Feds to auction North Carolina offshore wind sites

The U.S. Department of the Interior's Bureau of Ocean Energy Management has announced plans to auction the rights to lease sites off the North Carolina coast for offshore wind projects.

Under the Bureau of Ocean Energy Management's "Smart from the Start" competitive program for leasing sites on the outer continental shelf (OCS) for commercial wind energy development, BOEM conducts a series of stakeholder and environmental review processes.  Through these processes, BOEM identifies areas that are attractive for commercial offshore wind development, while also protecting important viewsheds, sensitive habitats and resources and minimizing space use conflicts with activities such as military operations, shipping and fishing.

For North Carolina, the process began in December 2012 when BOEM published in the Federal Register a Call for Information and Nominations and a Notice of Intent to Prepare an Environmental Assessment.  After considering the public comments and responses, BOEM defined three Wind Energy Areas off North Carolina:

• The Kitty Hawk Wind Energy Area begins about 24 nautical miles (nm) from shore and extends approximately 25.7 nm in a general southeast direction at its widest point. Its seaward extent ranges from 13.5 nm in the north to .6 nm in the south. It contains approximately 21.5 OCS blocks (122,405 acres).
• The Wilmington West Wind Energy Area begins about 10 nm from shore and extends approximately 12.3 nm in an east - west direction at its widest point. It contains just over 9 OCS blocks (approximately 51,595 acres).
• The Wilmington East Wind Energy Area begins about 15 nm from Bald Head Island at its closest point and extends approximately 18 nm in the southeast direction at its widest point. It contains approximately 25 OCS blocks (133,590 acres). 

Map of North Carolina Wind Energy Areas, courtesy of BOEM.

The North Carolina auction will follow a series of similar auctions for East Coast offshore wind sites in federal waters over the past year, including sites off Massachusetts and Rhode Island and Virginia, and will come after the scheduled August 19 auction for sites off Maryland.  To date, BOEM has awarded five commercial wind energy leases off the Atlantic coast: two non-competitive leases (for the proposed Cape Wind project in Nantucket Sound and an area off Delaware) and three competitive leases (two offshore Massachusetts-Rhode Island and another offshore Virginia).  Altogether, the competitive lease sales have generated more than $5 million in high bids for more than 277,500 acres in federal waters.  BOEM expects to hold additional competitive auctions for wind energy areas offshore Massachusetts and New Jersey in the coming year.

When will North Carolina offshore wind sites be auctioned?  Who will bid?  Who will win -- and what will the high bid be?  Perhaps most fundamentally, will the BOEM leasing process lead to anyone developing a offshore wind project off North Carolina?

2013: a look ahead

With the new year upon us, here is a preview of several energy-related issues and events we will likely see this year:

Expansion of natural gas production, transmission and distribution.  The spread of hydraulic fracturing or fracking as a technique to produce natural gas from previously-uneconomic sources appears to be the largest revolution in the U.S. energy landscape in decades.  Natural gas will continue to displace coal and oil as an energy source in 2013, particularly for the generation of electricity.  The availability of cheap natural gas will also lead to the development of more local distribution company pipelines, enabling more businesses and homes to connect to natural gas supplies.  2013 will likely also bring proposed new natural gas transmission pipelines, connecting gas sources like the Marcellus and Utica shale fields to consumers across the country.
 
Offshore wind in U.S. waters.  2013 may see the construction of the first offshore wind projects in United States waters.  Cape Wind's project off Massachusetts may start cable work or other construction this year, as may Deepwater Wind's Block Island project off Rhode Island and Fishermen’s Energy's project off Atlantic City, New Jersey.  Congress's last-minute extension of the Investment Tax Credit or ITC gives a significant boost to offshore wind projects capable of beginning construction in 2013.  Not only was the tax credit's deadline extended by one year, but Congress also changed the trigger from being "placed in service" to commencing construction by December 31, 2013.  No offshore wind projects are currently operating or under construction in U.S. waters, so 2013 could be the year the first projects enter the water.  The federal Bureau of Ocean Energy Management is expected to continue its leasing program, making more ocean sites available for future offshore wind projects.

Keystone XL pipeline.  The Keystone XL pipeline, a $7 billion proposed extension of an existing crude oil pipeline, is slated to connect Alberta, Canada to Texas.  In 2011 and 2012, the project faced public scrutiny and failed to secure necessary federal and state approvals.  Among other permits, the project faces State Department review because it would enable imports or exports of oil across the national border with Canada.  Meanwhile, project lead TransCanada is moving ahead with the construction of some of the domestic legs of the project, and the full project is likely to come back up for review this year.

Energy efficiency continues to grow.  Investments in energy efficiency are likely to continue to grow in 2013.  Using fuels and energy sources more efficiently saves money for businesses and homeowners capable of making the investment.  It can also lower market prices for electricity and fuels by reducing demand, spreading the savings across all consumers.  New England regional electric grid operator ISO New England recently revised its load forecast to predict no increases in the demand for electricity through 2021 as a result of increased investment in energy efficiency.  This trend is likely to continue nationwide.


