deal with the utility National Grid, state regulators said, and the state’s highest court agreed, that the project is worth the cost because of various benefits, such as local jobs, cleaner air and a reliable renewable power source near a busy coastline. Cape Wind spokesman Mark Rodgers said the NStar deal’s above-market price doesn’t change that.

NStar says the deal will add $1.08 to the monthly bill of the average residential customer.

NStar spokeswoman Caroline Pretyman said Cape Wind is worth the price because the utility must buy renewable power from a diverse mix of sources, including offshore wind, or it won’t meet state requirements to obtain increasing amounts of green energy.

“We recognize that there is a cost associated with renewable energy, but we see it as an investment in the state’s clean energy future,” she said.

Cape Wind was first proposed in 2001, but the $2.6 billion project has struggled with stiff resistance from people who oppose its location in the Sound, an area of the Atlantic Ocean important for some protected wildlife species. The project is still looking for financing.

The contract with NStar for 27.5 percent of its projected power output, combined with National Grid’s deal for 50 percent of its output, means Cape Wind has guaranteed customers for the bulk of its power, which it believes will attract investors.

The pricing on the NStar deal is identical to the earlier National Grid deal. Cape Wind’s power starts at 19.3 cents per kilowatt hour in 2014, when Cape Wind believes it will begin producing power, and goes up 3.5 percent annually.

But the price could end up higher. If Congress doesn’t renew the so-called “production tax credit” or the “investment tax credit,” the power starts at 21.9 cents per kilowatt hour and the overall contract price rises to $1.8 billion.

It’s extremely unlikely the tax credits will be renewed this year, given the current push for frugality in Washington, Parker said. But Rodgers said Cape Wind hasn’t ruled them out.

“Nobody knows for sure what’s going to happen this time,” he said.

The NStar deal also highlights how falling natural gas prices have made Cape Wind’s power relatively more expensive.

When National Grid struck its deal with Cape Wind in 2010, that contract was 82 percent above the projected market price for conventional energy. But prices have fallen so much in two years that the NStar deal for Cape Wind power, assuming the tax credits are preserved, is 137 percent higher than market projections for conventional power.

Rodgers said dropping natural gas prices may make Cape Wind look more expensive now but in the long run adding zero-cost, renewable power like offshore wind to the mix will be good for customers.

“Cape Wind is going to help them and not hurt them,” he said.