TODAY’S STUDY: CAPE WIND ‘OFFERS UNIQUE BENEFITS’ – UPDATED REPORT

Cape Wind & Massachusetts; Creating Jobs and Providing Clean Power to Massachusetts
February 15, 2012 (Charles River Associates)

The Massachusetts Department of Public Utilities (DPU) reviewed and approved the long term Power Purchase Agreement (PPA, also referred to as ‘the contract’) between Cape Wind and National Grid after a five month adjudicatory proceeding involving twenty two different parties. Supporters and opponents of the contract made their case and called witnesses. In the end, the DPU concluded that:

“The evidence in this proceeding makes it clear that the Cape Wind project offers unique benefits relative to the other renewable resources available. In particular, the project’s combination of size, location, capacity factor, advanced stage of permitting, and advanced stage of development is unmatched by any other renewable resource in the region for the foreseeable future. This combination of benefits will significantly enhance the ability of National Grid to achieve renewables and greenhouse gas emissions reduction requirements.”

Last December the Massachusetts Supreme Judicial Court unanimously upheld the DPU’s Contract Approval.

Governor Patrick’s announcement…that NSTAR has agreed to purchase 27 ½% of Cape Wind’s power output will greatly assist the ability of the project to secure financing and make real the many public benefits this project will provide.

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Jobs & Economic Development

The DPU noted in their contract approval that “It is undisputed that the construction and operation of the Cape Wind facility will lead to increased jobs in the region.” In fact, Cape Wind will create up to 1,000 jobs in the region during construction and will permanently employ approximately 50 people at its Cape Cod based headquarters to operate and maintain the wind farm.

There will be additional economic spinoff jobs created in the Massachusetts economy tied to Cape Wind. Hy-Line Cruises announced with Cape Wind last March that they will commission a vessel to provide eco-tours of Cape Wind and they will build a Cape Wind visitors center on their property on Hyannis harbor. Hy-Line Cruises will work with the Cape Cod Community College on credit and non credit courses to train students to qualify for these jobs.

Cape Wind donated $100,000 to Cape Cod Community College to help them become the first community college in the nation to offer a curriculum on renewable energy and Cape Wind is also working with Massachusetts Maritime Academy to ensure there is a local workforce that can meet the needs of Cape Wind and beyond as the offshore clean energy sector grows. In a February, 2011 Op Ed that appeared in the Cape Cod Times co-authored by the Presidents of Massachusetts Maritime Academy and Cape Cod Community College, Admiral Rick Gurnon and President Kathy Schatzberg wrote about their workforce development initiatives to ready their students for offshore wind jobs: “We should embrace and celebrate these high-paying jobs destined for skilled trade workers, technicians, scientists and engineers. They will encourage more young people to stay on the Cape, raise their families here, and help build our future with a more demographically balanced population. These jobs will breathe vitality into our economy.”

Employment opportunities in offshore wind are also spreading to the Massachusetts south coast. A new Marine Commerce Terminal is being planned in the Port of New Bedford capable of handling the assembly and staging of multiple offshore wind farms as the regional industry develops.

The U.S. Department of Energy has identified the potential of building out wind power off the U.S. east coast and in the Great Lakes over the next 20 years at a scale that would create over 40,000 American jobs. The opportunity for Massachusetts being home to the nation’s first major offshore wind farm is to seize the ‘first mover advantage’ in creating jobs that will be needed for the supply chain to support this emerging industry. Examples of offshore wind companies already creating these jobs in Massachusetts, drawn here because of Cape Wind, include Siemens Wind Power, Global Marine Energy, K2 Engineering, and SgurrEnergy.

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A Cleaner & Healthier Environment

A wind farm like Cape Wind is clean because it produces needed electricity without producing any air pollution like mercury, sulfur dioxide, nitrogen oxide, particulates or carbon dioxide. A wind farm also doesn’t generate waste or use water for cooling (traditional power plants often use tremendous amounts of water).