With 362 days left in the year, these issues and events are likely to be discussed for some time to come.  Will these predictions come true in 2013? 

Massachusetts increases renewable energy incentives

Energy legislation signed by Massachusetts Governor Deval Patrick earlier this month creates new opportunities for renewable energy projects in New England.

Finally enacted as Senate Bill 2395, the bill titled "An Act relative to competitively priced electricity in the Commonwealth" (37-page PDF) represents a combination of legislative proposals offered during the 2012 session.  The Act expands opportunities for renewable energy and energy efficiency, while seeking to manage increases in the cost of energy to consumers.

A number of the Act's provisions improve opportunities for renewable electricity production in Massachusetts and other New England states.  Building on the Green Communities Act of 2008, the new law increases the amount of electricity that electric distribution companies may purchase from renewable generating facilities under long-term contracts.  Previous law had required utilities to procure up to 3% of their electricity through long-term power purchase agreements with independent renewable energy developers.

The 2012 act amends the Green Communities Act by requiring distribution companies to solicit 10 to 20-year power purchase agreements from renewable developers for up to an additional 4% of the utilities' annual load.  By the end of 2016, the Commonwealth's distribution companies will conduct two rounds of joint solicitations for the new contracts.  Unlike previous renewable PPA negotiations such as led utility National Grid to select offshore wind developer Cape Wind as a renewable energy supplier, the new contracts must be negotiated through a competitive bid process.

The new law also provides a boon for distributed generation, requiring 10% of the newly-mandated supply to come from newly developed, small, emerging or diverse renewable energy distributed generation facilities located in its service territory.  Standards for these distributed generation projects require a maximum project capacity no greater than 6 megawatts.  Eligible distributed generation projcts cannot be net metering facilities, and must rely on a technology with no more than 30 megawatts of installed capacity in Massachusetts as of April 2012.

Under the Massachusetts renewable portfolio standard, projects eligible for this incentive may be built in any New England state, New York, or eastern Canada.

Maine regulators approve tidal energy PPA concept

Yesterday, the Maine Public Utilities Commission approved the terms of a power purchase agreement between three large utilities and a hydrokinetic tidal power project in Maine waters.

Low tide at Preble Cove, Great Cranberry Island, Maine.

Hydrokinetic energy projects produce electricity from moving water like tides, waves, ocean currents, or rivers, typically without dams.  As I noted yesterday, a 2010 Maine law required the PUC to conduct a competitive process to solicit proposals for long-term contracts for offshore wind and tidal projects.  The PUC received multiple submissions in response.  Commission staff have been negotiating with some of the bidders, and yesterday approved a proposal by Ocean Renewable Power Co. to sell the output of a small tidal project in Cobscook Bay to Maine's three largest utilities.

Under the terms approved the Commission, ORPC will receive a 20-year contract with utilities Central Maine Power Co., Bangor Hydro-Electric Co., and Maine Public Service Co. to sell the output of its underwater tidal power generation units.  ORPC plans to install the first of these units in Cobscook Bay this summer, and plans to expand its pilot project to include sites off Lubec and Eastport in the next 4 years.

While many of the terms of the resulting contract remain to be worked out, one piece appears firm: the price.  Utilities will pay 21.5 cents per kilowatt-hour for the tide-generated electricity in the first year; this base price of 21.5 cents will escalate at 2% per year, reaching a price of about 39 cents per kWh in the final contract year.  (By way of comparison, the Cape Wind offshore wind PPA approved in Massachusetts starts at 18.7 cents per kWh, with a 3.5% annual escalator over its 15 year term.  The ORPC initial rate is over twice the average rate currently paid by Maine utility customers on "standard offer" default service, or about 5 times higher than the current wholesale price in the New England market.)

For ORPC, the contract is a significant boon.  Securing a 20-year power purchase agreement should greatly assist the developer in securing financing for the project.  This project is designed as a demonstration or pilot project, but may be able to serve as a proof that ORPC's technology and installation systems will work on a larger scale.

For ratepayers, the volume of the contract is relatively low - as licensed by FERC, the Cobscook Project has a maximum capacity of 300 kW - meaning that its above-market costs will be diluted in the much larger pool of power consumed in Maine.  Nevertheless, if the contract volume grows as ORPC builds more of its scalable tidal generation units, those costs will become less and less dilute.  On the other hand, the contract itself - which still needs approval by the PUC once it is finally negotiated - may include other products or commodities such as capacity or renewable energy credits (RECs).  Developers typically prefer securing long-term contracts for as many commodities as possible, which helps solidify their future revenues, but it can make it harder to compare two contracts.

Many tidal projects today face high capital costs, let alone research and development expenses, but many believe that their fuel-free nature will ultimately enable tidal power to have a low fundamental cost of production of electricity in the future.  ORPC's project may shed some light on how that belief fares in the Gulf of Maine.

