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The plan for the state’s next and possibly largest offshore wind contract is now under Department of Public Utilities review and the regulators there have to decide whether to require bidders to commit to selling the clean energy they generate at a potentially lower price depending on what happens with the pricing of a project already in the pipeline.
The state’s next offshore wind request for proposals was submitted to DPU for review and approval Wednesday, an early step towards the procurement of up to 1,600 megawatts of offshore wind power with the goal of executing a final contract by the spring of 2022.
The RFP includes a handful of significant changes, like pursuing a larger chunk of clean power than previous rounds and putting an emphasis on environmental justice, workforce diversity, and industry equity and inclusion.
It also includes a requirement that the next contract be more favorable to Massachusetts ratepayers than the last offshore wind contract and a new National Grid proposal to have DPU lower the maximum allowed price of the power by about 10 percent.
That would be in line with the price drop that the Mayflower Wind project, which is under contract to deliver clean power to Massachusetts, said it could deliver and could have a big impact on the price that Massachusetts residents and businesses eventually pay for offshore wind power.
“In a positive development, the [federal] legislation that was enacted into law at the end of 2020 increased the tax credit available for offshore wind projects from 12 percent to 30 percent,” Department of Energy Resources Commissioner Patrick Woodcock said this week.
Because of the new Investment Tax Credit (ITC) level – and a provision included in Mayflower Wind’s contracts that requires it to reduce its prices if it qualifies for a greater tax credit – Mayflower Wind said the electricity its turbines generate could cost $70.26 per megawatt-hour, a drop of nearly 10 percent from the $77.76 per MWh price that was approved by DPU and previously announced.
$77.76 or $70.26?
Massachusetts has an offshore wind price cap, put in place by a 2016 energy law, that restricts the price of power from new procurements to no higher than the price of the previous contract.
Officials said there was a difference of opinion among some of the involved parties when it came to interpreting that statute. Some believe the price cap should be set at the $77.76 per MWh price that DPU approved and others, most notably National Grid, favor the lower $70.26 per MWh price cap.
“It is the interpretation, legally, of the Department of Energy Resources, that the $77 is the appropriate price cap,” Woodcock said. “But ultimately, with a review of this RFP, the Department of Public Utilities will need to make a determination and impose one price cap for this RFP.”
National Grid proposed that DPU set the price cap at $77.76 per MWh unless Mayflower Wind goes into service, qualifies for the 30 percent ITC and lowers its price to $70.26 per MWh. If that happens, National Grid proposed that the price cap be lowered to $70.26 per MWh.
But Mayflower Wind won’t be in service until late 2025, well after the next offshore wind project will be chosen and into the permitting process. So National Grid proposed that any developer that submits a bid with a price between $70.26 and $77.76 per MWh “must also include an additional nominal levelized price … that is less than $70.26 per MWh, and commit to that additional price as the Price per MWh.”
The National Grid proposal attracted a good deal of attention when the draft RFP was put out for public comment last month. Associated Industries of Massachusetts, whose member businesses are all commercial and industrial energy customers, seemed to support the proposal without directly mentioning it.
“Pricing of course, remains one of the success stories of the offshore wind solicitation process. AIM supported the original requirement that all solicitations not only be cost-effective but competitively bid. This requirement alone has resulted in savings to ratepayers of hundreds of millions of dollars and proved that competition can work,” Robert Rio, senior vice president and counsel at AIM, wrote in his organization’s comments. He added, “And things could be even better, as the price to beat requirement does not include the likelihood of lower prices due to changes to the federal Offshore Wind Energy Investment Tax Credit.”
Other groups, particularly some of the offshore wind developers that could bid on the state’s next solicitation, said they opposed what they see as an unworkable proposal that could threaten the success of the state’s solicitation.
“It is an absolute requirement that the Price Cap be fixed and not subject to post-award adjustments if the 83C-III solicitation is to be successful. Further, project pricing cannot be adjusted on a standalone basis in light of a single factor, which, in this case, is the qualification of another project for the ITC,” Vineyard Wind wrote in its comments. “The competitive offshore wind market has successfully delivered attractive pricing to Massachusetts ratepayers in the previous two Section 83C solicitations because bidding conditions, including the Price Cap, were clear and certain.”
Bay State Wind, a joint venture between Orsted and Eversource, said the National Grid proposal “will only serve to complicate and undermine this RFP” and urged that it be removed from the final RFP.
“The Alternative Price Cap structure would give bidders no protection against the risk of their own inability to qualify for a particular tax-credit regime, instead simply tying their fates to Mayflower’s,” Bay State Wind wrote in its feedback. “Furthermore, the Alternative Price Cap structure would require developers to carry this unhedgeable risk years into the future (until Mayflower’s actual ITC qualification is known). This will likely create project execution issues and drive up costs and risks, as prudent developers must make provisions for the uncertainty introduced (e.g., in securing financing or even tax equity itself).”
RENEW Northeast, a non-profit that works to bring the renewable energy industry and environmental advocates together, pointed out that developers are going to submit bids with their lowest possible prices given how intense the competition for the project could be.
“If a bidder can offer a profitable bid below $70.26 that is what it will do. If it cannot, mandating it will not produce a bid below that level,” RENEW Executive Director Francis Pullaro wrote.
Since a 2016 clean energy law kicked off the state’s foray into the offshore wind world, Massachusetts utilities have contracted for a total of about 1,600 MW between two projects, Vineyard Wind I and Mayflower Wind.
The latest RFP is looking for “at least 400 MW and up to 1600 MW of offshore wind energy generation” but the evaluation team will consider bids that propose as little as 200 MW of generation.
The timeframe for the next procurement, which is subject to Department of Public Utilities approval, calls for bids to be submitted in September, project selection in December and execution of a long-term contract by the end of March 2022. The contracts with the utility companies would be submitted to DPU for approval by April 27, 2022.
The state’s expanding appetite for offshore wind likely means more turbines buried in the seafloor in the deep waters south of Martha’s Vineyard and Nantucket where 62 turbines are envisioned for the Vineyard Wind I project and where an undisclosed number of turbines will power the Mayflower Wind development. Pending permitting approvals, the industry plans to eventually line up wind farms in a series of federal lease areas there.
So far, Massachusetts lawmakers have authorized the procurement of a total of 3,200 MW of offshore wind power and the forthcoming procurement of 1,600 MW would fulfill those orders.
The climate policy bill that Gov. Charlie Baker returned to the Legislature with amendments last month – which the Senate is expected to debate Monday – would require that the executive branch direct Massachusetts utilities to buy an additional 2,400 MW of offshore wind power once the initial 3,200 MW have been secured.
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