Massachusetts’ utilities National Grid, Northeast Utilities and Unitil recently negotiated power purchase agreements for 565 megawatts of electricity capacity from existing and proposed wind farms in New Hampshire and Maine that would provide electricity at wholesale rates of approximately 8 cents per kilowatt-hour.
These agreements were lauded by the Boston Globe, going as far as claiming that wind power is “now competitive with conventional sources.” Eight cents per KWh is cheap for wind, especially when you consider that Cape Wind currently has power purchase agreements with NStar and National Grid for 18.7 and 20.5 cents per kilowatt-hour (not including 3.5 percent annual escalators).
However, the average wholesale cost of electricity in New England for 2012 was less than 4 cents per KWh, according to the New England Independent System Operator, or ISO New England. Furthermore, the 8 cents per KWh rate doesn’t reflect the costs of transmission upgrades necessary to integrate these projects into New England’s electricity grid. At the request of all six New England governors, ISO New England conducted a study which concluded “the cost of interconnecting 2,000 MW to 12,000 MW of wind power would be between $1.6 billion and $25 billion in transmission upgrades.”
Another problem with speciously declaring that wind can compete with conventional power sources is the simple fact that wind has a number of hidden costs that aren’t reflected in the wholesale price. Wind generally receives one of two tax subsidies: (1) a $22-per-MWh, inflation-adjusted production tax credit over the wind’s initial ten years of operation or (2) a 30 percent investment tax credit against capital expenditures. While these tax credits aren’t necessarily reflected in rates, they are borne by taxpayers as a means to subsidize ratepayers – or robbing Peter to pay Paul, except in this case Peter is Paul.
A 2012 study completed by the American Tradition Institute estimates the true cost of onshore wind electricity to be somewhere between 15 and 19 cents per kilowatt-hour. The much-ballyhooed 8 cents per KWh for the wind power purchase agreements doesn’t reflect the fact that electricity from wind is intermittent and requires other resources to keep the lights on. For example, Kibby Wind Farm in Franklin County operated just south of 23 percent of the time in 2012, and all of Maine’s wind farms had operated just over 24 percent of the total year. Basically, when it comes to wind and other sporadic resources like solar, ratepayers are paying for 100 percent of the wind plus 75 percent of the capacity in the form of backup generation.
Since natural gas is New England’s generating source most utilized to support wind generation, we must include not only the subsidy when calculating the true cost of wind power, but also the cost of keeping natural gas plants running; the extra fuel that plants are forced to consume as a result of running less efficiently; and the additional costs of transmission construction and transmission losses, which, because of wind’s remote location, exceeds those of conventional power plants that tend to be located in more densely populated areas.
The Boston Globe used statistics provided by the U.S. Energy Information Administration to compare the 8 cent wind power purchase agreement to other forms of electricity generation. The data provided by the Globe is based on EIA’s 2018 national levelized cost estimates for new generation sources. One problem with using the 2018 EIA data is that it completely ignores actual generation costs from existing plants like Seabrook Nuclear Station in New Hampshire, which receives the daily wholesale price for its electricity (less than four cents per KWh in 2012) and doesn’t require the expense of a secondary source of generation to pass onto ratepayers.
Any argument that Massachusetts’ proposed power purchase agreements with National Grid, Northeast Utilities and Unitil will “save” ratepayers money is ridiculous and is really a lesser-of-two-evils scenario. While 8 cents is significantly better for ratepayers than the egregious Cape Wind agreements, it is still twice the wholesale average cost for electricity – not to mention the fact that many utilities and competitive suppliers offer retail rates (the price paid by the end users) below 8 cents per hour.
What Mainers should be asking legislators and regulators is why they should accept 400-foot-tall structures on their mountains with no benefits except for higher taxes and higher electricity rates. Ratepayers should be demanding that their legislators promote generation and/or transmission projects that will lower the cost of electricity, not increase it.
Marc Brown is executive director of the New England Ratepayers Association, a nonprofit organization dedicated to protecting ratepayers in New England.
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