New England offshore wind advances

Plans to generate electricity from offshore winds off the southern New England coast appear to be gathering some momentum, as a series of events unrolling this month favor offshore wind development.

On February 3, the U.S. Bureau of Ocean Energy Management took the initial steps in its process to lease sites for offshore wind projects in federal waters off Massachusetts.  BOEM requested information about uses of an area of sea about about 12 nautical miles south of the islands of Martha’s Vineyard and Nantucket, as well as expressions of interest by developers identifying particular sites.  Responses to the call for information and nominations, as the key document is known, are due in mid-March.

Last week, Massachusetts officials announced a proposed settlement that would allow utilities NSTAR and Northeast Utilities to merge, but only on the condition that the resulting utility sign a long-term contract to buy power from the proposed Cape Wind project.  Cape Wind already has a power purchase agreement with utility National Grid for half the project's output; if the NSTAR deal is approved, Cape Wind would have power purchase agreements in place for 77.5% of its expected output.  Proponents hope that this increased certainty around the project's revenues could enable the project to be financed and built.

This week, Boston hosted a major offshore wind industry conference.  Today, the U.S. Bureau of Ocean Energy Management plans to make an announcement "latest milestone in commercial wind energy planning and leasing in the area of mutual interest offshore of Rhode Island and Massachusetts."

None of these steps alone may be sufficient to spur offshore wind development in New England waters, but collectively these steps illustrate how multiple levels of government are promoting offshore wind.  Will their collective result produce power in the near term?

MA utility merger may help Cape Wind

A $17.5 billion merger proposal by two Massachusetts utilities seems more likely to win regulatory approval after yesterday's announcement of a settlement that would provide offshore wind developer Cape Wind a buyer for more of its electricity.

The two utilities, NSTAR and Northeast Utilities, had asked the Department of Public Utilities to approve their merger, but the case dragged on and faced challenges from ratepayer advocates.  Yesterday, Governor Deval Patrick announced that his administration had negotiated an agreement to settle the case.  In exchange for allowing the merger, the proposed settlement contains a number of provisions that are said to create enhanced ratepayer benefit.  For example, the utilities must provide customers a one-time credit totalling $21 milllion, and NSTAR must fund an independent audit of its returns and assets.

The proposed settlement would also require the merged utility to enter into a contract to buy part of the electricity to be produced by the Cape Wind offshore wind project.  NSTAR would enter into a 15-year contract to purchase 129 MW, or about 27.5% of Cape Wind's projected electricity output.  This would be on top of the agreement to sell National Grid buy half of Cape Wind's power for a price starting at 18.7 cents per kilowatt-hour.  The terms of this agreement have yet to be approved by the DPU, but the settlement contemplates that NSTAR could look elsewhere for its renewable electricity if Cape Wind has not started physical construction by 2016.  Buying power from an offshore wind project is seen as important in helping the utilities comply with the Green Communities Act and the Massachusetts renewable portfolio standard or RPS.

If the merger settlement is approved, the utility would then negotiate the terms of a power purchase agreement with Cape Wind and submit them to the DPU for approval.  Would having signed PPAs for 77.5% of the project's output be enough for Cape Wind's project to be financed and built?

Massachusetts regulators approve utility's wind contracts

In most U.S. states, laws require utilities to include a specified amount of renewable power in the energy mix they sell customers.  These renewable portfolio standard (or RPS ) laws vary from state to state in their details, but vertically-integrated can often satisfy the RPS by entering into contracts to buy power from specific renewable projects.  For example, Massachusetts' largest utility National Grid plans to buy half of the Cape Wind offshore wind project's output to comply with the RPS.

On Friday, Massachusetts regulators approved an array of wind energy contracts proposed by the Commonwealth's second-largest utility, NStar.  The state Department of Public Utilities has been considering contracts between NStar and three wind projects:

• Iberdrola's 29 megawatt Hoosac Wind project, in the Berkshires of Massachusetts, should be running July 2012, a ten-year deal
• Iberdrola's 48 megwatt Groton Wind project near Plymouth, New Hampshire, should be running December 2012, a ten-year deal
• First Wind's 32 megawatt Blue Sky East project in Eastbrook, Maine, should be running by May 2012, a fifteen-year deal

While the agreements' pricing remains confidential, some aspects of the pricing are known.  NStar conducted a competitive bidding process to select the projects for contracting; NStar's process is said to have emphasized getting the lowest price.  It is also public that the three contracts approved on Friday are for fixed prices, meaning that unlike escalating price contracts, the price the utility pays the wind developers per kilowatt-hour will remain flat over the contracts' terms.

