Footnotes

Wind and the Cost of Electricity

Cape Wind's electricity will compete in the market 

Oil-generated electricity's cost will continue to increase

The overwhelmingly favorable Mineral Management Service (MMS) draft statement on the Cape Wind project on Nantucket Sound states that the proposed site at Horseshoe Shoal has the lowest estimated cost of energy, equal to 12.2 cents per kilowatt-hour, when compared to all alternative sites [1]. This is in fact less than the NStar rate to you for generated power in February, 2008, which is 12.5 cents per kilowatt-hour, a price that closely reflects the actual price of the wholesale market for the same time period [2].

The latest passion to grip critics of Cape Wind is a misinterpreted MMS statement regarding the profitability of the undertaking. In their propaganda campaign they are saying that Cape Codders will pay double or triple for their power if the wind farm is built [3]. A clarifying statement by the MMS author of the economic considerations, Robert Mense, said: "References to the apparent profitability of development at any of the sites could therefore be misleading, and will not be made in the draft EIS." [4]

Once again it's time to cite the facts, the most obvious of which is that Cape Wind will not be able to sell their power into the wholesale market at an uncompetitive price.

To address this issue one must recall that electrical utilities were deregulated several years ago when they were required to sell off their power plants. The intent being to usher in competition, provide consumer choice, and lower prices.

So now merchant power plants, such as Mirant's Canal station or Dominion's Brayton Point, or even Cape Wind's offshore wind farm, must sell their power into a competitive wholesale market. Sales directly to you, the retail customer are then made by retail distributors like NStar, National Grid or the Cape Light Compact's current supplier (ConEdison Solutions) that offer electricity in a competitive retail market where you, the end user, may choose the lowest cost provider, if that's your basis of decision.

Any merchant plant, including Cape Wind, has two ways to sell into that wholesale market. One is to make a negotiated and often confidential "power purchase agreement (PPA)" with a retail distributor for some or all of its generated power over a fixed period of time. Of course, retail distributors typically want to buy the lowest cost power so they can compete for retail customers like you and me. About three-quarters of all wholesale power in New England is sold through these PPAs.

Alternatively, the merchant plant can offer some, or all, of its generated power to the wholesale hourly spot market administered by the Independent System Operator of the New England grid system (ISO NE). In this case the offer goes into a bid stack arranged from low to high. When the cumulative offers meet the expected load a "clearing price" is established. Those below the clearing price get their power dispatched (injected) into the grid, those above, do not (no sale). This scheme ensures the lowest cost wholesale power is available to the retail distributors, and hence to you.

Of note is the fact that all merchant plants that are dispatched are paid the clearing price regardless of their offer. For example, if a plant offers its power at $35 per megawatt-hour and the clearing price is $65 per megawatt-hour, the plant will be paid $65. And to ensure that renewable power such as wind and hydro is always dispatched ISO rules allow it to be bid into the bottom of the stack with zero fuel cost.

This means the most expensive wholesale offers are bumped off the top of the bid stack thereby lowering the clearing price and ultimately saving you money. Of course the wind and hydro providers will be paid the clearing price for their power, whatever it may be. Also of note is the fact that negotiated PPAs are always dispatched as if bid at zero cost. The prices in these PPAs therefore do not increase the ISO NE clearing prices and in fact can lower it.

All of this means that wind power will compete with conventional sources on a wholesale level and it will always lower the market cost of generated electricity to you, the end customer. Indeed, the savings resulting from this displacement would accrue to electric customers, and are estimated by the Massachusetts Energy Facility Siting Board to be $25 million per year for New England customers [5].

While the price of electricity and its long term stability is important to many, perhaps the most significant consideration regarding the wind farm is the impact on our nation's energy independence and global warming. This first offshore project will replace electricity from fossil fueled power plants avoiding the consumption of some 100 million gallons of oil, equivalent to 20 Bouchard barges like the one that ran aground in Buzzards Bay or 5 LNG tankers like the one disabled off Chatham, all delivering fuel to generate electricity. Likewise it will avoid the emission of about a million tons of carbon dioxide, equivalent to taking 175,000 cars off the road each year [6]. These are the real savings.

Charles W. Kleekamp, P.E. Ret.
Vice President, Clean Power Now
and
Christopher Stimpson,
Board Member, Clean Power Now

Footnotes:

[1] MMS Appendix F: by Robert Mense, p. 17.
[2] NSTAR web site reference as of January, 2008, residential variable rate. As a regulated distribution company, NSTAR purchases electricity from suppliers and passes that power cost directly to customers, with no profit to NSTAR.
[3] "Cape Wind clears environmental hurdle," by Jason Graziadei, Nantucket Inquirer and Mirror, January 17, 2008. Also radio ads.
[4] MMS Response to Peer reviews, pages 11 and 12 of Response in Appendix F.
[5] Massachusetts Energy Facility Siting Board, 2005. Based on "The Cape Wind Project: Impact on New England Electricity Market Prices," February 2002, Analysis by La Capra Associates. "This analysis essentially assumes that natural gas and oil prices will be in line with those forecast in the Energy Information Administration's (EIA) "Annual Energy Outlook 2002" (developed in late 2001). For example, natural gas prices are estimated at approximately $3.4/MMBtu in 2005." It is of note that the natural gas prices are now in the range of $8 to $9/MMBtu therefore the savings from this displacement would now be in the order of $50 to $60 million per year.
[6] Statement of Secretary Ian Bowles, Secretary of Environmental Affairs for the Commonwealth of Massachusetts. March 29, 2007.

About Clean Power Now; Clean Power Now is a non-profit grassroots organization informing citizens and empowering them to support viable renewable energy projects and policies, and to secure their local and regional benefits.
We believe that the timely development of such projects, in conjunction with energy efficiency and conservation, will bring about a clean, healthy environment, an improved economy and a more secure, sustainable America.
Our immediate focus is to increase citizen support of offshore wind power in Nantucket Sound.