AIM to Baker: Modify the offshore wind price cap

ONE OF THE ORIGINAL ARCHITECTS of the declining price cap on offshore wind solicitations is now calling on the Baker administration to scale it back.

Robert Rio, senior vice president and counsel at Associated Industries of Massachusetts, one of the state’s leading business groups, sent a letter to the Baker administration on July 5 urging modification of the price cap, which requires each successive offshore wind procurement to be priced lower than the last.

The unusually low bid on the original contract won by Vineyard Wind and the possibility that a federal tax credit might disappear make the price cap problematic for future procurements, Rio said.

“AIM does not want higher prices for electricity, but these issues were not recognized in discussions during drafting of the 2016 law,” Rio said in his letter, referring to the law that authorized offshore wind procurements and included the declining price cap. “Outdated laws should not inhibit our goals – in some cases they need to change as more information becomes available.

Rio said AIM supported the declining price cap when it was included in a 2016 law because there was concern the price of offshore wind would be high and the winner of the original solicitation “would have a lock on future solicitations.” But Rio said competition during the first solicitation was strong and the winner, Vineyard Wind, submitted a price that was lower than anyone had envisioned.

Now, with a second offshore wind procurement underway, Rio said in his letter that he is worried bidders may be scarce or possibly nonexistent because of the pressure to come in at an even lower price. He noted the federal investment tax credit, which enabled the low bid by Vineyard Wind, is scheduled to be phased out and may not be fully available to the next bidders.

The politics of the declining price cap is interesting. Officials along the South Coast, the area of the state trying to capitalize on the emergence of an offshore wind industry, believe retaining the price cap will make it difficult for developers to include in their bids investments in an onshore supply chain.

During this year’s budget debate, Rep. Patricia Haddad of Somerset pushed an amendment to do away with the price cap entirely. She subsequently amended her amendment to retain the price cap but allow it to be adjusted for tax credits, inflation, incentives, and investments that would promote employment and economic development onshore. That amendment, creating a far more flexible price cap, was approved by the House.

The Senate, in its budget proposal, included no provision on the declining price cap. With the two branches at odds, a conference committee of the two branches is trying to decide what position to take.

The Baker administration’s stance has been hard to read, but generally the governor has supported the price cap. Patrick Woodcock, the Baker administration’s secretary of energy, did not return phone calls on Thursday, but it seems obvious that Rio’s letter to him was an attempt to change the administration’s mindset.

Like Haddad, Rio favors adjusting the cap. He wants it adjusted to reflect the availability or non-availability of federal tax credits and investments in onshore supply chains. He noted in his letter that expected investments in onshore supply chains did not occur with the Vineyard Wind bid and are unlikely to materialize in the next round because of the declining price cap.

“While missing out on some investments from the first solicitation may be a minor blow, from here on Massachusetts cannot stand by and see these investments go elsewhere,” he said in his letter. “Tying contracts to local investments are changes that were not contemplated when the cap was instituted.”

Rio said he is confident modifying the declining price cap will not result in sharply higher prices. He said the phase-out of the investment tax credit could push up prices, but officials should include provisions in any eventual contract that would pass along savings if the tax credit is retained or even expanded.