NY offshore wind developers also seek price relief

MAJOR OFFSHORE wind developers in New York say their projects may no longer be financially viable unless regulators amend their power purchase agreements to include adjustments for inflation and interconnection costs.

In petitions filed with state regulators on Wednesday, the New York wind farm operators followed the same script as developers in Massachusetts, who say their projects have been overwhelmed by inflation, rising interest rates, supply chain disruption, and the war in Ukraine.

The Massachusetts developers initially sought to modify their existing power purchase agreements, but when that plea fell on deaf ears at the Department of Public Utilities they moved to terminate the agreements they signed last year and rebid the projects at higher prices in a procurement coming in 2024.

In New York, the developers are asking state regulators to agree to price adjustments in the existing contracts. They point out that New York has approved including similar price adjustments as part of the state’s third offshore wind procurement process, and now should retroactively apply them to contracts approved in the first two procurements.

The filings with the New York State Public Service Commission were made by Sunrise Wind, the developer of a 924-megawatt project off of Long Island being developed by a joint venture of Orsted and Eversource, and three wind farms going by the names of Empire Wind I, Empire Wind II, and Beacon Wind I totaling 3,300 megawatts proposed by a joint venture of Equinor and bp plc. (Eversource recently announced it plans to exit the offshore wind business, selling off its stake in Sunrise Wind and other projects.)

The precise size of the price adjustments being sought was blacked out in the public filings, but it would appear to be substantial. In the Sunrise Wind filing, a calculation using the inflation adjuster formula contained in the third-round procurement indicated a price increase of 23 percent would be warranted.

“Importantly, Sunrise Wind will not receive any ‘windfall’ as a result of the requested amendment,” the developer said in its filing. “As explained in detail above, amending the [agreement] to incorporate inflation and interconnection cost adjustment mechanisms comparable to the Phase 3 request for proposals will merely allow the project to attain a level of financial viability that Sunrise Wind believes is sufficient (when taking into account remaining risk and other considerations) for it to be likely that Sunrise Wind would obtain the necessary [final investment decision] to fully construct the project.”

The New York wind farm developers, much like their counterparts in Massachusetts, argue that holding the companies to the contracts that were approved as long ago as 2019 would lead to lengthy delays that would prevent the state from attaining its climate change goals. The companies also stressed that they are far along in the development process, and halting that process now would be bad for the companies as well as for the state.

In Massachusetts, Commonwealth Wind, being developed by Avangrid, said late last year that the economics of offshore wind had changed so much that its power purchase agreements with three Massachusetts utilities were no longer viable. SouthCoast Wind formally reached the same conclusion this week. Now, with the filings in New York, it appears developers in other states are starting to make similar moves.

While the short-term focus in all these filings is on the adequacy of the existing power purchase agreements, there are also indications that the problems surfacing now could present long-term challenges. For example, the Equinor/bp filing includes an analysis of the offshore wind supply chain conducted by the Wood MacKenzie consulting firm, which found that “the price of components for offshore wind projects will continue to experience significant pressure through at least the end of the decade due to significant supply chain constraints driven by huge increases in the growth rate of offshore wind resources.”

According to the Equinor/bp filing, “Wood MacKenzie estimates that $25 billion of investment is required in the supply chain in the next few years for the industry to meet demand peaks in the second half of the decade. The need for investment is particularly acute for vessels, where 80 percent of the capacity required to meet demand in 2030 does not exist today, and for foundations, where investments in new fabrication facilities need to be made five years or more ahead of facility completion. The shortage of supply creates significant investment opportunities, but it also means that offshore wind supply chains will remain strained for the foreseeable future, and that a strategy to pause projects to wait out current supply chain constraints is not likely to lead to reduced costs.”