Economy/ Energy/ Government/ Politics

Healey launches offshore wind procurement at risky time

New York, Rhode Island seeing sharp runup in prices

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GOV. MAURA HEALEY launched what she described as the region’s largest offshore wind procurement this week. “With our top academic institutions, robust workforce training programs, innovative companies, and support from every level of government – Massachusetts is all-in on offshore wind,” she said.

But what her press release failed to mention was that this procurement comes at a very risky time for offshore wind, with the industry battered by economic and supply chain challenges and developers responding by pushing for higher prices for the electricity being produced.

In July, Rhode Island’s largest utility opted not to move forward with a wind farm deal because the cost “was deemed too expensive for customers to bear.”

A new study released this week indicates the developers of four proposed New York wind farms are seeking revisions to previously approved power purchase agreements that would boost the price anywhere from 27 percent to 66 percent, with a weighted average increase across all four wind farms of 48 percent.

The study, by the New York State Energy Research and Development Authority (NYSERDA), raises questions about some aspects of the wind developers’ proposed price increases, but overall it says the market conditions that have engulfed the industry are legitimate and real. 

“These market conditions, driven in large part by increased demand for raw materials, an increased demand for large-scale renewable energy caused primarily by the COVID-19 pandemic and the war in Ukraine, as well as supply chain constraints and bottlenecks, are unprecedented in recent history, outside of reasonable developer control, and were unforeseeable at the time of each bid,” the study says.

The study says the normal approach in such situations would be to terminate the existing contracts and rebid them, which is what Massachusetts is doing with two of its wind farm projects. But the study says the proposal from wind farm developers in New York to rejigger the existing contracts without rebidding them has some advantages, given all the tradeoffs involved.

According to the NYSERDA study, rebidding the projects would push back the timetable for offshore wind development, delay all the climate and economic benefits associated with the projects, “and hurt New York’s ability to tap the scarce offshore wind supply chain.”

The study also suggests that rebidding could end up being more expensive. Tweaking the existing contracts to adjust for the unforeseen pricing pressures isn’t easy but the study suggests it is doable. Terminating the projects and starting over is simpler to implement, but it comes with no assurances that prices will be any better and could get worse.

“While it is impossible to predict future bid prices accurately, a number of factors indicate that average bid pricing in future solicitations is likely to be relatively high compared with prior solicitations,” the NYSERDA study says.

Massachusetts Attorney General Andrea Campbell’s office raised similar concerns in its testimony on the governor’s proposal to secure up to 3,600 megawatts of power in the upcoming procurement. The office suggested a go-slower approach, lowering the target amount to 1,600 megawatts.

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About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

“During this time of prolonged and compounded uncertainty, the [procurement], as proposed, could lock ratepayers into massive long-term offshore wind generation contracts at a time when the cost of those contracts is at an unprecedented high,” the attorney general’s office said in a filing with the Department of Public Utilities. “Instead, the Commonwealth should take a more measured approach in this solicitation by seeking to procure a smaller amount of offshore wind generation, while allowing matters impacting the economy generally and issues specifically affecting the offshore wind industry (e.g., supply chain issues and availability of wind turbine installation vessels) to settle.”

The Department of Public Utilities rejected the attorney general’s recommendation, noting the procurement doesn’t require the Healey administration to procure all 3,600 megawatts if the pricing isn’t favorable.

The “all-in on offshore wind” Healey administration doesn’t sound as if it wants to go slow with this next procurement, but time will tell. Bids from offshore wind developers are due at the end of January.