Expert says RI wind farm power cost high, but might be worth it

Mar 13, 2010 — The Providence Journal

Alex Kuffner

Mar. 13, 2010 (McClatchy-Tribune Regional News delivered by Newstex) -- WARWICK -- An energy consultant stood by his assertion that the price of power from an offshore wind farm proposed off Block Island is high, but he acknowledged Friday that the state Public Utilities Commission may consider long-term economic benefits from the project when it assesses the price.

On the fourth and final day of evidentiary hearings before the PUC, Richard Hahn, a power-market analyst hired by the Division of Public Utilities and Carriers, did not back off the assertion he made in written documents that Deepwater Wind, the company proposing the eight-turbine project, could lower the price of power and still make an acceptable return on its investment.

But he did say that the three members of the commission may look at other issues in determining whether the price National Grid, the state's dominant electricity utility, would pay Deepwater for power from the wind farm -- 24.4 cents per kilowatt hour in the first year of a 20-year agreement that would escalate 3.5 percent annually -- is "commercially reasonable."

"If you just look at the price in isolation, [it] is high compared to other [renewable-energy] projects," said Hahn, a principal consultant with Boston-based La Capra Associates. "If that's all you're looking at, it would appear to be a high price. But there's the potential for other economic benefits for the state. If you think those economic benefits are worth the price, you can conclude the price is commercially reasonable."

And by the same argument, he continued, if those benefits are not worth the price, then the price would not be reasonable and the PUC would presumably reject the agreement.

The primary economic benefit of the wind farm proposed in waters about three miles southeast of Block Island is the potential establishment of a green-technology industry in Rhode Island, according to Deepwater and its backers in government, including Governor Carcieri.

They say the project would prove the viability of offshore wind power in the United States and pave the way for Deepwater's 100-turbine development also being planned for Rhode Island. Earlier this week, Deepwater chief executive officer William M. Moore described the Block Island farm as a stepping stone to the larger project.

It's the larger one that would require up to 800 jobs Deepwater says it plans to create. It's also the one that could attract European turbine manufacturers to Rhode Island, according to the company's supporters.

These are the issues confronting the three members of the PUC. Over four days of hearings this week, they have been given details on the logistics of Deepwater's project, heard general descriptions of the economics of the plan and listened in turn as a business group raised objections to the high price of wind power. Then a state official talked of the potential for the birth of a new industry.

What has been missing is a benchmark that the commission could use to assess Deepwater's price, which is high compared with the 9.2-cent per-kilowatt hour-price of power from fossil fuels. Because no offshore wind farms have been built in the United States, there are no direct comparisons for prices. And when National Grid went out to bid for a project to supply renewable energy to Block Island, Deepwater was the only developer to reply. Commission Chairman Elia Germani complained on Thursday of the paucity of relevant pricing information.

Even the only ratified power-purchase agreement between an offshore wind developer and an electricity utility in this country doesn't offer easy comparison. That contract was signed in Delaware between Delmarva Power and Bluewater Wind, a company that wants to install 60 to 70 turbines in shallow waters off that state's coast. According to the agreement, Delmarva would pay Bluewater 14.1 cents per kilowatt hour, and the price would increase 2.5 percent per year.

But the Delaware legislature approved what could be a significant increase in another form of revenue that could offset Bluewater's costs. Any offshore wind farm in the United States would receive renewable-energy credits based on how much power is generated. One credit would be awarded for every megawatt hour of energy created, and that credit could then be sold on the open market. As an incentive, lawmakers in Delaware agreed to multiply every credit from Bluewater's project by 3.5. Deepwater would not receive the same subsidy.

"That really skews the whole perception of the 14.1-cent price," said Commissioner Paul Roberti.

David Nickerson, a consultant with Mystic River Energy Group who is working with Deepwater, said Bluewater's price would likely be higher without the multiplier.

Hahn testified that despite the difficulty in making comparisons, he still believes Deepwater can reduce its price.

"It's your opinion that for this project the price could be lower and the project could still be developed?" Cynthia Wilson-Frias, senior legal counsel for the PUC, asked him.

"I think that's a real possibility," Hahn answered.

akuffner@projo.com

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