December 2, 2010 - a deeper look at the Cape Wind PPA complaint

Yesterday, the news broke that a group called "Californians for Renewable Energy" (CARE) filed a complaint with the Federal Energy Regulatory Commission (FERC) challenging Cape Wind's power purchase agreement with National Grid.  In its complaint, CARE asks FERC to set aside the November 2010 order of the Massachusetts Department of Public Utilities (DPU) approving Cape Wind's power purchase agreement with National Grid.  CARE also points serious allegations against a variety of parties including National Grid, Cape Wind, and the DPU itself.  These allegations range from technical legal points (e.g. that FERC alone has "exclusive jurisdiction to regulate the rates, terms and conditions of sales for resale of electric energy in interstate commerce by public utilities") to rather disjointed but sensational accusations of connections between wind developers and Italian organized crime.

I've read the Complaint, and this morning, I had a pleasant discussion with Mark Rodgers, Cape Wind's Director of Communications.  Mark described CARE's complaint as "baseless", and characterized CARE's allegations of an Italian mafia connection as "false, malicious, and defamatory".

Looking at the Complaint itself, I would personally characterize it as a mix of legal argument and wild conspiracy-theory accusations.  On the legal argument side, the Complaint appears to allege that the Massachusetts DPU exceeded its jurisdictional authority in approving the PPA.  This argument is based on the recent precedent in which FERC told the California Public Utilities Commission that its feed-in tariff program was invalid because it purported to set wholesale rates for power at the state level.  Reasoning by analogy, CARE appears to argue that the DPU improperly set a wholesale rate for power in excess of the utility's avoided cost.

Other legal arguments asserted by CARE strike me as more tenuous.  For example, CARE asserts that renewable energy credits (RECs) are "greenhouse gas (GHG) offsets", as well as "a type of energy ancillary service that Mass DPU maintains authority over in regard to the price that is paid wholesale Sellers [sic]".  CARE goes on to say, "The REC’s purpose therefore is to offset greenhouse gas emissions by avoidance." This is a troubled argument at best.  In general, RECs are distinct from GHG offsets; RECs represent the attributes associated with the generation of energy from state-qualified renewable resources, not the specific amount of GHG emission reductions associated with that generation. RECs exist in compliance markets because state legislatures establish renewable portfolio standards requiring specified amounts of energy to be sourced from renewable resources, and do not generally have an explicit GHG tie-in.  Further, REC pricing is generally established through bilateral contracts between parties.  While a state utility commission like the DPU does retain authority over utilities in its jurisdiction, state commissions do not necessarily specify the price of RECs.

The second half of the Complaint gets even farther out.  In a rambling set of long sentences and quotes from emails sent by CARE and its co-complainant Barbara Durkin, CARE alleges that National Grid and the DPU aided and abetted "fraudulent actions and claims to defraud taxpayers of ARRA stimulus funds".  This section, which appears largely to be a rehash of the complainants' earlier position before the DPU, includes a request for FERC to "investigate Cape Wind, National Grid, the Massachusetts Attorney General, and Mass DPU for actions they have taken to aid and abet (act as an accessory to) Cape Wind’s fraudulent actions and claims whose purpose is to defraud taxpayers and ratepayers alike of ARRA stimulus funds".  CARE goes so far as to assert that when a National Grid representative said “We have every reason to believe that [the production and investment tax credits] are going to be extended and supported by Congress,” this somehow constituted an admission of a violation of the prohibition on energy market manipulation.  (This claim is a real head-scratcher.)

Then, if possible, things get even stranger.  CARE devotes 24 pages (nearly the remainder of the complaint) to a series of purported quotes from news media stories and other documents about various wind developers (puzzlingly, including developers other than Cape Wind Associates) and connections to Italian organized crime.  I won't bother to recite those allegations further here.  Suffice to say that this section of CARE's complaint is wild, disorganized, and fails to effectively illustrate any concrete misdeeds by any of the parties against whom CARE complains.

Clearly, this complaint is sensational.  Even trying to read between the lines, it is hard to make sense of many of CARE's claims.  While the legal issues regarding whether a state has the authority to approve such a PPA are indeed interesting, particularly in the wake of FERC's restrictions on the California feed-in tariff program, the conspiracy claims tend to detract from CARE's credibility.  It will be interesting to see how FERC's review of this complaint proceeds.

December 1, 2010 - Cape Wind contract challenged?

Breaking news: today, a group including an organization called "Californians for Renewable Energy" (CARE) filed a complaint with the Federal Energy Regulatory Commission (FERC) against National Grid, Cape Wind and the Massachusetts Department of Public Utilities for approval of Cape Wind's power purchase agreement with National Grid.  FERC has docketed this as docket no. EL11-9-000.

As you may know, the Massachusetts DPU issued an order approving the PPA between Cape Wind and National Grid.  Under the deal, National Grid will buy half of Cape Wind’s output for 18.7 cents per kilowatt-hour, with a 3.5% annual escalator in each of the 15 contract years.

