Baker: “We Have No Interest In Reopening Anything” |
Utilities Balk At Renegotiating Offshore Wind Contract
By Colin A. Young
State House News Service
NOV. 4, 2022…..The Department of Public Utilities has a whopper of a decision to make.
Massachusetts is relying on offshore wind power generation to be a major contributor to its decarbonization goals over the next three decades but it is taking longer than first thought to get turbines spinning and now the largest project in the state’s pipeline says it is “no longer viable and would not be able to move forward” without changes to the contracts between the developer and utility companies, likely increasing the cost of the power.
But those utilities, who would be buying the wind power from the developer, told state regulators this week that they see no need for the contracts to be renegotiated and asked that the DPU approve the contracts that were filed in May “expeditiously.” Gov. Charlie Baker suggested Wednesday that he’s open to changes to contract language, and the decision ultimately rests with his DPU.
Commonwealth Wind, a 1,200 megawatt Avangrid Renewables wind project, last month filed a motion for a one-month delay in DPU’s review of the May contracts, telling the state that their project can no longer move forward as planned because of price increases, supply shortages and interest rate hikes. Mayflower Wind, the other developer tapped last year to help Massachusetts plug into offshore wind power, supported the request.
Commonwealth Wind said the pause would allow them to consider changes “including cost saving measures, tax incentives under the newly enacted Inflation Reduction Act, an increase in the PPA prices, and improvements to Project efficiencies.” The developer said any increase in price would be “modest.”
But the utilities on the hook to buy the power that Commonwealth Wind would generate — Eversource, National Grid and Unitil — told the DPU on Tuesday that “[s]uch a pause is unnecessary” because they do not intend to renegotiate the contracts, or power purchase agreements (PPAs), with Commonwealth Wind and Mayflower Wind.
“The projects subject to the PPAs were selected by the Companies, in consultation with the [Department of Energy Resources] pursuant to a robust competitive solicitation and thorough evaluation. Moreover, the Companies negotiated the PPAs in good faith and have supported approval of the PPAs with unchallenged substantial evidence in these proceedings,” lawyers for the utility companies wrote in a letter. “Accordingly, the Companies request that the Department approve the PPAs expeditiously.”
Asked about the situation Wednesday, Baker suggested the matter is simply between Avangrid and the utilities, and made clear that he has no interest in upending the whole procurement process.
“That’s a discussion to take place between them and the utilities. We have no interest in reopening anything,” Baker said. “And let’s remember, these are long-term contracts, like really long-term contracts. And while there may be some choppy water at the moment with respect to interest rates and supply chains and all the rest, we’re talking about a deal that basically lasts for 15 years, some of them more than that, depending upon what actually happens over that period of time. I think it’s premature for people to think that where we sit now is necessarily representative of where things are going to be over time.”
In a brief filed this week, Commonwealth Wind made clear to regulators that even though the contracts stretch across multiple decades, the project needs to be financed ahead of time if it is going to become a reality.
“[B]ecause of the direct impact of the changed economic conditions, the current PPAs will no longer facilitate the necessary financing of the Project, and the Project needs PPAs that reflect this economic reality. Thus, approval of the PPAs, absent amendments, will not result in the benefits that are required under [Massachusetts’ clean energy law], because the financing required to actually construct the Project will not be forthcoming.”
The governor added Wednesday, “They can go negotiate with the utilities. But in terms of reopening the bid, no.”
The head of one utility that said it sees no reason to renegotiate the contracts, Eversource president and CEO Joe Nolan noted Thursday that Baker did not say that the DPU would agree to the pause or to renegotiated contracts.
“What the governor said is that he would allow Avangrid to make a proposal, he didn’t say that he was gonna go and renegotiate with them,” Nolan said. “So there’s a lot of players that will have to decide on this. Certainly, it’s our regulators. Our regulators, at the end of the day, are the ones that are going to decide what is best for the customers.”
A participant in Eversource’s third quarter earnings call Thursday morning asked Nolan why Eversource views its own offshore wind projects differently from the Commonwealth Wind project that is asking for a pause to renegotiate contracts. Nolan said that none of Eversource’s projects — which include South Fork Wind and Sunrise Wind for New York, and Revolution Wind for Connecticut and Rhode Island — are “right now looking to renegotiate.” All three projects are 50/50 partnerships with Danish wind giant Orsted.
“Keep in mind that our pricing is higher, it’s in the 100-110 [dollars per] megawatt-hour range. The project that we’re talking about came in here and did very, very low pricing against projects that we had bid,” he said. Commonwealth Wind’s power was expected to cost about $72 per MWh.
But while Eversource might not be looking to renegotiate the contracts for its own offshore wind projects, the utility is looking to mostly get out of the offshore wind business, Nolan said.
“We’re now engaged with a number of potential buyers for our 50 percent ownership interest in our offshore wind joint venture. Orsted is actively supporting the process. It’s very possible that we contract with one buyer for the three projects and another for the open acreage,” Nolan said, adding that an announcement could come by the end of the year. “We remain very big fans of offshore wind and expect it to become a critical energy resource for the Northeast, particularly in the winter when wind speeds are higher and more consistent.”
He added, “I expect that our principal role in the future will be that of a regulated transmission provider integrating this valuable resource into our region’s grid, rather than a turbine owner.”
In one of its briefs this week, Commonwealth Wind owner Avangrid argued that the economic factors that are squeezing its project’s viability are also affecting other projects. Sy Oytan, senior vice president for offshore projects at Avangrid Renewables, said that, his “professional opinion, based on available information, is that the global economic challenges facing the Project are also affecting many other offshore wind projects in the United States and elsewhere.”
Sure enough, a few hours after Nolan’s comments, Politico reported that Eversource’s partner in its offshore wind projects, Orsted, told investors Thursday that it is now worried about being able to make money on its East Coast wind projects. CEO Mads Nipper reportedly told investors that some of the projects may need new contract terms.
“It is simply too early to say anything, and therefore we continue to remain committed to these projects; we are not in a situation where we are saying that this is something that we no longer believe in,” Nipper said, according to Politico. “We still believe there is a path for this to be value creating.”
[Chris Lisinski contributed to this report.]
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11/04/2022
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