5/7/10: Cape Wind at 20.7 cents per kWh?

National Grid, one of the largest public utilities serving Massachusetts customers, has agreed to buy electricity from the 130-turbine Cape Wind near-shore wind project in Nantucket Sound. The Boston Herald reports that National Grid has signed a 15-year contract to pay 20.7 cents per kWh -- more than twice the typical market rate for power in New England. The contract provides that the price will escalate 3.5% annually.

As the offshore (or near-shore) wind market becomes a reality, I'm watching with interest (watching might be too passive a word; perhaps "getting involved" makes more sense) as the market seeks price equilibrium. Remember that just over a month ago, the Rhode Island PUC rejected a proposed contract between NGrid and the proposed Deepwater Wind project off Block Island, largely on the grounds that the contract was too expensive. Admittedly, the proposed Deepwater contract had a higher price tag: 24.4 cents per kWh, escalating 3.5% annually for 20 years to a final price of 48.6 cents per kWh. Even that higher price, which NGrid had asked the PUC to approve, was lower than the original Deepwater proposal that NGrid rejected in October 2009.

It's clear that developing offshore wind still costs significantly more than traditional energy resources, at least under current regulatory regimes and fuel costs. (In fact, offshore wind costs significantly more than some other renewable resources, like hydro and onshore wind.) Just because something costs more doesn't mean that it isn't a good deal, or that customers shouldn't have to pay for it. But on the policy level, how will we decide how much is too much?