Once the wind farm is built, Cape Wind will be the closest source of power for most of the Cape and Islands. Since the electricity produced by Cape Wind will enter the grid in the town of Barnstable, the power produced by the wind farm will be used on the Cape and Islands.
The electricity produced by Cape Wind will help offset the power from dirty fossil fuel plants located in New England.
Similar to other commodities, such as gas, wheat and corn, electric power is bought and sold. An organization called New England ISO manages the market. Given the minute-to-minute interactions of the market and regulatory oversight, the process of buying and selling is extremely complex.
Electric power is sold under long-term contracts and on the spot market (also known as the residual wholesale electricity market, or “residual” market).
Long-term contracts are agreements between power producers and users (mostly utilities) to purchase or sell power over a fixed term (generally three to twenty years). The price of fossil fuel is subject to the market forces of supply and demand (and the price of oil can also be affected by cartel manipulations).
Electricity producers whose plants use fossil fuels are reluctant to offer fixed-price long-term contracts as they cannot predict the market prices of their fuel. But because wind fuel is free and operating and maintenance costs are highly predictable, electricity producers who use wind power can offer long-term fixed price contracts. These long-term contracts will help stabilize the market and produce downward pressure on electricity prices.
The spot (or “residual”) market allows power producers and utilities to buy and sell power throughout the day. The New England Independent System Operators (ISO) market matches power suppliers and consumers using a unique form of auction. Providers bid one day in advance on how much power they can provide at what rate. The New England ISO then “stacks” these bids from low to high (in dollar terms). The actual price paid that day for power is the highest bid price in the stack that was actually used to provide power across the grid.
Cape Wind will be able to bid “$0” (because the fuel—wind—is free) for the energy it provides, lowering the overall cost of that day’s market. A leading electric economic consulting firm estimates the Cape Wind park will save New England more than $800 million in energy costs over the next two decades.Supplying Cape Cod's Electricity :: Where the Energy Will Go