US renewable energy developer Avangrid escalated its high stakes dispute with the state of Massachusetts by filing a notice of appeal to pull out of offtake contracts for its gigascale Commonwealth Wind on the grounds the project has become “unfinanceable”.
Avangrid, which is owned by Spanish utility Iberdrola, said in its notice that the Department of Public Utilities (DPU), the state utilities regulator, had ignored evidence that the power purchase agreements (PPAs) approved late last year for the 1.2GW mega-project were no longer viable due to dramatic shifts since in the global economy.
“Because of the aggregate impact of unprecedented global economic headwinds, including historic inflation, sharp increases in interest rates, and supply chain bottlenecks, the current PPAs do not allow the company to secure the significant financing needed to construct this critical project,” said Avangrid spokesperson Craig Gilvarg.
The notice will be followed by a formal appeal with the Supreme Judicial Court of Suffolk County, Massachusetts, seeking to vacate the PPAs and have their capacity included in the state’s Round 4 tender slated for this year.
This is the latest salvo in a long running battle between Massachusetts and both its Round 3 developers – Avangrid and Mayflower Wind, a joint venture (JV) between Shell and Ocean Winds – over offtake contracts.
Avangrid’s Commonwealth Wind project was selected in the state’s third tender with a bid of $72/MWh, while Mayflower Wind won 405MW of capacity with a $75/MWh offer. Both developers claim that the contracts are no longer economically workable, but Mayflower has stopped short of backing Avangrid’s call to scotch the original PPA.
“Mayflower Wind is in receipt of the Commonwealth Wind petition and is assessing the implications to the DPU order and in particular our contracts with the utilities,” said Dan Hubbard, director of external affairs for Mayflower Wind.
The fall-out in Massuchussets between the state and offshore wind developers highlights broader cost concerns in the US sector as surging inflation and interest rates and persistent global supply chain disruptions continue to heavily impact project economics.
Rising costs across the board in US
Danish developer Orsted disclosed last week that it had devalued its 920MW Sunrise Wind farm off Long Island, New York by $366m as costs for the project, owned in a JV with New England utility Eversource, “increased substantially since [the project was] bid”.
Sunrise Wind, said Orsted, “has experienced further acute cost increases, specifically driven by the prices for installation vessels and the associated services”, with Orsted CEO Mads Nipper underlining during a press conference Friday that the project’s offtake contract was agreed “several years ago when there was a totally different expectation for the market outlook”.
Sunrise was awarded a 25-year offshore wind renewable energy credit (OREC) contract with the New York State Energy Development Research and Development Authority (Nyserda) in 2019 for $80.64/MWh.
Cost concerns are likewise raised for Avangrid’s 800MW Park City Wind project to Connecticut, while Orsted recently bought out its Ocean Wind 1 minority shareholder, New Jersey utility PSEG, with the utility flagging rising costs.
Josh Kaplowitz, head of trade group American Clean Power Association’s offshore wind unit, said: “Offshore wind as a new a new industry is not immune to the impacts of global economic trends and certainly rising prices worldwide have had an impact.
“[But] once these projects are built, they're going to be a buffer against price fluctuations in the cost of fossil fuels,” he added.
Wood Mackenzie senior wind analyst Samantha Woodworth told Recharge that she expects, “inflation and other cost considerations will start being included in bid prices, or perhaps there will be added contract language that would allow PPA renegotiation or re-bidding of a project for this kind of force majeure”.
Nyserda and its counterpart in New Jersey, the Board of Public Utilities, both propose inflation adjustment mechanisms included in their round three tenders slated for this year, while Massachusetts scrapped price caps on future auctions.
Rising costs and other economic risks are also fuelling calls for permitting reform.
Offshore wind projects take between eight and ten years to move through the state and federal process, resulting in long gaps between when PPAs are issued and permits approved.
“The longer that gap, the more likely that some unanticipated event is going to happen that could impact the economics of a project,” said Kaplowitz. “If we can get the permitting process to be to be more efficient and predictable, we can reduce those uncertainties.”