The incendiary Complaint opens with the following summary alleging "ongoing conspiracy" to violate the FPA as well as fraud:

Pursuant to the Federal Power Act (“FPA”), 16 U.S.C. 824d, 824e, 825e, and 825h, (2008) and Rule 206, 16 C.F.R. 385.206 (2008) of the Rules of Practice and Procedure (“Rules”) of the Federal Energy Regulatory Commission (“FERC”), CAlifornians for Renewable Energy, Inc. (“CARE”) and Barbara Durkin hereby files this Complaint against the National Grid, Cape Wind, and the Massachusetts Department of Public Utilities (“DPU” or “Mass DPU”), for their ongoing conspiracy to violate the Federal Power Act (“FPA”) by approving contracts for capacity and energy that exceeds the utilities’ avoided cost cap and which also usurps FERC’s exclusive jurisdiction to determine the wholesale rates for electricity under its jurisdiction within those territories that it exercises regulatory authority and further for National Grid and DPU and aiding and abetting Cape Wind’s fraudulent actions and claims to defraud taxpayers of ARRA stimulus funds it is seeking for the project in violation of 18 C.F.R. § 1c.

These are serious and bold allegations indeed.

So who is CARE?  CARE describes itself in the Complaint as "a nonprofit corporation that works to educate and encourage the use of alternative forms of renewable energy to avoid dependence on declining supplies of fossil fuels, and the harmful air emissions their use entails. All of CARE’s members are residential or small business customers."

What is CARE's interest in this?  CARE claims that the alleged actions "harm the interests of CARE’s members by allowing Cape Wind Associates a competitive advantage over land-based wind farm developers who must meet stricter requirements for environmental mitigation and monitoring, including preconstruction monitoring for species protected by the ESA".

Other highlights worth further probing include extensive paragraphs devoted to an attempt to link the Cape Wind project to Italian organized crime.  (See page 26 for some of the most lurid of that text.)

At 51 pages, it is a broad-ranging complaint.  Here is a link to the FERC docket sheet if you are interested.  I will be watching this docket with great interest to see how the Cape Wind PPA weathers this challenge.

[Update 12/2/2010: see my next blog post for a deeper look at the Complaint.]

November 29, 2010 - Cape Wind follow-up

In the wake of the Massachusetts DPU's approval of the Cape Wind contract with National Grid, interest in offshore wind technologies is growing.  Under the deal, National Grid will buy half of Cape Wind’s output for a price that starts at 18.7 cents per kilowatt-hour, with a 3.5% annual escalator in each of the 15 contract years.

Today Motley Fool ran a piece noting potential winners from an increased belief that offshore wind is feasible and soon to be here.  These winners include turbine manufacturers Vestas and Broadwind, as well as General Electric and Siemens.  American Superconductor is pursuing technology to maximize the "power per tower" from offshore wind; its SeaTitan turbines are slated to produce more than 10 MW per turbine.

And don't forget my favorite search engine (though increasingly their business model relies on consumers seeing them as more than that): Google has already made the news for its involvement in energy markets. Now Google is investing in the underwater transmission lines needed to transmit power from offshore wind turbines to the mainland. Specifically, Google is eyeing a 350-mile line from Virginia to New Jersey, and may be interested in further projects to connect offshore generation to the onshore grid.

November 24, 2010 - Cape Wind approval order

Yesterday, I looked at the Massachusetts DPU's decision approving a 15-year power purchase agreement between Cape Wind and National Grid.  Under the deal, National Grid will buy half of Cape Wind’s output for 18.7 cents per kilowatt-hour, with a 3.5% annual escalator in each of the 15 contract years.

[Photo: the Martha's Vineyard ferry passes through Nantucket Sound, west of the Cape Wind site]

Right in the executive summary, the DPU presents its key finding: "that the Cape Wind contract is both cost-effective and in the public interest."  As I read through the DPU's order, I was interested to see how the Department analyzed the facts to reach this finding.  While the order resembles those approving contracts between utilities and more traditional generators, it diverged from these precedents in key ways including an analysis of how the contract would support the Commonwealth's renewable power standard and environmental goals.

For example, summarizing its analysis of cost-effectiveness, the DPU stated:

As we have said, the price of the Cape Wind contract is $187 per MWh for 15 years, with a 3.5 percent annual escalator and opportunities for both upward and downward price adjustments depending on a variety of contingencies. Contrary to the assertions of some parties in the case, there are no additional transmission costs to customers beyond those that are already included in the contract price, and no costs of any significance to back up the addition to the regional electricity grid of an intermittent resource the size of Cape Wind.

On the other side of the ledger, the benefits associated with the Cape Wind contract include the value associated with the energy, capacity, and renewable energy credits that National Grid will purchase through the contract. In those years when the contract cost exceeds that value, National Grid customers will pay “above-market costs” for the Cape Wind contract. Based on the evidence presented, we believe the most likely range of above-market costs over the 15 years of the contract, including consideration of the price suppression effect, is from $420 million to $695 million.

Thus the DPU asserts that over the life of the contract, National Grid's ratepayers will most likely pay $420 million to $695 million in above-market costs.

