Ken Salazar Signs Cape Wind Lease

By: Michael C. Bailey
Published: 10/08/10

There are still a few loose threads to tie off, but it now appears that the controversial Cape Cod Wind Farm project is going to become a reality.

“Let’s celebrate the great strides the wind industry has made to deliver clean power and to create jobs here in America. And let’s venture into the new frontier of Atlantic [Outer Continental Shelf] wind production with the signing of the Cape Wind lease,” Kenneth E. Salazar, the US Secretary of the Interior said Wednesday morning at the end of his keynote address at the American Wind Energy Association’s (AWEA) annual North American Offshore Wind Conference in Atlantic City, New Jersey.

The 28-year lease requires Cape Wind to pay $88,278 a year during the development and construction phase, and a two-to-seven percent annual operating fee as soon as it starts producing electricity. The two percent rate is good for the first 15 years of the lease, at which point the seven percent rate goes into effect.

The fee is based on projected revenues from selling the offshore wind energy in regional markets.

The lease grants the wind farm permission to use Horseshoe Shoal in Nantucket Sound to construct and operate the facility, but does not grant Cape Wind any exclusive rights to the area.

The wind farm, when finished, will consist of 130 wind turbines capable of generating 468 megawatts of power at peak output, with an average anticipated output of 182 megawatts. Average output would be sufficient to power more than 200,000 homes in Massachusetts or, in other terms, meet approximately 75 percent of the Cape and Islands’ total electricity demand.

“We’re ready to roll up our sleeves and get to work building America’s first offshore wind farm that will create hundreds of jobs, increase our energy independence and promote a healthier and more hopeful energy future,” James Gordon, president of Cape Wind Associates said in a press release.

Mr. Gordon thanked the project’s many supporters, which includes Governor Deval L. Patrick.

Audra Parker, president and CEO of the Alliance to Protect Nantucket Sound, was quick to point out that despite Sec. Salazar’s actions, the project “is far from the done deal that the developer or Governor Patrick would have voters believe.”

“We Will Not Accept Second Place”

“We do so because we can’t afford to remain so dependent on foreign oil,” Sec. Salazar said of his decision to sign off on the project. “We do so because we can’t afford the risks that our energy dependence creates for national security, economic security, and environmental security. And we do so because we can’t afford to fall behind China, Germany and India in the race for new energy technologies and renewable energy jobs. We will not accept second place.”

Sec. Salazar acknowledged that fossil fuels still have, and would continue to have a key role in the nation’s energy portfolio, but wind and other renewables were necessary elements of the nation’s energy and economic future.

“If we fully pursue our potential for wind energy on land and offshore, wind can generate as much as 20 percent of our electricity by 2030 and create a quarter-million jobs in the process,” he said.

The secretary said the Cape Wind would set the tone for future offshore wind development in the US. “I am determined to accomplish a similar objective of orderly, responsible, and straightforward permitting for wind development on the Atlantic Outer Continental Shelf,” he said, admitting that “until we started laying the rules of the road for offshore wind development a year and a half ago, no such process existed. That’s why it took the Cape Wind project eight years to clear necessary reviews.”

However, Cape Wind still has to clear a few more hurdles, starting with the Massachusetts Department of Public Utilities (DPU), which is reviewing a proposed long-term power purchase agreement between Cape Wind and National Grid.

“DPU approval of our contract is critical to Cape Wind’s ability to secure project [financing] and to move forward,” Mark Rodgers, director of communications for Cape Wind said. “We are pleased that a very strong case for approval has been developed over the course of these proceedings and we remain cautiously optimistic about the outcome.”

Under the current proposed deal, ratepayers in National Grid’s service area would pay a base 18.7 cents per kilowatt hour (cents/kWh). A four percent remuneration fee, which is meant to reduce the risk for utility companies entering into long-term supply contracts, will nudge the starting rate up to 19.4 cents/kWh -- .13 cents/kWH less than the original proposed base rate.

According to the DPU, National Grid’s current default service rate for residential customers is 8.11 cents/kWh, the lowest in the state.

Project opponents claim that the increase to National Grid customers’ electric bills would be onerous, and that cheaper green energy sources are already available in the New England market.

Each of the approximately 1.2 million National Grid customers would see an estimated $1.50 monthly increase in their typical electric bill, according to information provided by Cape Wind and National Grid.

The Alliance to Protect Nantucket Sound claimed the actual monthly increase would be $3.33 per month, and National Grid customers would pay a total of $100 million in inflated energy costs in the first year of the contract alone.

By the end of the 15-year contract, which includes a 3.5 percent annual rate increase, the Alliance claims the increase will in the final year have doubled to $200 million.

The Boston Herald projected an annual electric bill increase of $1,200 on most small and medium-sized businesses in the National Grid service area, which does not include Cape Cod.

The Alliance claimed during DPU hearings that the contract was in violation of the Green Communities Act because National Grid failed to solicit bids from out-of-state renewable energy providers. The act requires each electric distribution company in Massachusetts to solicit proposals from renewable energy developers and, “provided reasonable proposals have been received, enter into cost-effective long-term contracts to facilitate the financing of renewable energy generation.”

The Alliance pointed out that NStar attempted to purchase renewable energy credits (RECs) from three Massachusetts-based wind energy producers, but the DPU rejected them without prejudice because NStar failed to solicit bids from out-of-state producers.

The Alliance maintains National Grid should be held to that same standard, and the deal with Cape Wind should be rejected, even though Cape Wind and NStar entered into direct, individual negotiations rather than a bidding process.

The DPU spent last month receiving testimony from a total of 16 entities granted intervenor status, meaning that they were authorized to deliver formal testimony at the hearings and may be cross-examined. The department plans to hand down a final decision by mid-November.

Ms. Parker further noted that the US Department of Justice is still involved with four pending lawsuits in federal court, and the developers have yet to file a Construction and Operating Plan, which includes an oil spill response plan “that must go through a robust review process and secure approval from BOEMRE,” the federal Bureau of Ocean Energy Management, Regulation and Enforcement.