One theme that emerges as we follow stories of renewable energy development around the world is the need for long-term contracts and price stability. Developers report that without certainty as to the project's future operating revenues, financing is hard -- or impossible -- to get. For more expensive projects, like Cape Wind, the prices specified in these contracts are relatively high -- on the order of 18 cents per kilowatt-hour to start. Other renewable resources can be priced more inexpensively, such as Canadian hydro.
A recently signed deal in Vermont illustrates this pricing differential. Last week, Vermont's two largest utilities (Central Vermont Public Service and Green Mountain Power) announced a power purchase agreement with Hydro-Quebec for 26 years (November 2012 through 2038). The utilities have agreed purchase up to 225 megawatts of hydroelectric power from Canada's Hydro-Quebec. While the purchase price will start at about six cents per kilowatt-hour, power pricing for deliveries starting in 2012 will be set in December 2010.
Vermont's Public Service Board must still review and approve the contract. However, this is not the first time Vermont has sourced its power from Canadian hydro; Vermont has been buying from Hydro-Quebec for nearly 30 years. The current agreement between Vermont and Hydro-Quebec, which was signed in 1987, will largely end by 2016. Vermont utilities see this deal as one way to help maintain lower prices and reliable service. On the other hand, the deal does little to incentivize the development of renewable resources within Vermont itself, and arguably forestalls such development unless it can compete on a price basis against the Canadian power. In future posts, I'll explore the relationships between Hydro-Quebec and its neighbors in more depth.