N. Grid, Deepwater in wind power deal

(Updated, 5 p.m.)

PROVIDENCE – Gov. Donald L. Carcieri’s effort to secure the nation’s first offshore wind farm off Rhode Island cleared a key hurdle on Wednesday as developer Deepwater Wind LLC and National Grid Plc announced the signing of a 20-year power-purchase agreement.

The agreement follows months of negotiations that had threatened to derail the state’s attempts to move the project forward.

Electricity generated by the eight-turbine farm planned off Block Island, which is the smaller of Hoboken, N.J.-based Deepwater’s two proposed projects, will cost 24.4 cents per kilowatt-hour when it begins operating in 2013, according to National Grid, the state’s dominant utility. That is down from a reported price of 30.7 cents in October. The contract also calls for annual price increases of 3.5 percent.

The retail price of electricity for a home in Rhode Island is about 13 cents per kilowatt-hour. The governor’s office said the agreement would increase the average residential customer’s monthly electric bill by $1.35.

“National Grid now believes that this agreement, as executed, represents the best agreement that could be achieved with Deepwater, given all the circumstances associated with this proposed demonstration project,” National Grid lawyer Ronald Gerwatowski wrote in a cover letter attached to the agreement.

The agreement calls for National Grid to buy power from Deepwater’s proposed wind farm, which would be built about three miles off the coast of Block Island. Deepwater has said it wants the farm to be up and running by 2012, which would make it the first offshore wind farm in the country. It would be followed by a larger, 106-turbine wind farm 15 miles off the mainland.

Deepwater Wind CEO William Moore said his company accepted a lower profit margin in order to bring its rates down and close the deal. Moore said the company also felt it needed to reach an agreement soon to bring the wind farm online by the end of 2012 and qualify for federal investment tax credits.

“We dropped our price more than we would have liked in order to get this deal done,” Moore told Providence Business News Thursday afternoon.

Under a state law the governor signed in June, National Grid is required to procure some of its electricity from renewable sources. The law calls for Rhode Island to eventually get 25 percent of its electricity from renewable energy through long-term contracts such as the one announced Wednesday.

The Conservation Law Foundation, which had earlier expressed some reservations about the Carcieri administration’s approach to boosting renewable energy, issued a statement supporting the deal.

“This is an important step forward for renewable energy,” Jerry Elmer, staff attorney at the foundation, said in a statement. He also said the organization, which backed the June energy law, continues to “believe in its potential to facilitate meaningful and commercially reasonable renewable energy projects in RI.”

The agreement signed by National Grid and Deepwater must still pass muster with the R.I. Public Utilities Commission, which by law must judge if the contract is “commercially reasonable.” Moore said the company has hired an outside expert to testify in front of the PUC that the contract meets the requirement.

National Grid said it could support the 61-page power purchase agreement critical to the development of the farm with two caveats: that the commission and the public understand the utility’s belief that other renewable energy sources could provide energy more cheaply than an offshore wind farm; and that the commission not use the higher price to establish a new baseline for an acceptable price of electricity.

In a statement, Gov. Donald L. Carcieri praised the companies for putting the project back on track.

“This is a tremendous accomplishment and ensures that Rhode Island remains the leader in developing the nation's first offshore wind farm,” Carcieri said. “I commend National Grid and Deepwater Wind for recognizing the importance of this agreement both to the ratepayer and the Rhode Island economy. Investing in renewable energy reduces our exposure to the volatility of energy prices on the world market, and this agreement establishes confidence in the financial feasibility of the project.”