Recent efforts by the Healey administration to revive the largest single offshore wind project in the state’s pipeline have been unsuccessful, and it is becoming clear that the mess around the state’s last offshore wind procurement will loom large over the crucial round of bidding set to launch later this spring.
Offshore wind energy is being eyed to play a significant role as Massachusetts tries to make good on its commitment to be a net-zero emissions state by 2050 and is critical to Gov. Maura Healey’s promise to achieve 100% clean electricity supply by 2030.
But with major questions hovering over the projects picked in the state’s last procurement as the next procurement is being mapped out, the Healey administration is ratcheting up pressure on Avangrid, and a key senator is suggesting that any developer that doesn’t live up to its contracts should be barred from bidding on any future projects in Massachusetts.
Avangrid’s 1,200-megawatt Commonwealth Wind project was chosen in 2021 by utility companies working with state officials, and the developer agreed to contracts with Bay State utilities last May. But in the fall, Commonwealth Wind officials said that increases in commodity prices, rising interest rates and supply shortages mean that the project “cannot be financed and built” under the terms of those contracts, which include the price at which the developer could sell the power generated by the project’s turbines.
Avangrid is now seeking to terminate the contracts — which the Department of Public Utilities determined “are in the public interest” and approved — and wants to instead re-bid the project at a higher price when Massachusetts seeks more proposals for offshore wind projects this spring. Avangrid officials insist they remain committed to making the project a reality by the end of this decade.
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The other offshore wind project selected in the state’s 2021 procurement round, known now as SouthCoast Wind, has similarly said that economic conditions have made it much harder to finance its project than when it was selected, but it has stopped short of saying that the project is no longer viable. Unlike Avangrid, the developer of SouthCoast Wind is not a public company or subject to the same public reporting requirements.
Energy and Environmental Affairs Secretary Rebecca Tepper wrote last week to Avangrid CEO Pedro Azagra to take issue with comments that “misrepresent the status of those contracts.” In her letter, Tepper said that the Healey administration had asked Avangrid and the electric distribution companies to discuss contract modifications, among other options, to keep the key offshore wind project moving forward.
“While the electric distribution companies have signaled an openness to collaborate, Avangrid made clear that it views contract termination as the only financially viable outcome, without identifying any opportunities for governmental assistance to improve financial viability,” the secretary wrote.
Tepper said that Avangrid “was asked directly for actions that the Healey-Driscoll Administration could take” to help ease the financial challenges facing the project and suggested the administration got no response.
“We are working with all stakeholders to find private and public solutions to the global price increases outside of our control, and believe the best path forward to deliver Commonwealth Wind is in the termination of the current contracts and moving forward in the next offshore wind procurement,” Avangrid said in a statement.
The new secretary, who is working on a parallel track to design the next offshore wind procurement, told Azagra that she is “committed to establishing procurement processes that do not reward developers for backing out of their commitments.” She said the “tactic” could unduly cause Massachusetts ratepayers to have to foot a larger bill and “is one of the many concerns that will drive our design of the procurement process as I seek to ensure robust competition and fairness.”
And she warned Avangrid that the termination of a contract or the non-performance of a contract will be taken into consideration if the company bids in the next round, as it has said it plans to do.
“During bid evaluation, DOER will identify proposals that are viable and cost-effective. The experience of the bidder will be evaluated in the selection process,” she wrote.
Exactly how the next round of offshore wind procurement will be run is being decided right now. The state last week closed a public comment period that sought input on a host of issues, including how the process could “best account for current and future rates of inflation and other supply chain and economic pressures on the offshore wind industry to both ensure project viability and protect Massachusetts ratepayers.”
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Sen. Michael Rodrigues, the Senate Ways and Means Committee chairman who represents several South Coast communities, was the only elected official who submitted their own comments to DOER and he said he is “deeply dismayed” by the way that Avangrid is trying to terminate the contracts it agreed to a year ago.
“That’s unacceptable, as no company should be allowed to simply walk away from contracts negotiated and awarded in good faith. The Commonwealth of Massachusetts should not set this kind of precedent,” Rodrigues wrote in the first of two letters he submitted. “More importantly, what kind of message would this send to other companies who play by the rules? Contracts for schools, libraries, courthouses, and highway construction projects all are facing the same fiscal pressures, and they all adhere to a strict set of ground rules, which includes performance of the contracts.”
The senator said he thinks that any company that non-performs on an existing contract should be disqualified and prohibited from bidding on any future projects for Massachusetts.
“When companies do not act in good faith, they should be stricken from future bids, plain and simple,” he wrote.
Limiting the universe of companies that could bid to provide Massachusetts with offshore wind power could even further shrink the small handful of developers interested in doing business here. The state’s last solicitation drew bids only from Avangrid and the joint venture behind SouthCoast Wind.
Another developer that owns a lease area that could supply Massachusetts with offshore wind power, Orsted, recently said that it needs greater tax breaks if it is to follow through on its contract to develop what would be the world’s largest wind farm off the coast of Britain.
Reuters reported that the contract for the 3-gigawatt Hornsea 3 project “is index-linked to inflation” but “is now worth significantly less than current electricity prices.” The outlet said that Orsted is calling on the United Kingdom to offer tax breaks on clean energy investments similar to those available in the oil and gas world.
Among the developers that submitted comments to Massachusetts on the framework of the next procurement round and did not redact their responses, there was agreement that the state and utility companies should allow for some kind of pricing flexibility, like indexing the price at which developers can sell their power to inflation.
“Price indexation is a paradigm shift necessary for the offshore wind industry to flourish. It will give developers confidence they can deliver economically viable projects, while shielding electricity consumers from developers achieving irrational profits,” Avangrid wrote. “Absent price indexation and/or an ability to renegotiate prices with DOER due to extraordinary endogenous circumstances, developers will be forced to bid in exceedingly high returns to cover any potential contingency.”
SouthCoast Wind recommended that the state’s next solicitation “require all bidders to submit pricing that will be subject to a one-time adjustment for an inflation index when the project reaches financial close.”
Orsted said that consumer price index “indexation (or, alternatively another index more representative of the capital structure of an offshore wind farm) would help ensure that the value of project revenues is not eroded. Ideally, indexation would begin at bid submission and extend through the duration of the PPA contract.”
A schedule has not been set for the state’s fourth offshore wind solicitation, but state law requires that the next request for proposals be issued within 24 months of the last one. The state’s third offshore wind RFP was issued on May 7, 2021.
Read more about the offshore wind industry on The New Bedford Light’s wind energy page.
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