DPU approves wind farm contracts despite financing concerns

A correction has been added to this story.

THE DEPARTMENT OF PUBLIC UTILITIES  on Friday approved 20-year power purchase agreements between the state’s three major utilities and the offshore wind developers behind Commonwealth Wind and Mayflower Wind, rejecting claims and concerns raised by the developers that the contracts are no longer adequate to finance their projects.

Avangrid, the developer behind Commonwealth Wind, had asked the DPU to dismiss its power purchase agreements because rising inflation and interest rates as well as supply chain disruptions and the war in Ukraine had driven up costs to a point where the existing pricing was no longer sufficient to finance and build the project.

Shell Energy Ventures and Ocean Winds, the companies behind Mayflower Wind, had not asked the DPU to dismiss their power purchase agreements, but the companies had also argued that Avangrid’s assessment of the economic situation was accurate and suggested some form of economic bailout was needed.

The three DPU commissioners concluded the offshore wind developers had freely negotiated their agreements and now could not back out of them. They rejected Avangrid’s argument that the power purchase agreements should be dismissed because they no longer “facilitated the financing” of the 1,200-megawatt wind farm, as required by law.

The commissioners said Avangrid’s interpretation of the law was incorrect. They said the statute only requires the power purchase agreements to assist in the financing of the projects. Citing Webster’s dictionary, the commissioners said assist means making it easier or less difficult.

“It is not required by statute, therefore, that the companies demonstrate that the PPAs guarantee that the projects will be financed, as Commonwealth Wind contends,” the commissioners said.

The DPU also discounted claims by Avangrid that it couldn’t build the wind farm without a higher price for the power. “After review of the record evidence, the department finds that the proposals selected by the [utilities] include sufficient information concerning the design, development, financing, and construction of the projects for the [utilities] to reasonably conclude that the selected projects are viable and would be completed in a commercially reasonable timeframe,” the DPU order said.

The DPU commissioners said in their decision that the state’s three utilities (Eversource, National Grid, and Unitil), the Baker administration, and Attorney General Maura Healey’s office agreed with their interpretation of the law. The utilities had urged the DPU to make the decision it did, but the Baker administraton and Healey’s office remained largely on the sidelines.

Healey is scheduled to take over as governor next week and has made offshore wind a centerpiece of her climate change efforts.

The decision puts the DPU and Avangrid at loggerheads, and possibly throws a major wrench in the state’s plan to procure massive amounts of offshore wind to displace the fossil fuels currently being used in the transportation and building sectors.

The decision could also jeopardize economic development projects that were expected to accompany the Commonwealth Wind project, including a subsea cable manufacturing facility at Brayton Point in Somerset and a significant makeover of the Salem waterfront to make way for offshore wind development there.

In a statement, Avangrid continued to insist the power purchase agreements would not allow the company to secure the financing needed to build the project. Avangrid said it was reviewing the DPU order and assessing its legal options, suggesting the matter could end up in court.

“As we assess our options and pursue the best course for the project, we will continue to work closely with our business, labor, industry, environmental, and community partners, as well as the incoming Healey-Driscoll administration, to ensure Commonwealth Wind can move forward, maintain the same urgent timeline, and help Massachusetts meet its nation-leading climate target for 2030,” the statement said.

The agreements between the three utilities and the wind farm developers are legally binding on the parties. The economic development commitments made by the two wind farm developers are also legally binding, but the DPU order says the the Department of Energy Resources, not the utilities, would be charged with enforcing the commitments.

The Commonwealth Wind contracts call for the 1,200-megawatt wind farm to come online by November 1, 2027 and deliver power and renewable energy credits at a combined price of $59.60  per megawatt hour on a nominal levelized basis, escalating at 2.5 percent a year for 20 years. The price in the final year would be $95.28 per megawatt hour, according to the DPU order. (CORRECTION: The DPU, saying it had left out the cost of the renewable energy credits in its original order, corrected the pricing information on January 10.)

The Mayflower Wind contracts call for the 400-megawatt wind farm to come online by March 30, 2028 at a combined price of $76.73 per megawatt hour. That price will remain fixed for the 20-year life of the contract.