Deepwater price highest in global wind farm survey

Mon, 12/21/2009 - 5:00am
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12/19/09 — “The data for other offshore wind projects are sparse,” said a consultant for National Grid in testimony prepared for the Rhode Island Public Utilities Commission. Nevertheless he dug up what cost data he could about offshore wind farms, mostly in Europe. The bottom line is that the prices in the Deepwater Wind/National Grid contract, announced last week by Gov. Donald Carcieri, are apparently the highest in the world for offshore power.

Also, a National Grid executive testified, his company will be paying Deepwater “over twice the projected market value” of power it could get from “generic” sources.

Grid has agreed to pay Deepwater 24.4 cents per kilowatt-hour ($244 per megawatt-hour) plus a 3.5 percent annual escalator starting in 2013, for electricity to be generated at an eight turbine farm planned for waters southeast of Block Island. Madison N. Milhouse, Grid’s director of wholesale energy market relations, said that over 20 years Grid would pay Deepwater an estimated $700 million for power, which would be “approximately $390 million over the estimated market cost of the same quantity of energy.”

There are several reasons for this price disparity, other executives testified. The eight towers southeast of Block Island would be a small-scale wind farm, largely custom-built, without the economies of assembly-line fabrication and convenient supply sources. In addition, inexperience and lack of equipment will add costs — it may be a struggle, for example, to find or build the right kind of construction-site boats.

The terms and the pricing of the contract, testified David P. Nickerson of Mystic River Energy Group, “by no means represent what an experienced power market analyst would expect to see in transactions involving newly developed renewal projects generally, where the complexities associated with a small-scale demonstration such as this are not present.”

Second contract in U.S.

Cliff W. Hamal, a 30-year veteran of electric utility work and now a director of the LECG energy consulting firm in Washington D.C., is the consultant who testified about the wholesale cost of wind power here and abroad.

(Caution must be used in making direct comparisons because of different subsidies and rate-setting mechanisms in different countries, not to mention such refinements as “time of use” rates and other complexities.)

The Deepwater/National Grid contract is only the second one in the U.S. for power produced offshore.

Bluewater Wind and Delmarva Power & Light signed a contract last June calling for a $139/MWh rate in 2013 plus a 2.5 percent annual escalation for power from a projected 79-turbine wind farm 13 miles off the Delaware coast.

In Europe, Hamal found, prices for wind power from 33 projects in eight countries range from $93 per MWh in Sweden to $229 in Great Britain. The average price in Denmark, home of the best-known offshore wind projects, is $101 per MWh.

Land power cheaper

In contrast, the cost of power from turbines built on land in the U.S. is much lower, Hamal points out. The Department of Energy, in a survey of onshore wind projects in 2006-2008, found the average price was $48 per MWh; actual prices ranged from $20 to $80, with one outlier at $126.

The consultant found one place in which prices from offshore and onshore turbines and other renewable sources can be directly compared. The Ontario Power Authority in Canada, which has signed contracts for a variety of new power projects, has agreed to pay $126 per MWh for onshore wind power and $176 for offshore power from windmills in Lake Erie — a 40 percent premium for offshore power.

Hamal called the projected Lake Erie wind farm the “largest offshore power project in the world,” scheduled to produce 4,400 megawatts. Windmill construction in Lake Erie is likely to be much easier and cheaper than in the ocean because the lake is relatively shallow and the seas less brutal.

For what it may be worth, Ontario Power has signed contracts at $122 per MWh for energy from biomass sources, $97 from landfill gas, $754 from solar sources — and $11 from hydro generators.