National Grid and Deepwater reach agreement

Mon, 12/14/2009 - 5:00am
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12/12/09 — Governor Donald Carcieri announced late Wednesday that National Grid and developer Deepwater Wind have signed a 20-year power purchase agreement for the electricity to be generated by an eight-turbine wind farm planned for state waters within three miles of Block Island.

National Grid agreed to purchase the electricity generated from the Block Island wind farm at a cost of 24.4 cents per kilowatt-hour in the first full year of operation, expected in 2013, escalating at 3.5 percent per year. This would, according to the governor’s press release, translate into an increase on the typical 500 kilowatt-hour residential monthly bill of approximately $1.35 per month in that year for mainland National Grid Customers. The agreement is subject to the review and approval of the state Public Utilities Commission, which has until January 31, 2010, to render a decision.

National Grid twice filed unsigned contracts with the PUC, stating in both instances that Deepwater’s proffered price was too high: 30.7 cents in the first go-round on October 15; and 25.3 cents in the second attempt, on November 18.

The current wholesale price for electricity in Rhode Island is 9.2 cents per kilowatt-hour.

And, as National Grid’s David Graves pointed out Wednesday, the company thinks the price is still too high, but is willing to make the sacrifice for the sake of the pilot project.

Deepwater has plans for a much larger, 106-turbine, wind farm approximately 15 miles east of Block Island. However, the company has said that financing the larger farm would only be possible via a demonstration project like the smaller one proposed closer to the island.

In a cover letter filed Wednesday, National Grid’s Ron Gerwatowski writes that

“… it is imperative that customers and the commission recognize that facilitating this small-scale off-shore wind project comes at a premium. In that regard, the power purchase agreement is not likely to bring electric cost savings for customers. To the contrary, the power will cost more than other alternatives. Having said this, however, there are valid policy reasons to move forward. Specifically, if the State of Rhode Island desires to meet climate change objectives through the development of offshore wind, this small demonstration project is a reasonable place to start. In addition, while a smaller component of the overall cost, this project has the added benefit of facilitating a cable interconnection between Block Island and the mainland.”

Regarding a transmission cable from Block Island to the mainland, Deepwater Chief Development Officer Paul Rich said Thursday that now that the PPA had been signed, “we can seriously turn to discussion of the cable.” He said that both Deepwater and National Grid estimate that the cable could cost approximately $50 million.

And, he pointed out, while the transmission cable to the mainland would be owned by National Grid, the export cable connecting the wind farm to the island would be owned by Deepwater.

Construction begins 2011

If indeed the PUC gives its blessing to the contract, and the permitting process goes off without a hitch, Rich said the company contemplates beginning marine construction off Block Island in the summer of 2011.

The company must first await completion of the Special Area Management Plan, or SAMP — the joint University of Rhode Island and Coastal Resources Management Council (CRMC) effort to zone the state’s marine environment, expected to be complete by summer of 2010. The SAMP will provide the CRMC with its guidelines, which Deepwater would have to follow in its application process.

The developer would also be required to file an application with the U.S. Army Corps of Engineers, and approval would be expected to take four to six months, said Rich. After marine construction commences in summer 2011, Rich said the towers and turbines would be installed in 2012 and fully operational by 2013.

He said it was too early for him to say when work would begin on installing cables.

Reactions

“This is a tremendous accomplishment and ensures that Rhode Island remains the leader in developing the nation’s first offshore wind farm,” Carcieri said in statement. “I commend National Grid and Deepwater Wind for recognizing the importance of this agreement both to the ratepayer and the Rhode Island economy. Investing in renewable energy reduces our exposure to the volatility of energy prices on the world market, and this agreement establishes confidence in the financial feasibility of the project.”

“This agreement marks a historic moment for the state of Rhode Island,” said Deepwater CEO William M. Moore. “Our agreement with National Grid is a critical next step in Deepwater’s plans to develop the nation’s first offshore wind farm off the coast of Block Island and to establish a regional green-industry hub at Quonset Point, bringing hundreds of new, good-paying jobs to Rhode Island. We now look forward to participating in the public hearing process before the Public Utilities Commission.”

The Conservation Law Foundation was also enthusiastic about the news.

“This is an important step forward for renewable energy,” said the CLF’s Jerry Elmer in a statement Wednesday. “Renewable energy is absolutely essential for addressing the problem of climate change. Long-term contracts for renewable energy not only support the financing of clean energy projects but also promote price predictability for Rhode Island rate payers.

 If the new law is fully implemented, Elmer writes, Rhode Island would eventually obtain 25 percent of its electricity from renewable energy in the form of long-term contracts — the highest level in the country. 

The 2009 changes to the state’s renewable energy law provided for long term contracts, which renewable energy developers need in order to finance their projects.