Another interesting section of the order was where the DPU found that this contract was cost-effective by comparison to other offshore wind projects.  During the case, the Attorney General and Cape Wind each provided analyses comparing the costs and prices of the Cape Wind facility to a variety of operating and planned offshore wind projects here and abroad.  Both the Attorney General and Cape Wind compared the power purchase agreement to that between Delmarva Power & Light Company and Bluewater Wind Delaware LLC for the output of its 200 MW offshore wind facility off Delaware.  Analysis was also offered by the AG of the Deepwater Block Island LLC contract (28.8 MW proposed off Rhode Island) and (2) a un-named "domestic offshore wind project" whose information is protected by confidentiality.

After analysis, the DPU stated, "The various analyses performed by the Attorney General and Cape Wind demonstrate that the price terms of PPA-1 are reasonable compared to proposed offshore wind projects in the United States and to existing and proposed offshore wind projects abroad."  The Order then compared Cape Wind's levelized price of $230 to the Bluewater levelized price of $230 and the Deepwater Block Island levelized price of $340.

Intuitively, that Deepwater came in with a higher price makes some sense.  As the AG pointed out in the Cape Wind case, the nameplate capacity of the 28.8 MW project is just 6% of the capacity of Cape Wind's 468 MW, "presumably providing the Deepwater Block Island facility with fewer economies of scale".

If the Cape Wind order serves as precedent establishing the framework within which future renewable PPAs must fit, we have a lot to learn from the analysis in its 374 pages.  Offshore wind developers and others interested in renewable projects who fit their projects into this framework may be better poised for regulatory approval.

November 23, 2010 - Cape Wind contract approved at 18.7 cents/kWh

Throughout 2010, I've been watching the Cape Wind project work its way through the development and regulatory processes.  The project has generated controversy over a variety of issues, including siting (should the project be built in Nantucket Sound? if so, where?) and cost (should ratepayers be on the hook for a long-term power purchase agreement for the project's output? if so, at what price?).  This latter issue falls under the jurisdiction of the Massachusetts Department of Public Utilities.

This week the DPU issued a decision approving a 15-year power purchase agreement between Cape Wind and National Grid.  (The order itself is 374 pages.)  Under the deal, National Grid will buy half of Cape Wind’s output for 18.7 cents per kilowatt-hour, with a 3.5% annual escalator in each of the 15 contract years.  Some consumer advocates note that this is significantly higher than the most recent average annual wholesale power price in the region: 5.5 cents per kilowatt-hour.  Proponents of the project point out that the 18.7 cent price includes the energy itself, capacity value, and renewable energy credits.  A closer analysis of this suggests some flaws: the value of capacity plus renewable energy credits generally may not be worth the $132 per MWh price increase.  Arguably the difference and that offshore wind has a social or intrinsic value that makes the price worth it.

The DPU acknowledged that the pricing is high:

The power from this contract is expensive in light of today‖s energy prices. It may also be expensive in light of forecasted energy prices—although less so than its critics suggest. There are opportunities to purchase renewable energy less expensively. However, it is abundantly clear that the Cape Wind facility offers significant benefits that are not currently available from any other renewable resource. We find that these benefits outweigh the costs of the project.

One of the many benefits that Cape Wind provides is that it will assist National Grid and Massachusetts in meeting the renewable energy requirements of the Green Communities Act, as well as the greenhouse gas emissions reduction requirements of the Global Warming Solutions Act. Meeting those greenhouse gas emission mandates will require significant investments across all sectors of the economy, and especially from the electricity sector. We conclude that those requirements are unlikely to be met without the Cape Wind contract and the associated emissions reductions from the project.

If 18.7 cents seems high, it is among the lowest of the many of the recent proposed prices for offshore wind.  It's worth noting that 18.7 cents per kWh is lower than the price set in previous proposed iterations of this contract.  In May 2010, National Grid agreed to a deal at 20.7 cents per kWh (subject to DPU approval, which was withheld).  The May proposal in turn was lower than the initial Deepwater Wind proposal off Rhode Island's Block Island, which proposed 24.4 cent per kWh power escalating 3.5% annually for 20 years to a final price of 48.6 cents per kWh.  (And even that price was lower than the one Deepwater initially offered National Grid: 30.7 cents per kWh.)

The next step for Cape Wind is to look for a purchaser for the other half of its power.  What kind of power purchase agreement will they find?  If the DPU's approval of this contract establishes a pricing trend, we may see similar pricing in the second PPA.

November 8, 2010 - NECBC U.S.‐Canada Energy Trade and Technology Conference recap

I enjoyed the 18th Annual U.S.‐Canada Energy Trade and Technology Conference sponsored by the New England - Canada Business Council last Thursday and Friday.  I've been a regular attendee in recent years, and this year's program was as dynamic as any I've seen.  On Thursday afternoon, my colleague Steve Hudson moderated a roundtable discussion on Washington and Ottawa Energy and Environmental Policy Initiatives.  Friday, participants enjoyed a mix of high-impact speakers like Nova Scotia Premier Darrell Dexter and lively panels with key executives in regional energy businesses like Hydro-Quebec, TransCanada Power, and Tennessee Gas Pipeline.  The noontime panel held conference attendees rapt with a spirited discussion of some of the aspects of the Cape Wind offshore wind energy project and contracts for sale of its renewable power.  The sessions culminated with a keynote address on federal energy policy by a speaker from the US Chamber of Commerce.