Not only won’t Cape Wind emit pollution, it will actually reduce the amount of pollution being generated by power plants in New England. Cape Wind’s turbines will be producing power about 86% of the time and during that time the operators of the electric grid in New England will reduce the amount of power being generated from fossil fueled power plants.

According to the comprehensive review of this project by 17 Federal and State agencies, Cape Wind will reduce the amount of sulfur dioxide and nitrogen oxide by over 1,000 tons per year, and Cape Wind will reduce carbon dioxide emissions by over 770,000 tons per year. Carbon dioxide (CO2) is a greenhouse gas that contributes to global climate change and according to the Massachusetts Executive Office of Energy & Environment Cape Wind will cause regional CO2 reductions equal to that of removing 175,000 cars off the road, each year.

The ’external costs’ of energy production from fossil fuel power plants in the U.S. are typically not reflected in the market price of that energy and in the case of coal they are substantial. According to researchers at Harvard Medical School, the mid-range estimate of the external costs of coal in damage to human health and the environment is 18 cents per kilowatt hour, which is over-and-above the market price for that energy.

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Greater Energy Independence for Massachusetts

Cape Wind will harness the sea breeze offshore Massachusetts to supply electricity for over 200,000 homes in Massachusetts during average winds and up to 500,000 Massachusetts homes when the winds are strong. This will reduce the amount of power that will be needed from imported sources into our region such as coal, oil, and natural gas. Cape Wind will produce as much electricity in a year from the winds on Horseshoe Shoal as would a coal power plant burning a half million tons of coal, an oil power plant burning 113 million gallons of oil, or a natural gas power plant burning 10 billion cubic feet of natural gas.

Cape Wind’s electricity will be supplied directly into the grid in eastern Massachusetts where the greatest demand is located and where this infusion of electricity supply is most needed. In its approval of the Cape Wind / National Grid PPA, the DPU made note of the system reliability benefits of Cape Wind’s location and ability to deliver power directly to eastern Massachusetts on Cape Cod…

The DPU Order approving the Cape Wind contract with National Grid addressed the unique qualities of the project in terms of scale, location and capacity factor in being able to advance the energy goals of the Commonwealth of Massachusetts…

Cape Wind – a strong performer during ‘peak’ electric demand events contributes to substantial electric reliability benefits for eastern Massachusetts

The DPU Order approving the Cape Wind contract with National Grid noted that Cape Wind’s Scientific Data Tower has recorded strong winds during times of peak electric demand events in New England…

Due in part to the ‘sea-breeze effect’, Cape Wind’s location six miles offshore is an ideal location to take advantage of strong afternoon winds on hot summer days when air conditioning use pushes electric demand in New England to historic peaks…

Cape Wind will also be a strong performer during cold winter conditions when natural gas supplies available for power plants are low and energy market prices are high. This was noted in a Department of Energy (DOE) White Paper that examined a three day period of sub zero weather when ISO New England was contemplating rolling blackout warnings due to insufficient availability of natural gas because so much natural gas was being used by the heating sector.

The DOE white paper noted that Cape Wind’s Scientific Data Tower was reporting strong winds that would have allowed the facility to be operating at full output during almost the entire period…

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Cape Wind: Long Term Price Stability & Predictability

Part of the challenge the DPU had in estimating the impact that Cape Wind would have on electric bills for National Grid customers is the intense price volatility of fossil fuels, which constitute the bulk of electric generation sources and largely set the price of electricity in New England…

Expected Bill Impact from Cape Wind PPA for National Grid Customers

In order to estimate the potential bill impacts of the PPA, DPU utilized a conservative model (reflecting the downturn in the global economy and lower fossil fuel prices when they performed the analysis in 2010) that showed modest impacts on monthly residential bills of less than $1, as shown below. The DPU also acknowledged that no one can know for sure where fossil fuel prices will go in the future.

Other models reflecting more aggressive fossil fuel pricing showed consumer savings over the life of the PPA.

In the DPU Order approving the Cape Wind PPA, Table 11 describes their estimated monthly bill increase from the Cape Wind PPA to National Grid customers as follows:

The bill impact for NSTAR electric customers would likely be smaller than that for National Grid customers because it involves a smaller portion of Cape Wind’s power.

