May 11, 2010: more Cape Wind analysis

Tuesday, May 11, 2010

Continuing the analysis from yesterday: Is Cape Wind worth 20.7 cents per kWh? Massachusetts Governor Deval Patrick thinks so. In response to the questioning about whether ratepayers should pay for the project's renewable output at a significant price premium, Governor Patrick has publicly supported the proposed contract between National Grid and the Cape Wind project.

Governor Patrick is touting the value of the contract (or the project?) in securing a "stable, renewable source of energy" as crucial to the state's future. He also notes the value of the project in offsetting consumer price volatility driven by natural gas price spikes.

Reading between the lines, the Governor's message may be that although buying Cape Wind increases costs, it is worth it -- the benefits outweigh the costs. Recall that the contract locks customers in for 15 years at prices starting at 20.7 cents and escalating at 3% annually, adding an estimated $1.50 to the average residential customer's monthly electricity bill and more to industrials' bills.

Cape Wind's regulatory situation illustrates one issue that crops up with higher-priced renewable contracts: although the price paid per kWh under the contract might be high, the expensive renewables make up a fraction of a customer's total power purchase. As long as these expensive contracts are limited to being a small portion of the portfolio of power resources, there is an argument that the benefits are worth it. But what happens as the portion of the power portfolio sourced from expensive renewables increases? At what point do we decide what price impacts are too much?

1 comment:

Krem said...

I think part of the unspoken theory is that conventional energy prices will rise much faster than alternative energy prices. If/when carbon taxes or can & trade impact coal electricity production, the renewable part of the portfolio has locked in lower costs. Wind, if financed by fixed cost loans, is also quite resistant to inflation price increases.

Time will tell if that is true or fantasy.

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