Block Island offshore wind celebrated, challenged

U.S. and Rhode Island officials recently celebrated the start of construction on the Block Island Wind Farm, which is on track to be the first commercial offshore wind farm in the U.S.  The five-turbine, 30-megawatt project under development by Deepwater Wind is scheduled to come online in 2016; turbine foundation construction and other "steel in the water" activities are underway.  As a pioneer in U.S. offshore wind development, the Block Island project has survived years of permitting uncertainty and repeated legal challenges by project opponents.  But another such lawsuit was filed this week in federal court.  What does the future hold for the Block Island Wind Farm?

Project developer Deepwater Wind is owned principally by an entity of the D.E. Shaw group.  Its Block Island project is currently under construction in Rhode Island state waters about three nautical miles southeast of Block Island.  The project will feed power directly to consumers on Block Island, but also includes a 25-mile bi-directional submerged transmission cable between Block Island and the mainland. The project's finances rest in part on a power purchase agreement through which Deepwater Wind will sell power to utility National Grid.

That power purchase agreement, or PPA, has been the subject of several legal challenges.  Those challenges often cite the deal's cost: pricing for the Block Island power starts as high as 24.4 cents per kilowatt-hour, and escalates 3.5 percent annually.  These prices are more than double the typical Rhode Island energy price, for an estimated $497 million in above-market costs over the 20-year deal.

In 2009 and early 2010, the Rhode Island Public Utilities Commission rejected proposals by Deepwater Wind and National Grid, largely over cost.  The parties then returned with a revised proposal.  In 2010, TransCanada Power Marketing Ltd. unsuccessfully argued that the Rhode Island commission shouldn't consider that proposal due to constitutional infirmities in the Rhode Island law favoring renewable power contracts with in-state projects.  On August 16, 2010, the Commission issued its order approving the PPA.  After that order was appealed to the state Supreme Court, the Supreme Court issued a written opinion upholding the Commission's Order on July 1, 2011.  In 2012 and in 2015, project opponents petitioned the Federal Energy Regulatory Commission to invalidate the Rhode Island commission's action, which FERC declined to do.  Through all this, the project moved forward and ultimately began local construction earlier this year.

But the project is not yet completely out of stormy seas.  On August 14, 2015, plaintiffs with a history of engagement in some of these earlier challenges filed a lawsuit in U.S. District Court in Rhode Island.  As in previous challenges, this complaint argues that the Rhode Island Public Utilities Commission violated federal laws in approving the Block Island deal because only the Federal Energy Regulatory Commission may regulate wholesale electricity sales.  While it is possible that this case could be swiftly dismissed, if it lingers it could add uncertainty to the project until its resolution.  Last year a federal court invalidated a FERC ruling on the grounds that it impermissibly tread on state rights to set retail electricity rates.  That case, Electric Power Supply Association v. Federal Energy Regulatory Commission, has been appealed to the U.S. Supreme Court.

With construction underway, the Block Island project now has significant inertia behind it.  What impact will the recently filed lawsuit have?  Will it affect Deepwater Wind's position as "first in the water" in the race for U.S. commercial offshore wind development?

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.

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?

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.

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.

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 28, 2010 - National Grid unveils 1 MW rooftop solar in MA

National Grid now operates the largest solar site in Massachusetts, having completed its 1 MW solar generation facility in Whitinsville. Conveniently, National Grid already owned a suitable location: the flat roof of its own New England Distribution Center warehouse.

The development was made possible in part by the 2008 Massachusetts Green Communities Act, which allows utilities to own up to 50 megawatts of solar generation. The National Grid project is the first utility-owned solar project under this new law. National Grid plans several more projects in the coming year, totaling about 5 MW. The cost? Less than $6.5 million, says National Grid; the utility projects that the Whitinsville project will cost an average residential Massachusetts customer approximately one cent per month over the 20-year life of the project.

How about economic development through renewable power? The utility says the project created more than 50 green jobs in Massachusetts. For example, the solar panels themselves were manufactured by Evergreen Solar of Marlborough, and other local vendors and contractors were used where possible.

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 17, 2010 - Cape Wind inks another contract

The next chapter in the continuing story of Cape Wind: a mirror contract, and questions about the linkage between renewable portfolio standards and power pricing.

National Grid has signed a second contract with Cape Wind, this time to enable National Grid to assign the remaining 50% of the project's output to another wholesale customer -- a "mirror contract" for National Grid's primary $3 billion, 15-year contract to buy 50 percent of the electricity that will be produced by Cape Wind. This would leave National Grid with rights to the entire output of the Cape Wind project.

Mirror contracts are relatively common in the industry. As a financing tool, them allow the project developer to demonstrate to banks and capital sources that they have a guaranteed offtake for 100% of the project's production. This makes banks more willing to finance the project.

So who did National Grid have in mind as the other wholesale purchaser? If you know the regional market, Boston-based utility NStar jumps out as one potential purchaser, although there are of course other possibilities. In fact, National Grid itself apparently has the rights under the mirror contract to retain 100% of the power for itself -- although doing so magnifies its ratepayers' exposure to the elevated costs, triggering a tough burden on National Grid to demonstrate that this is just and reasonable and in the public interest.

Some commenters are noting that the Cape Wind was made possible by the Commonwealth's Green Communities Act and related legislation establishing a renewable portfolio standard (or renewable electricity standard) for the largest investor-owned utilities. But clearly there's a huge price premium figured in over the existing mix of resources -- about 8 cents for power today, versus 20.7 cents and rising for the Cape Wind output. Is a renewable portfolio standard enough to explain the acceptability of this significant price increase? Other states like Maine have had renewable portfolio standards for years, and although some renewables might be priced higher, there has been enough qualified capacity coming online at near-market costs that Maine has not seen much activity from significantly above-market contracts.

May 10, 2010: Cape Wind roundup

Are you following the Cape Wind project in Nantucket Sound as it moves forward? Cape Wind is on track to be the nation's groundbreaking (oceanbreaking?) first offshore wind farm. Here's a quick scorecard of some key figures:

$1,000,000,000.00: yes, one billion dollars. That's how much the project is projected to cost.
130 turbines: projected to generate a maximum electric output of 468 MW and an average of 182 MW
25 square miles: the footprint of the project in Nantucket Sound
400 feet: the approximate height of each tower
9 years: how long the project has been studied -- and debated
700,000 tons: estimated annual reduction in carbon dioxide emissions by displacing fossil-fueled units

And a few numbers for consumers to focus on:
20.7 cents: the initial price per kWh, rising 3.5% a year for the 15-year life of the contract
$1.59: the monthly increase in the average residential customer’s monthly bill

Here are good New York Times and Boston Globe stories on the path forward for the project. As I reported last week, the next step is winning approval from the Massachusetts Department of Public Utilities. I have practiced before the DPU, and am confident that the Department will thoroughly evaluate whether the proposed contract meets the statutory standards and is in the public interest.