New renewable power requirements in Massachusetts’ comprehensive energy law could lead to rate hikes, according to business and industry officials.
“It really does have the potential to define the way we buy power and how we provide that power for the next generation, really,” said Chris Geehern, executive vice president of marketing and communications at Associated Industries of Massachusetts, a business advocacy group. “It’s very important for employers as ratepayers, and for individual homeowners who struggle with high costs as well.”
The bill, finalized on the last day of the legislature’s formal session and signed into law by Gov. Charlie Baker last week, requires utilities to enter into 15-20 year contracts with power providers to bring 1,600 megawatts of offshore wind power and 1,200 megawatts of other clean energy – including hydropower, onshore wind and solar – to Massachusetts. Combined, the legislation effectively hands over a third of the state’s electricity market to offshore wind and hydropower generation over the next few years, which opponents said could lead to a spike in power prices in a state where high electricity costs are already a concern.
The power procurement requirements, though, were only part of a lengthier bill to move Massachusetts toward greater sustainability that – frankly – should have gone farther, said George Bachrach, president of the Environmental League of Massachusetts. Bachrach added the cost implications might be considerably less than what business officials fear, because hydropower and onshore wind are low-cost sources of power and offshore wind’s costs mostly come at the beginning.
“Wind is free. The cost is simply the infrastructure,” Bachrach said.
Offshore wind cost
Massachusetts already has some of the highest power prices in the country. In 2015, the Bay State’s 16.86 cents paid by end users per kilowatt hour was the fifth highest electricity price in the nation, after Hawaii, Alaska, Connecticut and Rhode Island, according to the U.S. Energy Information Administration.
The state’s last flirtation with offshore wind was expected to increase those already high prices.
That flirtation was with Cape Wind, a Nantucket Sound wind park that has faced many obstacles since state electric utilities National Grid and what is now Eversource Energy both terminated their contracts with the company due to unmet construction obligations.
According to a 2010 Department of Public Utilities order, National Grid agreed to purchase energy, renewable energy credits and capacity from Cape Wind for $187 per megawatt-hour for 15 years, with a 3.5-percent annual escalation rate. At the time, DPU said the contract could lead to price increases of 1.3 to 1.7 percent for residential customers, and of 1.7 to 2.2 percent for commercial and industrial ratepayers.
This year’s energy legislation explicitly forbids Cape Wind from seeking contracts under the 1,600-megawatt requirement, but a handful of other developers have leases in Massachusetts waters, including Denmark-based DONG Energy, which built offshore wind farms in Denmark and Germany; Providence-based Deepwater Wind, which is building a wind farm off the coast of Rhode Island; and New Jersey-based OffshoreMW, which is the sister company of German firm building a wind farm in the North Sea.
“This has the prospect to be the largest rate increase in history in Massachusetts,” said Dan Dolan, president of the New England Power Generators Association, which represents the region’s existing power plant owners.
In advance of the legislative session, NEPGA produced a report last year from former state energy secretary Sue Tierney saying an earlier version of the energy bill that was eventually passed would cost ratepayers an additional $777 million annually. Dolan said he expects costs from the bill’s final version will be even higher since isolating the market will create less competition for other sources of power.
Bachrach disagrees, saying while costs could go up initially as infrastructure is built, the long-term savings will come by investing in renewables.
“Hydro and onshore wind are low-cost energy sources. Offshore wind is somewhat more expensive at first, as we build out the infrastructure, but after that there’s no cost in terms of energy supply,” he said.
In terms of building new power plants, onshore wind and hydroelectric are the cheapest forms of renewable energy, costing $65 and $68 per megawatt hour, according to the U.S. Energy Information Administration’s 2016 Annual Energy Outlook. That is roughly $10 more than the cheapest fossil fuel plant, which is natural gas.
Onshore wind and hydroelectric are less than half of the cost of offshore wind, which is $158, according to EIA.
A place for natural gas
Today, nearly 50 percent of the electricity that powers homes and businesses across New England comes from natural gas, according to a January report from ISO-New England, the region’s grid operator. Several pipeline projects to expand the fossil fuel’s reach in the region are in the works, but one, a $3.3-billion plan from Kinder Morgan, was suspended in April.
While the law didn’t add anything specifically for natural gas, the final version did leave out a provision in an earlier Senate bill banning electricity tariffs as a way to pay for natural gas pipelines, where the cost of the project is covered by an additional charge on ratepayer bills. Since that’s usually how gas pipelines are paid for, the clause would have rendered natural gas transmission projects effectively lifeless.
Roy Nascimento, president and CEO of the North Central Massachusetts Chamber of Commerce, said he was glad the clause was left out of the final version and was also encouraged the law diversified the state’s energy supply portfolio.
The north central region has the state’s highest concentration of manufacturers, Nascimento said, so high energy costs are a big concern.
“Our electricity plants rely on natural gas – they’ve moved away from coal and oil, and we have nuclear coming offline. That was a big part of our energy mix, and we do need to have diversity,” he said. “It’s good that we have hydro and wind, but the fact of the matter is we are reliant on natural gas, so we have to increase capacity in order to improve reliability and make electricity more affordable.”
Bachrach said his group would have preferred if the final bill kept the tariff ban. Ratepayers could end up covering costs associated with pipeline construction for decades after they’re built, and energy storage initiatives developed over the next few years could make pipelines useless anyway, he said.
“If in five years, if storage batteries made pipelines obsolete, we would still have to pay it for 30 years.” he said. “It’s a question of either moving forward into 21st century or falling back into the last century.”
Regarding energy storage, a section in the bill requires the state Department of Energy Resources to determine possible statewide targets for energy storage by the end of the year. New targets would be put in place by July of next year and achieved by Jan. 1, 2020, according to the law. The state previously announced a $10-million energy storage initiative to study support opportunities for the state’s energy storage market.
Storage technologies could present an opportunity for the state’s manufacturers, Bachrach said.
“If we can lead in the area of storage and storage batteries, we will create a potentially huge industry,” he said.
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