It was very interesting learning from the speakers about their perspectives on energy issues.  To me, it was even better to reconnect with friends and get to know fellow conference attendees.  Hope to see you at the 19th annual NECBC energy meeting next year.

October 8, 2010 - Maine island wind, and Cape Wind

The Fox Islands Wind project on the Maine island of Vinalhaven continues to make news. A recent New York Times article addresses issues relating to the siting of wind towers - including noise, lights, and flicker effects - across the country. The columnist cites Vinalhaven as one example of where local residents are seeking to balance their interest in renewable energy (particularly on Vinalhaven, where residents are served by an electric cooperative) against siting concerns.

Meanwhile, U.S. Secretary of the Interior Ken Salazar has signed the lease for the Cape Wind project. This act will empower the first commercial wind development in U.S. federal waters. So what is Cape Wind leasing? 25 square miles of Nantucket Sound, for a 28-year term.

August 30, 2010 - Cape Wind; German solar to beat wind?

The dome at the Maine State House - currently netted for construction.

The Boston Globe editorial team has come out in qualified support of utility National Grid's proposed long-term contract with Cape Wind.  The editors note that consumers are correct to consider whether it is appropriate for them to be required pay more than 25% more for energy from renewable sources than for energy as a commodity.  They do note that because the Cape Wind contract represents about 3.5% of National Grid's load, the impact on ratepayers will be diluted -- about $1.24 per month for the average residential consumer.  After a close examination, should the Department of Public Utilities approve the deal?  The editors' answer: "no if the goal is simply to keep utility costs as low as possible in 2010 — but yes if Massachusetts wants to be a future leader in renewable technology."

Meanwhile, Germany has announced that its solar PV capacity may exceed its wind capacity by 2020.  A state energy adviser has projected that Germany will have 42 GW of installed capacity from solar photovoltaics by 2020 -- just enough to topple wind power, which is projected to reach 41.9 GW installed capacity.  Germany produces more electricity than any other nation in Europe.

August 11, 2010 - Damariscove Island; Alaskan gas supply

Uninhabited Damariscove Island, near Boothbay Harbor, Maine.  The ocean waters near Damariscove Island have been selected as a test site for offshore wind energy production.

Alaska is facing a dilemma over how to ensure continued gas supply to the Anchorage area.  For years, gas fields near Cook Inlet have produced enough gas to supply consumers in Alaska's most populous area.  However, production is declining so rapidly that some reports suggest a need for imports within the next five years.  Options include imports from Asia, or pipeline projects from the North Slope southward.  There are two pending international pipeline proposals -- TransCanada and Denali -- but it is not clear that those lines will be built, let alone whether they would include offramps for Alaskan consumers.  Serving Anchorage from a dedicated gas pipeline from the North Slope would be even more expensive for ratepayers.

Tomorrow night may be movie night for those following the Cape Wind offshore energy project.  See this Boston Globe interview with Robbie Gemmel, director of "Cape Wind: The Fight for the Future of Power in America."  Here is a link to his website, which he also calls "Cape Spin".  The movie has a sneak preview Thursday night in Dennis, MA.

The federal Blue Ribbon Commission on America’s Nuclear Future toured Wiscasset, Maine, yesterday, looking for solutions to the problem of how (and where) to store spent fuel and nuclear waste from the former Maine Yankee nuclear power plant.

June 18, 2010 - quick roundup

The town of Oxford, Maine, is looking at perhaps $25,000 in repairs needed at the dam at the former Robinson Mill. Last year, the town foreclosed on the mill property over $244,920 in back taxes from the last three years, and then voted to take possession of the mill property after the owner failed to make payments on his installment workout plan. The town expects repairs to include replacing the dam's log boom and grates, plus new decking and walkway supports. The dam maintains the water level in Thompson Lake.

The Lewiston Sun Journal reports that First Wind has canceled its presentation to the board of selectmen in Rumford, Maine. Rumford is considering a wind siting ordinance, and the Sun Journal reports that First Wind said it would be premature to present on the project before the ordinance comes out. First Wind had proposed a wind farm on Black Mountain and North and South Twin mountains, but has retooled the project after finding that the wind intensity didn't match the specified turbines.

The price of power from Cape Wind continues to make news. Now Wal-Mart Stores Inc. has intervened in the case before the Massachusetts Department of Public Utilities over the proposed Cape Wind power purchase agreement with utility National Grid. Wal-Mart is reported as saying it supports the concept behind the project, but challenges the price it would have to pay for the wind-generated electricity.

