Deeper Water and Hot Wind

The insult of this Deepwater Wind deal for offshore wind turbines just grows and grows. To review, the state government rigged the game for a single company and constructed the law to guarantee profits for National Grid as it passed increased cost on to energy consumers. The Public Utilities Commission (PUC) thwarted the process based on the high cost of the energy (somewhere between double and triple the current rate). The governor and General Assembly went back into the law and re-rigged it to decrease the PUC’s opportunity for and breadth of input. And now:

The first was rejected in March, because the starting price — also 24.4 cents per kilowatt-hour, but without the possibility of a decrease — was deemed not “commercially reasonable” by the three-member commission.
The new contract uses that price in the first year, but as an upper limit. Under what’s known as an “open-book” proposal, Deepwater’s accounts would be audited by a third party selected by the state and the price would be set according to the actual construction costs of the eight-turbine project, estimated at $205 million, and a predetermined return on investment for the company of between 10.5 and 12 percent. The amended price would then increase 3.5 percent annually over the 20-year contract. …
Potential savings on capital costs envisioned by Deepwater could bring the price down to 22 cents per kilowatthour or thereabouts, said Deepwater chief development officer Paul Rich. …
The new agreement provides for an additional source of savings for Rhode Island ratepayers. If the wind farm performs better than the 40-percent capacity projected in the contract, then the price would also go down.

Considering how complicit the state has been in this travesty, its role in selecting an auditor is hardly a comfort. In any case, the guaranteed profits are baked into the deal, so the audit is a formality.
Far worse, though, is the superficial nature of this change. If, by some unexpected turn of events, construction goes more smoothly than estimated and system performance outperforms expectations, savings might go to consumers. This is a reversal of the way things should work. The price mechanism should allow consumers to determine what increase would be worth the investment in this new industry and force the companies involved to shave their profits if they can’t meet it. As it is, expenses and productivity are external considerations that nobody involved has much incentive to squeeze for efficiency.

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12 years ago

Bluewater offshore wind project in Delaware negotiated firm fixed 25 year price with Delmarva Power Co. at 10 cents per Kwh and probably will reduce long term electric cost inflation in Delaware. Delmarva Power Co. customers currently pay 12.92 cent per Kwh retail. Cape Wind signed a negotiated firm fixed 15 year price with National Grid at 20.7 cents per Kwh with a 3.5% annual cost increase. It is estimated the average Massachusetts electrical consumer will see a $1.59 monthly increase. DeepWater wind negotiated a flexible price 20 year agreement with National Grid starting at 24.4 per Kwh and 3.5% annual increase. Price could lower to 22 cents per Kwh after a year however there are no guarantees. At current rate each RI consumer of electricity will see an estimated $1.35 monthly increase. D.E. Shaw Group the owners of DeepWater Wind estimate the construction of the wind farm to be $200-$250 million and the underwater cable to cost another $45 million not figured into the 24.4 cents per Kwh price. That does not include cost of upgrading National Grid infrastructure to accept wind farm power and distribution on Block Island and RI coast electrical entry point which National Grid will pass on additional costs to RI consumers. RI could have installed U.S.A. made in New Jersey Ocean Power Technologies Company’s PowerBuoys® use in Europe, U.S.A. states and U.S. Navy configured in a megawatt farm which would provide greater stable renewable energy because waves are more consistent than the wind and the water profile is 14 ft. sticking out of the water and less visible; size of farm would be smaller than wind farm and closer to shore meaning less cable cost and the sell price would be approximately 11 cents per Kwh where National Grid now pays 9.2 cents per… Read more »

12 years ago

Ken the legacy of the RIDemmie party will be your state pension check bouncing all the way to Hawaii. That bounce is coming sooner than you think.
Can’t wait!

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