By most measures, wind energy has been a great business lately.
The U.S. wind energy industry shattered previous records in 2008 by installing 8,358 megawatts (MW) of new generating capacity, and did even better in 2009, building out another 9,922 MW. That’s enough wind power to deliver electricity to 4.4 million homes, according to the American Wind Energy Association.
But if you think it’s easy – or cheap – to get wind-powered electricity to places where it’s needed, talk to Tom King.
As the executive in charge of the U.S. business of National Grid, a global utility company with extensive operations in the Northeast, King would like to see wind turbines built off the coast of New England, as well as along a wind belt that stretches across the northern border of New York and runs east through Vermont, New Hampshire and Maine.
“When you look at the Northeast,” King says, “ it’s bracketed by some very significant wind resources.”
The trouble is, the wind blows offshore and up north, and the demand is in cities like New York, Boston and Providence. Connecting the supply with the demand is one problem. Cost is another.
King and I met this week in Washington to discuss wind. National Grid, the biggest utility company that most people don’t know, is a London-based firm that dates back to 1990, when the UK privatized its electricity system. Since then, it has become, through acquisitions, one of the largest utility companies in the U.S., with about 8 million customers, nearly all in regulated markets. National Grid serves all of Rhode Island, nearly half of Massachusetts, roughly 20% of New York and a smaller number of customers in New Hampshire. Revenues topped $24 billion last year and it has about 27,500 employees, nearly two-thirds in the U.S.
National Grid has taken strong policy positions backing climate change legislation in the UK and the US. It has also promised to reduce its own greenhouse gas emissions by 80% by 2050. And the company supports renewable energy, says King.
“It’s a key element of reducing carbon emissions,” he says. “It’s a matter of national security. It creates jobs and economic development.”
Which all sounds great. But National Grid’s efforts to support the offshore wind projects in New England reflect some of the challenges facing wind power. While the company doesn’t develop projects, as the local regulated utility, its willingness to buy electricity from the projects is key to their viability. So National Grid has been negotiating deals–known as Power Purchase Agreements, or PPAs–with Deepwater Wind in Rhode Island and Cape Wind in Massachusetts.
Progress has been slow, at times painfully so. With some fanfare, Donald Carcieri, the governor of Rhode Island, announced in December that Deepwater Wind and National Grid signed a 20-year power purchase agreement. “This is a tremendous accomplishment,” the governor said, saying the deal would help establish “a green-collar industry.”
Maybe so, but it will be a small industry at first: The agreement covered only a pilot project with eight turbines. Deepwater Wind wants to build a large-scale wind farm, with about 106 turbines, but no one has agreed to buy that electricity or finance the project yet.
What’s more, the electricity won’t be cheap: National Grid will pay 24.4 cents per kilowatt hour in the first year of operation, expected to be 2013, and the price will escalate by 3.5% per year. Rhode Islanders now pay an average of 14.9 cents per kwh, according to the Energy Information Administration. The EIA says the national average of 11.76 cents per kwh.
King told me that, as much as National Grid would like to see the project built, its role as a regulated utility is to “do everything we can to get the best possible contract.” The company had rejected two prior proposals from Deepwater Wind because, it said, the price was too high.
Cape Wind’s travails have been well-documented. In December, according to this story in the Boston Globe, Massachusetts Gov. Deval Patrick said the proposed wind farm had “secured a long-term customer for its electricity,” namely, National Grid.
Not so, King told me. While National Grid is talking to Cape Wind, they haven’t agreed on price yet. “If we can’t get comfortable with the rates,” he said, “we will not sign it and we will not file it.”
Not incidentally, the price being paid by National Grid is set after the developer has enjoyed substantial federal and state subsidies, so customers will paying twice for wind energy–through higher utility bills and higher taxes.
While building wind turbines on land costs less, transmission bottlenecks remain a problem. King said the northern New England wind corridor could generate 1,000 to 2,000 MW of power and that turbines in nearby Canada could producer another 3,000 to 4,000 MW. “But it’s not being developed because it doesn’t have access to the market,” King said.
None of this is to say that wind power isn’t a good idea. It is. Its environmental benefits are compelling. It will become more cost competitive as the industry scales up and as the costs of fossil fuels rise. (Most electricity in New England comes from burning natural gas.) Building transmission is a matter of political will. (After all, America built interstate highways, interconnected railways and coast-to-coast natural gas pipelines.) Wind energy will also create jobs, although as it displaces fossil fuels, jobs in coal, oil and gas could be lost.
But supporters of wind power—count me among them—need to be honest about costs as well as the benefits. Both are substantial.