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Massachusetts’ electricity customers ‘willingness to pay’ for clean energy

Two separate and independent public opinion surveys published since late 2010 found large majorities of Massachusetts residential electricity consumers willing to pay more (sometimes much more) than the potential bill increase the DPU estimated from the Cape Wind PPA, in order to obtain a greater share of their electricity supply from renewable sources.

1. On September 21, 2010 Suffolk University / 7 News published a public opinion survey of Massachusetts voters on a variety of political and public policy questions. Question #31 read as follows: “How much more in percentage are you willing to pay for renewable energy on your current electric bill for sources such as wind power, solar power or biofuels? The results were as follows:

2. In April, 2011, MassINC published a public opinion survey of Massachusetts residents on issues related to climate change. Question 14 asked, “Massachusetts law requires utilities to produce more energy from renewable sources each year. If providing this renewable power increases your monthly electric bill by ___ would you favor or oppose such a policy?

Cape Wind compared with…what?

Those who oppose Cape Wind’s contract with National Grid say that instead of purchasing power from Cape Wind, Massachusetts utilities should purchase lower priced renewable energy. The reality, however, is that Cape Wind’s power price is already less than half the price of solar power in Massachusetts. And while there are lower-priced inland wind projects in Northern New England, most of those projects are remotely located and will create no jobs in Massachusetts and, due to transmission constraints, will typically not be able to deliver incremental power to Massachusetts on a reliable basis. Those projects also tend to produce during off-peak hours, when the power is less needed and less valuable.

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Other Benefits of the Cape Wind contract with National Grid for Massachusetts Electric Consumers that would also be provided to NSTAR:

1. Buyer’s option to extend contract at ‘cost plus’. At the end of the 15 year contract National Grid has an option to extend the Cape Wind contract on a lower rate structure that would reflect the fact that the capital costs of the project have been mostly amortized by that time…

2. Any extra wind production is sold at half price. The contract acknowledges the possibility that Cape Wind will produce more power than expected and if that is the case any amount of wind production greater than anticipated would be sold at half price. This could be result from a particularly windy year or could result from improvements in wind turbine component technology utilized by the facility over time. Conversely, if Cape Wind produces less power than expected, electricity buyers are not penalized and will only purchase electricity that is actually produced.

3. Power price is reduced if the project receives a Department of Energy Loan Guarantee. Cape Wind is pursuing the possibility of securing a DOE Loan Guarantee and a provision in the contract returns 75% of the financial benefit of this back to National Grid customers in the form a lower power price.

4. Cape Wind’s potential return on investment is regulated to benefit electric consumers. This contract provision would reduce the power price to electricity consumers if actual project costs are lower than anticipated and Cape Wind’s resulting return on investment would be higher than anticipated…

5. Contract price includes all present and future environmental benefits. The ‘all-in’ price not only includes energy, capacity factor value, price stability hedge value, and Renewable Energy Credits, but the contract also provides, at no additional price, any future environmental attributes such as ‘carbon credits’ that Cape Wind could receive from federal legislation seeking to reduce carbon dioxide emissions to mitigate climate change.

Cape Wind will reduce wholesale electric market prices through ‘Price Suppression’

Cape Wind will place downward pressure on the electric wholesale market in New England, resulting in savings to electric consumers. Cape Wind commissioned Charles River Associates to analyze this price suppression effect and they found that Cape Wind would reduce electricity prices by over $4 Billion dollars over the 25-year life of the project through price suppression…

Although the DPU assessed the Price Suppression effect for National Grid’s Massachusetts electric consumers as part of their bill impact calculation, the DPU noted that electric consumers all over New England would benefit from this effect in lower wholesale electric prices.

It is widely documented that installed offshore wind projects in Europe are causing price suppression in European wholesale electric markets…

See also:
Comparison of Cape Wind Scientific Data Tower Wind Speed Data with ISO New England List of Top Ten Electric Demand Days
and
Natural Gas in the New England Region: Implications for Offshore Wind Generation and Fuel Diversity