Massachusetts utility regulators today approved the initial power purchase agreement for Cape Wind, bringing the controversial offshore wind farm product closer to construction.

The Massachusetts Department of Public Utilities approved a 15-year power purchase agreement between Cape Wind and utility National Grid to buy half of the electricity produced at the proposed farm in the Nantucket Sound off the coast of Cape Cod.

The rates at which National Grid agreed to purchase power from Cape Wind are above market rates. But the Department of Public Utilities concluded that Cape Wind is in the public interest and the prices are acceptable in light of the benefits. It projected that consumer electricity bills will go up between 1.3 percent and 1.7 percent, and bills for commercial and industrial customers will go up between 1.7 percent and 2.2 percent.

A simulation from Cape Wind on how the 130 wind turbines will look from the closest point onshore.

The state has mandated that utilities generate a certain percentage of its electricity from renewable energy sources. There are other, less expensive renewable energy sources, but they face permitting hurdles in the short term, making it clear that offshore wind is need to meet that mandate, regulators said in the 374-page decision (click for PDF). Cape Wind has been under development for 10 years and has met all federal reviews.

In addition to helping meet the state renewable energy mandate, Cape Wind will have a downward effect on wholesale electricity prices because Cape Wind will bid into daily energy markets at no or low fuel costs. The wind farm, which will be between 5.6 and 13.8 miles offshore from Cape Cod and the islands of Nantucket and Martha's Vineyard, will also moderate peak load on the grid.

"This is the moment for the state and the region to begin to capture the potential of offshore wind by approving the long-term contract that will help the country's largest proposed offshore wind facility become a reality," according to the regulators' order.

The decision, which was expected to be favorable, positions Cape Wind to seek out financing to start building the project, said Cape Wind representative Mark Rodgers. Project developers hope to begin construction next year and begin operating within a year or two.

Opponents of the project, meanwhile, are expected to appeal the decision to the state supreme court. "It is obvious that the DPU [Department of Public Utilities] made this decision based on politics rather than facts," said Audra Parker, CEO of the opposition group Alliance to Protect Nantucket Sound.

With 130 turbines, Cape Wind is projected to have a capacity of 468 megawatts, and National Grid agreed to a power purchase agreement of $187 per megawatt-hour for 15 years with a planned 3.5 percent yearly rate increase. The utility commission said that rate is "expensive in light of today's energy prices. It may also be expensive in light of forecasted energy prices--although less so than its critics suggest."

The Department of Public Utilities denied National Grid's request for a second power purchase agreement to acquire the second half of Cape Wind's total output, which National Grid could have assigned to another party. Regulators said that power purchase agreements for the remainder of Cape Wind's output need to be approved separately.