Today’s Key Takeaway: Offshore wind developers would rather pay penalties in their contracts rather than proceed with their current power purchase agreements due to high interest rates, inflation, and supply chain issues.
New York Rejects Offshore Wind Power Petitions, As Do Other States
Institute for Energy Research, October 23, 2023
- Developers of offshore wind projects essential to President Biden’s climate program want to renegotiate contracts as Bidenomics takes its toll.
- NY State rejected a request for a 48 percent average increase from offshore wind projects whose power purchase agreements were already high compared to other generating technologies.
- Forcing offshore wind into the system will lead to higher consumer prices when electricity prices are already high and climbing.
- More troubles for offshore wind loom due to dead whales and fishermen who are convinced that offshore wind and its associated activities will ruin their livelihood.
President Biden’s offshore wind goal of installing 30 gigawatts of offshore wind by 2030 is facing an uncertain future due to inflationary costs and supply chain issues that are making offshore wind developers ask for higher priced contracts. In the case of New York, the Public Service Commission denied Orsted, Equinor, and BP’s pleas to adjust the contracts for their respective offshore wind projects because allowing the contract adjustments would increase ratepayer costs by $29.76 billion over the contract terms.
On average, offshore wind developers are seeking a 48 percent increase in their contract prices. The cost increase would result in increased energy bills of between 2.3 percent and 6.7 percent for residential customers, and between 2.5 percent and 10.5 percent for commercial customers, which is on top of already high costs for offshore wind power in the original contracts.
Without the adjustments, the projects are likely unviable, despite the companies having already sunk huge amounts of money into the projects. In its petition seeking a contract adjustment for its 924-megawatt Sunrise Wind project, Ørsted indicated “the project’s financial profile has worsened markedly — so much so that it is now not a viable investment.”
As project costs have risen steeply due to supply chain challenges, inflation and high interest rates characterized as “Bidenomics,” several offshore wind developers in the Atlantic have sought to exit and renegotiate power purchase agreements.
Avangrid filed settlements with Connecticut utilities Eversource Energy and United Illuminating to cancel its power purchase agreements (PPAs) for the 804-megawatt Park City Wind project. According to Avangrid, financial challenges triggered by supply chain disruptions, rising interest rates and other factors rendered the Park City Wind project “unfinanceable under its existing contracts.”
If the termination agreements are approved by the Connecticut Public Utilities Regulatory Authority, Avangrid would pay about $16 million to exit PPAs tied to the Park City Wind project off the coast of Martha’s Vineyard. The project has been unable to secure financing and will not be built unless Avangrid is released from its existing contracts. Avangrid plans to rebid the project.
In Massachusetts, regulators approved the termination of power purchase agreements (PPAs) tied to the 1,200-megawatt SouthCoast Wind project, an offshore development by Shell New Energies and Ocean Winds North America. SouthCoast Wind agreed to pay more than $60 million to be released from the contracts.
The company plans to move forward with the project and bid into upcoming solicitations. The termination of the SouthCoast PPAs led Massachusetts Attorney General Andrea Joy Campbell to call for additional safeguards to protect ratepayers against future cancelations.
Sunrise Wind, SouthCoast and Park City are far from the only offshore wind developments to exit PPAs this year. Avangrid filed termination agreements for the proposed 1,223-megawatt Commonwealth Wind farm. Avangrid would pay $48 million in penalties for the termination to National Grid ($21.6 million), Eversource ($25.9 million), and Unitil ($480,000).
According to Commonwealth Wind, it will rebid the generation capacity currently included in the PPAs in Massachusetts’ next solicitation with cost-effective pricing, a superior timeline for completion, and exceptional economic development opportunities. Bids for the state’s fourth offshore wind solicitation are due January 31, 2024. Massachusetts is aiming to procure up to 3,600 megawatts, which would make the solicitation New England’s largest offshore wind procurement to date.
Rhode Island Energy announced that it would not move forward with an offshore wind PPA with Ørsted and Eversource for the 884-megawatt Revolution Wind 2, calling it “too expensive.” Rhode Island Energy cited higher interest rates, increased costs of capital and supply chain expenses, and the uncertainty of federal tax credits as economic factors that made the project as proposed “too expensive for customers to bear.”
In New Jersey, Cape May County and environmental and fishing industry groups are suing the federal government in a bid to overturn its approval of the state’s first offshore wind farm.
The lawsuit was filed in U.S. District Court against the National Oceanic and Atmospheric Administration and the Bureau of Ocean Energy Management to reverse their approval of the Ocean Wind I project that is to be constructed in waters off southern New Jersey by the Danish wind power company Orsted.
The plaintiffs allege that the agencies did not follow the requirements of nearly a dozen federal laws in approving the project and did not adequately consider potential harm to the environment and marine life from offshore wind projects.