Eversource is investing in a large offshore wind project 15 miles south of Martha’s Vineyard, a deal that could help the company capitalize on a new state law requiring electric utilities to ramp up their use of wind energy.
Boston-based Eversource is taking a 50 percent stake in Bay State Wind, a company set up by Danish wind power company DONG Energy. The project’s cost will likely exceed $1 billion, according to Eversource spokeswoman Caroline Pretyman, although no formal estimate has been made public.
Lee Olivier, executive vice president of strategy and business development at Eversource, said the company is initially investing $10 million but will spend much more as the project progresses.
The companies hope to take advantage of a state law passed earlier this year that will require big electric utilities – mainly Eversource and National Grid – to purchase large amounts of offshore wind power on contracts of 15 to 20 years. Wind-power producers that reach agreements with utilities would be guaranteed a long-term source of revenue. The joint venture could also provide Eversource with some of the wind power it will need to buy.
The precise size of the wind farm – including the number of turbines that will be built – likely will depend on how much energy the state’s utility companies agree to buy from Bay State Wind and the type of equipment used to build the machines.
But Olivier said the power generated by Bay State Wind will become increasingly important as older power plants shut down. One of them – the coal-powered Brayton Point plant in Somerset – is expected to halt operations next year.
“If you have to repower the region, we should be doing it more with renewable energy,” Olivier said. “Clearly, this joint venture is very much aligned with where policy makers want to go.”
Over time, utilities will be required to buy up to 1,600 megawatts of offshore wind electricity – enough for about 800,000 homes, according to an Eversource estimate. Utilities will begin the process of buying the wind power in 2017, putting contracts for at least 400 megawatts of power out to bid.
The partnership with DONG Energy comes after the European company entered the region in 2015 by securing development rights to a 300-square-mile area of ocean off Martha’s Vineyard.
“When we set up shop here in Massachusetts, quite quickly we were having discussions with Eversource about offshore wind and how far it’s gone in Europe,” said Thomas Brostrom, general manager for DONG’s US wind operations.
Eversource and DONG each bring specific expertise to the deal. The Massachusetts utility specializes in transmission, and its executives know about the region’s power grid; DONG brings years of experience in building and operating offshore wind farms.
For Eversource, the wind farm will mark the company’s first significant power-generation project in years. In the 1990s, when the state deregulated the energy industry, Eversource’s predecessor companies in Massachusetts – including Boston Edison – spun off most of their power plants to focus on distribution.
Olivier said Eversource is allowed to invest in power generation, as long as it is done through an unregulated subsidiary that does not pass the project’s costs directly to consumers. Shareholder money, rather than revenue from ratepayers, will fund the venture, the company said.
But the arrangement concerns some industry officials because a company Eversource is invested in will now be bidding to sell energy to Eversource.
“It’s going to get a long-term contract from a utility, and in this case, it’s the subsidiary of the affiliate,” said Cynthia Arcate, chief executive of PowerOptions, which buys energy in bulk for nonprofits. She suggested a third party – such as the state – should mitigate the potential conflicts by soliciting wind power bids on Eversource’s behalf.
Pretyman, the Eversource spokeswoman, said state and company policies would ensure “transparency and fairness” in the bidding process.
Bay State Wind could face at least two competitors in the bidding for contracts with Massachusetts utilities. Deepwater Wind and OffshoreMW also have lease rights to offshore areas south of Massachusetts. Deepwater Wind this week became the first company to produce offshore wind in the United States, when its five-turbine farm blew to life off Block Island in Rhode Island.
Deepwater Wind chief executive Jeff Grybowski said he expects Eversource would “deal fairly” with Bay State Wind competitors during the bidding process. He said he considers Eversource’s investment as a positive step for the industry.
“It’s a strong sign that offshore wind is about to become a reality in the United States,” he said. “We have big, established utilities getting involved in the business.”
OffshoreMW could not be reached for comment.
Eversource, when it was still known as Northeast Utilities, had previously agreed to buy wind power from the controversial Cape Wind project. It pulled out of the agreement in early 2015 after the project missed a deadline to secure financing and begin construction, a massive setback for a project whose future is now bleak.