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Cape Wind agrees to reduce cost of offshore wind

Massachusetts attorney general gets a 10 percent price reduction from Cape Wind, a deal that highlights the challenge of cost for offshore wind.

Striking a deal with the state's attorney general, the developers of Cape Wind have agreed to cut the price of electricity from the proposed offshore wind farm in Massachusetts.

Massachusetts Attorney General Martha Coakley on Friday said that her office had negotiated a 10 percent reduction in the price Cape Wind will charge to utility National Grid for electricity. Over the course of the proposed 15-year contract, the reduction will save $456 million, according to Coakley's office.

An offshore wind farm in Sweden. GE

The deal highlights how cost remains a large barrier to building offshore wind farms in the U.S. Added construction expenditures means that offshore wind is roughly twice the cost of onshore wind, according to analysts. A proposal to build a pilot offshore wind farm in deep waters off Rhode Island was rejected earlier this year as being too costly by state regulators.

The state utility regulators in Massachusetts are now considering whether to approve Cape Wind, which is vying to be the first offshore wind farm in the U.S. Supporters of Cape Wind argue that it will bring more renewable energy to the U.S. and will help establish a foothold for the nascent industry.

Opponents of the controversial project argue that it will hurt property values because the turbines, which will be five miles from the coast of Cape Cod, will be visible from the shore. Detractors now appear to be increasingly seizing on cost of the project.

In May, Cape Wind signed a power purchase agreement with National Grid, which agreed to pay 20.7 cents per kilowatt-hour for half of the electricity generated by Cape Wind, which is significantly higher than wholesale electricity prices.

The agreement with the attorney general calls for Cape Wind to charge 18.7 cents per kilowatt-hour, which will increase by 3.5 percent per year. Other provisions are designed to adjust prices downward if Cape Wind saves money through lower construction costs or receives a federal loan guarantee.

"This agreement accomplishes two important goals--working to develop renewable energy, specifically off-shore wind in Massachusetts, and ensuring customers get the benefits of this project under a much fairer price than what was originally proposed," Coakley said in a statement.

Foes of the projects were still not satisfied, including a business lobbying group in the state, the Associated Industries of Massachusetts.

"AIM is in favor of 'smart' renewable development that is more competitive, cheaper, and less impactful on the business climate than the proposed Cape Wind/National Grid agreement," told the Boston Globe.