By David Middleton – Re-Blogged From WUWT
I was born in Connecticut. I was educated in Connecticut. I have never regretted emigrating to Texas nearly 40 years ago…
Connecticut’s offshore wind deals may drive up electricity costs for consumers
MARC E. FITCH SEPTEMBER 14, 2020
As Connecticut lawmakers and Eversource executives battle back and forth over rate increases and Eversource’s response to storm Isaias, offshore wind agreements set in place by Connecticut could potentially drive electricity rates even higher in the future.
Connecticut in 2019 mandated that Eversource and United Illuminating enter into an agreement to purchase 804 megawatts of offshore wind power from Vineyard Wind through its Park City Wind project and an additional 304 megawatts from Revolution Wind, a joint venture between Eversource and Ørsted.
Under the terms of the power purchase agreements, Eversource and United Illuminating are required to purchase power generated by Revolution Wind at a cost of $99.50 and $98.42 per megawatt hour, according to a report by Power Advisory, LLC, a consulting and analysis firm specializing in electricity.
The purchase price for the Park City Wind project has not yet been made available, but Massachusetts entered into a power purchase agreement with Vineyard Wind for $74 per MWhr, which will then decrease to $65, according to the Energy Department.
For comparison, the average price per megawatt hour on the wholesale electricity market in 2019 was $30.67, with 65 percent of electricity in New England coming from natural gas and nuclear, according to ISO New England.
The Millstone power purchase agreement – which Eversource and some lawmakers cited as a reason for the latest rate increase — was set at $49.99 per MWhr, and resulted in an average increase on residential consumers of roughly $5.58 per month, according to a report in CT Examiner.
Put another way, the Revolution Wind purchase agreements requires utilities to purchase offshore wind power at nearly double the price of the Millstone agreement and will be in place for 20 years, ten years longer than the Millstone agreement.
Connecticut actually has higher residential electricity rates than
Calizuela California. Only Alaska and Hawaii have higher electricity rates.
|Census Division and State||Jun-20||Jun-19|
The Pacific Noncontiguous Census Division consists of Alaska and Hawaii.
New England has the highest electricity rates in the Lower 48. All six of the New England states are among the ten states with the highest rates.
Pacific Contiguous consists of
Calizuela California, Washington and Oregon. Despite the fact that Washington and Oregon have very low rates (ranked #2 and #11 respectively), the division has the third most expensive electricity due to Calizuela California.
What’s wrong with the Nutmeg State?
Connecticut gets most of its electricity from reliable sources: Nuclear power and natural gas.
While they pay a premium for their nuclear power, natural gas should be cheap… The state isn’t currently saddled with a lot of expensive, unreliable renewable generation, but they still have the most expensive electricity in the Lower 48… Why? This report is from 2015:
FACTORS BEHIND CONNECTICUT’S HIGH ELECTRIC RATES
By: Lee R. Hansen, Associate Analyst
As of November 2014 (latest available data from the U.S. Energy Information Administration), Connecticut had the second highest average residential retail electric rates in the country. High rates are a regional phenomenon, and all six of the New England states plus New York are among the 10 states with the highest rates.
We are aware of no empirical analysis as to why Connecticut’s rates are so high. However, it appears that several factors that apply across New England and interact with each other are the primary causes. These include (1) the structure of the electric industry in New England, where the vast majority of power is supplied by non-utility generators; (2) federally-approved wholesale market rules; (3) a tight market caused by growth in demand outstripping supply; (4) the mix of fuels used to generate power in the region and, in particular, the region’s reliance on natural gas; (5) environmental standards; and (6) congestion on the state’s electric transmission system.
New England depends more heavily than other regions on natural gas as a generating fuel. During most of the year, natural gas powered plants set the spot market price. In contrast, other regions rely much more heavily on coal as a generating fuel. As coal is a significantly less expensive source of power than natural gas, this difference accounts for part of the difference in rates (particularly in states that do not regulate their coal plants’ emissions to the same extent as the New England states do).
Over the past decade, technological advances in drilling techniques have brought substantially more gas to market in North America, resulting in larger quantities of natural gas and lower natural gas prices. At the same time, an increasing amount of New England’s electricity comes from natural gas. Many coal and oil plants have been retired or will retire in the near future, and gas-powered power plants are expected to replace them. From 2007 through 2013, the portion of electricity generated from New England’s natural gas-fueled power plants increased from 34% to 46%. From 2009 to 2013, these factors helped lower electricity prices in New England.
