Nat’l Grid says new Deepwater price still too high; Questions if state is too small to take on such a project

Mon, 11/23/2009 - 5:00am

11/21/09 - National Grid filed a second unsigned contract with the state Public Utilities Commission Wednesday, saying that Deepwater Wind’s proposed electricity price of 25.3 cents per kilowatt-hour was still too expensive.

Last month National Grid rejected Deepwater’s proposed price of 30.7 cents per kWh as “not commercially reasonable.” The wholesale price for electricity in Rhode Island is currently 9.2 cents per kWh.

In recent weeks, the state Legislature modified a law to allow Deepwater to install up to eight turbines in state waters off Block Island’s southern shore. The allowed output was increased from 10 megawatts to 12 megawatts (based upon 40 percent efficiency), in order to lower the price per-kilowatt-hour.

Though Grid laments that Deepwater did not offer a price between 20 cents and 25 cents per kWh, Deepwater Wind Chief Development Officer Paul Rich said Thursday that the company’s proposed price was, in 2009 dollars, actually 22.1 cents per kWh. (In 2013, the first year the farm would be in use, the price would be 25.3 cents per kWh.)

Deepwater’s price escalation rate would remain at 3.5 percent a year.

In its cover letter to the PUC, National Grid said that if the state’s objective with the proposed Block Island wind farm “is to achieve a reasonably priced long term contract for renewable generation, compared to other potential renewable generation choices in the market, then … this project is too expensive.”

Not only is the price too high, Grid attorney Ron Gerwatowski writes, “but this price does not include the cost of the cable from Block Island to the mainland.”

Grid suggests there may be other, smaller, renewable projects that would be less expensive and provide equal or greater benefits to the state.

However, if the state’s goal is to create a demonstration project and install a transmission link to Block Island, Gerwatowski writes, then the PUC may indeed want to pursue the contract.

“In such a case, however, it will be imperative for customers and the public to understand that they will be paying a significant premium for 20 years to achieve the objective,” writes Gerwatowski.

To Rich, Grid’s suggestion that the PUC could have a “rational basis” to approve an agreement was encouraging.

He said Deepwater’s price would translate to an extra $7 per customer per year for Rhode Island’s National Grid customers. That, Rich suggested, was a reasonable price to pay for creating hundreds of jobs and an entire new industry in the state.

Deepwater has said that the demonstration project near Block Island would be needed in order to pursue financing for a much larger wind farm 15 miles to the east in federal waters.

The cost for the Block Island wind farm has been estimated to be $100 million; while the larger farm could cost more than $1 billion. A cable from Block Island to the mainland could cost upwards of $30 million, according to some estimates.

Regardless, Grid makes clear it does not endorse an agreement at the current proposed price, regardless of the state’s objective.

Rhode Island too small?

According to National Grid there are less than 490,000 electricity customers in Rhode Island. In its latest filing the company ponders whether the state’s customer base is too small to absorb the cost of such a project. Gerwatowski writes that “…a project that may be reasonable for customers to support in order to meet climate change objectives in one state may or may not be reasonable in Rhode Island where the rate impact is higher per customer. As such, this presents a challenging policy question to be addressed and decided by the [PUC] for the State of Rhode Island.”

A favorable wind

National Grid identified two areas that could potentially result in lower prices.

Deepwater has applied for a loan guarantee from the U.S. Department of Energy through the Stimulus Act. “Any loan guarantee, if obtained, would likely facilitate Deepwater obtaining a significantly lower debt cost for the project,” Gerwatowski writes.

Other possible savings could come from higher than expected capacity at the farm. That is, the Block Island farm may generate more electricity than currently projected in price calculations.

The proposed eight turbines, at 3.6 megawatts per turbine, would have a combined output of up to 28.8 megawatts, if the wind remained steady and all were operating at peak capacity; the current pricing arrangement anticipates an average of 12 megawatts.

What’s next

Written testimony is due on November 25. A pre-hearing date is set for December 4. The PUC has until December 31 to render a decision on the contract.

• Southeast Road residents Mike and Maggie Delia have filed a motion to intervene in the case.