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Massachusetts regulators approve Cape Wind PPA at 18.7 cents/kWh

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Massachusetts regulators approve Cape Wind PPA at 18.7 cents/kWh

Highlights

Massachusetts regulators Monday approved a power purchase agreementbetween National Grid and Cape Wind, the nation's first proposed offshore windfarm, at a starting price of 18.7 cents/kWh, beginning in 2013.

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The approval by the Department of Public Utilities came despiteopposition from a major business group and a well-funded Cape Cod organizationthat has been battling the 130-turbine wind farm project for several years.The project is expected to increase ratepayer bills by 1-2%.

The DPU said that the 15-year power purchase agreement is cost-effectiveand in the public interest because no other renewable resource in the region matches Cape Wind in terms of its size, proximity to large load, capacityfactor and advanced stage of permitting.

"It is abundantly clear that the Cape Wind facility offers significant benefits that are not currently available from any other renewable resource, and that these benefits outweigh the costs of the project," said Ann Berwick, DPU chair. "We are fully persuaded that if Massachusetts is to meet its statutory renewables and greenhouse gas emissions reduction requirements, offshore wind, and Cape Wind in particular, will have to be part of the mix."

Under the contract, National Grid will buy 50% of Cape Wind's output atan initial price of 18.7 cents/kWh for electricity, capacity and renewable energy, with an 3.5% annual escalation for 15 years. After that, National Grid has the option of extending the contract for another 10 years.

The contract allows for upward and downward price adjustments based on various contingencies. If the Nantucket Sound project is unable to tap certainfederal subsidies, the price would go up; under other circumstances, theprices could go down.

For example, if Cape Wind is able to reduce debt financing costs througha Department of Energy loan guarantee, National Grid customers will receive75% of the savings. Similarly, if project costs fall and the developers rateof return on debt and equity exceeds 10.75%, ratepayers will receive 60% ofthe lower costs. If project costs are higher than forecast, the developerabsorbs those losses.

The DPU said that the ratepayer savings mechanisms prevent Cape Wind fromreaping windfall profits.

--Lisa Wood, newsdesk@platts.com

Similar stories appear in Renewable Energy Report. See more information at http://www.platts.com/Products/renewableenergyreport