Interstate gas transmission lines, however, have not expanded in proportion to the increase in supply and demand. Gas-powered power plants generally purchase natural gas through intermittent (or interruptible) contracts, and transmission pipelines generally expand based on firm commitments, thus increased demand from generators has not necessarily led to pipeline expansion.
During episodes of extreme cold weather, when the gas transmission lines are at full capacity due to heating demand, intermittent contracts allow the demand from gas companies supplying gas to residences and businesses on “firm” contracts to take precedence over the intermittent contracts. When this happens, gas-powered power plants lose access to the gas they need to generate electricity and electricity suppliers must buy their power from more expensive, non-gas-powered generators at a premium price due to their limited supply and high demand. These increased prices tend to be passed on to consumers and may lead to dramatic rate increases, particularly in short-term variable rates. This price volatility can increase the price of electricity over time, as has been seen over the past two to three years. For more information about the relationship between natural gas and electricity prices, see OLR Report 2014-R-0267.
Environmental and Renewable Standards
Part of the reason why New England uses more natural gas and less coal than other regions is its air quality standards. The New England states have among the most stringent emission standards in the country for nitrogen oxides, sulfur oxides, and other pollutants. Emissions of these pollutants from natural gas plants are lower and easier to control than those from coal plants. The New England States also participate in the Regional Greenhouse Gas Initiative (RGGI), a “cap-and-trade” program that subjects power plants in the region to a declining cap on the amount of CO2 they can emit and allows plants that emit more CO2 than they are allowed to buy credits from plants that emit less CO2 than they are allowed. Funds raised by the initiative are used for energy efficiency and renewable energy programs.
In addition, all of the New England states except Vermont have renewable portfolio standards (RPS) that require part of the power sold in these states to come from renewable resources. Connecticut has also directed its electric companies to enter into long-term commitments to purchase electricity from various renewable energy projects (e.g., Project 150, the L-REC and Z-Rec programs). These commitments and the RPS requirements could increase the overall cost of power if the price for the renewables is higher than the price for power produced from other sources. However, renewables may also help mitigate other expenses by limiting increases in peak demand, reducing system congestion and transmission costs, and reducing the need for various distribution system infrastructure upgrades.
To put it in a nutmeg shell…
- Air quality standards led Connecticut and other New England states to replace petroleum liquid and coal-fired power plants with natural gas.
- Shear stupidity then led these states to obstruct the construction of adequate natural gas pipeline capacity.
- AGW alarmism then led to renewable portfolio standards (RPS) and a regional “cap-and-trade” program.
In other words:
They got what Obama promised and now, Obama’s sock puppet plans to make things worse: Biden Promises No New Pipelines
Vineyard Wind: Corporate Welfare on Steroids
And now they want to purchase offshore wind for twice the price of the, already expensive, nuclear power agreement. The Yankee Institute article noted that Connecticut will pay $98.42 to $99.50/MWh while Massachusetts only pays $74/MWh MWhr, decreasing to $65 over the life of the agreement… But that’s not the whole story. Despite public announcements of $65-75/MWh power purchase agreements (PPA), Vinyard Wind, Massachusetts’ first approved offshore wind project, has an estimated levelized revenue of energy (LROE) of $98/MWh, more than twice the LCOE of natural gas.
An extensive accounting of the PPA price schedule and expected revenue sources inclusive of those that are exogenous to the reported PPA is conducted in this study to estimate the project’s levelized revenue of energy (LROE). This allows for a more equivalent comparison of the reported PPA pricing with bottom-up modeled (unsubsidized) levelized cost of energy (LCOE) estimates. The reader should note that this analysis solely reflects the opinions of the authors and was conducted independently of the ongoing evaluation by the Massachusetts Department of Energy Resources of the PPA between Vineyard Wind LLC and Massachusetts electric distribution companies as filed on July 31, 2018. The analysis and conclusions described herein do not reflect actual cost data, which are confidential to Vineyard Wind and its partners.
The total calculated LROE from the Vineyard LLC/EDC PPA is estimated to be $98/MWh (2018$). This LROE estimate for the first commercial-scale offshore wind project in the United States appears to be within the range of LROE estimated for offshore wind projects recently tendered in Northern Europe with a start of commercial operation by the early 2020s. This suggests that the expected cost and risk premium for the initial set of U.S. offshore wind projects might be less pronounced than anticipated by many industry observers and analysts.
If Vineyard Wind will receive $98/MWh, while Massachusetts only pays $65-75/MWh… Who foots the bill for the remaining $23-33/MWh? And Why didn’t Connecticut get the same deal?