May 27, 2010 - TransCanada sues Massachusetts over local aspect of renewable portfolio standard

In Massachusetts: TransCanada has sued the Commonwealth (and named officials) over the Green Communities Act. Specifically, TransCanada is asserting that the statute's requirement that utilities enter into long-term contracts to buy power from Massachusetts generators including local solar PV projects is unconstitutional. TransCanada claims that this discrimination against out-of-state renewable energy producers not only violates the Commerce Clause of the US Constitution, but results in higher prices to ratepayers. The New England Power Generators Association agrees that it is illogical to insist that clean energy originate locally, given our regional transmission grid and unpredictable electron flows.

Massachusetts Attorney General Martha Coakley is trying to negotiate a settlement with TransCanada.

Interestingly, TransCanada is challenging the Green Communities Act: the same statutory framework into which the Cape Wind contract with National Grid fits.

Are electrons a fungible commodity? Are the electrons produced by a renewable project inherently more valuable than electrons produced by (for example) coal-fired generation? Even if they are, doesn't the great mixing bowl that is the transmission grid eliminate any uniqueness those renewable electrons had? Is there any real meaning to the kind of financial (contractual) fictions that Consumer A is buying Generator B's renewable electrons?


Weather news: NOAA predicts an "active" to "extremely active" hurricane season this year, with between 14 and 23 named storms forming in the Atlantic Ocean, Caribbean Sea and Gulf of Mexico.

BP's top kill of the Deepwater Horizon oil well appears to have worked.

May 21, 2010 - offshore energy in Britain and Canada

Following up on my recent posts about Cape Wind and the price ratepayers may pay for its output:

A new report by the Offshore Valuation Group identifies the size of the opportunity for Great Britain to develop its ocean energy resources. The group concluded that harnessing 29% of the practically tappable wind, wave and tidal resources in the UK would displace all of the electricity generated by oil and gas production in the North Sea, and cumulatively over 40 years save 1.1 billion tons of carbon dioxide. OVG identified two possible price tags: £443bn for 29% of the offshore resources, generating £62bn in annual exports; or £993bn for 76% of available resources, generating £164bn. Floating offshore wind turbines have the largest share of the potential, contributing 1,533 terawatt-hours per year.

Meanwhile, BC Hydro has announced that NaiKun Wind's 396 MW offshore wind energy project was no longer under consideration in the province's Clean Power Call. Back in November 2008, NaiKun Wind had submitted a proposal to BC Hydro to buy the power from an offshore wind energy project to be built in the Haida Energy Field in Hecate Strait off British Columbia's northwest coast. NaiKun has an interesting explanation of why it wasn't selected for inclusion in the Clean Power Call: in the end, price.

May 18, 2010 - Cape Wind wins FAA approval

Significant renewable energy projects like the proposed 130-turbine Cape Wind project in Nantucket Sound tend to raise policy questions cutting across a broad variety of fields. At their heart, perhaps all of these issues can be simplified to one basic question: should we (as a governed society) support this project, after weighing and balancing all of its economic, environmental, and social benefits and costs? On the energy cost side, this question plays out as a query whether the significant price premium agreed to by National Grid and Cape Wind Associates is "worth it".

Different bodies apply this same basic question to other fields: for example, are any negative impacts to aviation outweighed by the societal benefits of the development? Apparently the Federal Aviation Administration believes so. The FAA determined yesterday that the Cape Wind project will not significantly interfere with planes or radar -- a so-called "no hazard" determination.

In reaching this finding, the FAA did impose certain conditions. For example, Cape Wind must upgrade its radar system to ensure it can clearly spot planes flying above the wind farm. The FAA is allowing Cape Wind to try a preliminary $1.5 million radar modification that stands a chance of working. As a backup, Cape Wind must put $15 million in escrow to pay for a more comprehensive digital radar system replacement.

Although the FAA's finding is one of the last remaining permitting hurdles for the innovative offshore wind project, this is not the first time the FAA has performed this evaluation of the project. In fact, before yesterday's finding, the FAA had already reviewed the project three other times. (FAA regulations provide that each determination expires after 18 months.) Interestingly, the FAA's first two determinations were of "no hazard". On the third review, the FAA found that the wind farm was a "presumed hazard" without the radar mitigation measures that will now be required. With Cape Wind having agreed to make the upgrades -- certainly easier now that it has an offtake contract proposed or in place for 100% of the project's energy generation -- this fourth review resulted in the "no hazard" determination that Cape Wind needed.

It can be hard to develop a "grand unified theory of everything", that holy grail of theoretical physicists trying to explain the world around us. When it comes to the policy questions behind energy choices and investment in new projects, a rough draft of that grand unified theory might be: "should we support this project, after weighing and balancing all of its economic, environmental, and social benefits and costs?" To derive the answer, society looks at each of the aspects of the project -- energy costs, aviation, scenic impacts, safety -- and tries to come up with a balanced answer. But can we get it right by taking discrete issue-oriented approval processes, adding them up, and hoping that the summation results in ultimate project approval?