Massachusetts’ utilities National Grid, Northeast Utilities and Unitil recently negotiated power purchase agreements for 565 megawatts of electricity capacity from existing and proposed wind farms in New Hampshire and Maine that would provide electricity at wholesale rates of approximately eight cents per kilowatt-hour.
These agreements were lauded by the Boston Globe, going as far as claiming that wind power is “now competitive with conventional sources.” Eight cents per KWh is cheap for wind, especially when you consider that Cape Wind currently has power purchase agreements with NStar and National Grid for 18.7 and 20.5 cents per kilowatt hour (not including 3.5 percent annual escalators).
However, the average wholesale cost of electricity in New England for 2012 was less than four cents per KWh, according to the New England Independent System Operator, or ISO New England. Furthermore, the 8 cents/KWh rate doesn’t reflect the costs of transmission upgrades necessary to integrate these projects into New England’s electricity grid. At the request of all six New England governors, ISO New England conducted a study which concluded “the cost of interconnecting 2,000 MW to 12,000 MW of wind power would be between $1.6 billion and $25 billion in transmission upgrades.”
Another problem with speciously declaring that wind can compete with conventional power sources is the simple fact that wind has a number of hidden costs that aren’t reflected in the wholesale price. Wind generally receives one of two tax subsidies: (1) a $22-per-MWh, inflation-adjusted production tax credit over the wind’s initial ten years of operation or (2) a 30 percent investment tax credit against capital expenditures. While these tax credits aren’t necessarily reflected in rates, they are borne by taxpayers as a means to subsidize ratepayers — or robbing Peter to pay Paul, except in this case Peter is Paul.
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