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April 5th, 2012

Study Finds That Cape Wind Will Save $7.2 Billion

by Andrew Price, President & COO

Charles River Associates has calculated that the Cape Wind project will reduce wholesale power prices in New England by $7.2 billion over 25 years. The report dated March 29th, was an update to a 2010 study commissioned by Cape Wind, the controversial offshore wind power project planned for Nantucket Sound.

Cape Wind is a 130 Turbine wind project that would generate 468 MW at peak output. The project has undergone a lengthy and difficult approval process since it filed for permits with the US Army Corps of Engineers in 2001. Cape Wind has finally secured federal and state approvals, as well as a lease from the federal government.

Two utility companies with service territories in Massachusetts, National Grid and NStar, have agreed to buy power from Cape Wind at a starting price of 18.7 cents per kWh. Each year the rate will be increased by 3.5% until, by the end of the 15 year contracts, the utilities will be paying in excess of 30 cents per kWh. Compare these rates to current wholesale power rates of less than 5 cents per kWh and the premium paid by National Grid and NStar ratepayers looks to be substantial. Even compared to onshore wind, with rates of 10 cents per kWh or less, the Cape Wind contract looks expensive.

How can significantly above market rates lead to billions in savings? As more renewable power generation - with zero marginal fuel costs - comes online in New England, fossil fuel fired power plants are forced to reduce generation by the Independent System Operator of New England. Currently, certain renewable power plants - including wind and solar - as well as nuclear plants, enjoy “must run” status and always get to generate. These “zero cost” plants are placed at the bottom of the New England wholesale market bid stack. The marginal power plant needed to meet demand in each hour sets the wholesale clearing price for that hour. By adding more power plants at the bottom of the bid stack with zero marginal operating costs, the power plants with the highest marginal costs are forced offline more frequently – reducing overall wholesale electricity rates. The $286 million in annual savings identified by Charles River will therefore be enjoyed relatively evenly by ratepayers across New England, while the ratepayers behind National Grid and NSTAR will shoulder the bulk of the costs.

To be sure, Cape Wind has many benefits that can be hard to quantify. These include regional air quality improvements, local construction jobs, ongoing operations and maintenance jobs and associated economic benefits, and benefits associated with a more diverse regional fuel mix. The positive job and economic multiplier benefits will occur more significantly in the National Grid and NStar service territories. Cape Wind would also be the first off-shore wind facility in the US and could position Massachusetts as an exporter of technology and services.

The issues surrounding the economic impacts of Cape Wind are complicated enough that supporters can predict billions in overall savings while project detractors can use the same data to forecast enormous costs increases.  Both sides may be correct to some degree; the issue is who receives the benefits and who pays the costs.  

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