The Price of Wind

Beauty is in the eye of the beholder, but your pocketbook may influence your opinion

Oil up 250%, Natural Gas up 300% in four years

“Is the (wind) energy free?” asks Malia Milligan of the Alliance to Protect Nantucket Sound in her Cape Cod Times letter of 3/3/05. To clarify the confusion let’s look at the facts.

By Charles W. Kleekamp

T

he price of electricity is largely dependent on the cost of fuel used by power plants. Roughly 60% of the generation cost is attributed to fuel costs. In the past four years the price of crude oil, which is the major source of fuel for the large power plants in southeastern Massachusetts including the Canal Plant, has gone from about $20 dollars a barrel to over $50 dollars.

As the OPEC nations have found, this is an acceptable price in America. Why lower it? In fact, why not increase it? The price of natural gas has tripled from $2 a unit (a million BTUs) to over $6. And that is the fuel of choice for all the new power plants in New England. Soon we will need to build additional unloading facilities to import more liquefied natural gas (LNG) from the same friendly folks. The age of cheap oil and gas is over.

Result: dramatic increase in your electric bill.

Since the first of March we are all in the same boat as default customers and pay 7.1 cents a kilowatt-hour. an increase of 82%. So much for price stability and competition!

The result of this fuel cost escalation is a dramatic increase in the generation charge noted on our residential electric bills. For those of us who bought from NSTAR as “standard offer” customers over this same four years, the charge has gone from 3.9 cents a kilowatt-hour to 7.1 cents, an increase of 82%.

For Cape Light Compact “default” customers, the cost over the last three years has gone from 4.8 cents to the same 7.1 cents, a 48% increase, and guaranteed for only one year. Incidentally, since the first of March we are all in the same boat as default customers and pay 7.1 cents a kilowatt-hour. So much for price stability and competition!

Contrast this with the price of electricity generated from offshore wind power like Cape Wind’s project on Nantucket Sound. Obviously the price of the fuel, that is the wind, is zero and will be forever. And it’s not imported from unfriendly and unstable countries. Clearly, the cost of generating and delivering wind power is not zero. It depends largely on fixed costs such as the interest rate on money borrowed from private organizations to finance the construction... just like the fixed-price mortgage on your house. In addition there are reasonably predictable costs related to the wind farm operation, maintenance and insurance. Incidentally, there is no taxpayer money used to build this project.

The wind will always be free

Although profit margins from wind power may be slim, its wholesale selling price must be lower than the competitive clearing price set on the 5-minute spot market established by the Independent Systems Operator (ISO) of New England or it won’t get dispatched (sold). No sale, no income. Simply said, this clearing price is set on their confidential bid stack at the point where the amount of power offered meets exactly the level of power being consumed. You can’t store power on the transmission grid. So lower bidders are dispatched, higher bidders are not. Because wind power will be bid low (with a fuel cost of zero) it will always be accepted. Under ISO rules, all bidders below the clearing price are paid at the clearing price regardless of bid price offered. Therefore the wind farm power will cause a downward pressure on the whole market by pushing off the top the more expensive bids and thus saving everyone money. And that’s some $25 million dollars based on fossil fuel prices in 2001. Obviously the saving is much more now.

In addition, Cape Wind could sell the power on a fixed price contract to large power distributors like NSTAR or Con Edison Solutions (the supplier to the Cape Light Compact). These distributors do not buy uncompetitive over-priced power.

Cape Light Compact must change status

However, the most advantageous situation for the residents of the Cape and Islands would be for the Cape Light Compact to change their charter or become a municipal power company to allow them to buy directly from any power plant including wind farms. Then they could agree to negotiate a contract directly with Cape Wind, cutting out the middleman. In fact, Cape Wind has said publicly that they would be willing to enter into a 10 year or longer fixed-price contract. No other merchant power generator can do that because of ever increasing and uncontrollable fuel costs.

The argument put forth by the Alliance that offshore wind power is one of the most expensive forms of electricity flies in the face of facts based on the highly productive winds on Nantucket Sound.  It is certainly less than the average clearing price at ISO NE and will be even more competitive as the prices of unsustainable fossil fuels escalates in the future.

If you could have signed a 10 year fixed price contract for your electricity four years ago at 4 cents a kilowatt-hour wouldn’t you have done that? We should cheer on Cape Wind to develop this benign source of electricity with its enormous societal benefits.  One of them being the flagship of clean, lower-cost electricity now and in the future with freedom from being held hostage to foreign oil and gas interests.

Charles W. Kleekamp, P.E., Ret. is the Information Director, Clean Power Now and one of that grassroots organization's founders. He is also Vice-President of the environmental group Cape Clean Air. He has bachelor’s degrees in mathematics and electrical engineering and a master’s degree in computer, control and instrumentation engineering and spent his 37 year professional life at Applied Dynamics and MITRE Corp.  Recently Mr. Kleekamp was an intervenor in court cases involving Mirant’s attempts to delay or negate these regulations for the Canal Plant in Sandwich which were recently resolved in a negotiated consent order. His email address is kleekamp@adelphia.net.