Avangrid and a joint venture of Shell New Energies, EDP Renewables and Engie have been arguing that recent economic conditions have made the 20-year PPAs, held with the utilities Eversource, National Grid and Unitil, too low for the projects’ financial viability.
In mid-December Avangrid asked Massachusetts’ Department of Public Utilities (DPU) to abandon the PPAs for the 1232MW Commonwealth Wind Commonwealth Wind (1232MW) OffshoreMassachusetts, USA, North America Click to see full details project so that it could rebid the project in a state tender in the spring.
And in late December, Shell, EDP and Engie asked the DPU to delay reviewing the PPAs for the 1200MW SouthCoast Wind 1 (formerly Mayflower Wind) SouthCoast Wind 1 (formerly Mayflower Wind) (1200MW) Offshoreoff Martha's Vineyard, Massachusetts, USA, North America Click to see full details project.
But the DPU, in a ruling on December 30, said the contracts are “in the public interest.” State law does not require that the PPAs guarantee financing, according to the DPU, and the projects are viable and would be completed in a commercially reasonable timeframe.
An Avangrid spokesman said the company is “disappointed” and “continues to review the Department’s decision while assessing its legal options.
He added: “Avangrid has been clear and transparent, in evidence submitted to the Department, that because of the aggregate impact of unprecedented global economic headwinds, including historic inflation, sharp increases in interest rates, and supply chain bottlenecks, the current Power Purchase Agreements do not allow the company to secure the significant financing needed to construct this critical project, and thus the project cannot proceed under these contracts.”
Mayflower’s developers expect to have a public statement soon. In asking for a delay, the joint venture had cited “global economic conditions, including unexpected and significant commodity price increases and supply shortages, that have materially increased the expected cost of financing and constructing the project”.
The joint venture continued: “These unprecedented global economic conditions could not have been reasonably foreseen by Mayflower Wind (or, for that matter, any other party to these proceedings), and impose significant economic hardship on the Mayflower Wind Project.
The developers have said, however, that they are continuing to develop the project.
Commonwealth has PPAs at a combined price for energy and renewable energy certificates beginning at $47.68/MWh on a nominal levelised basis, escalating at 2.5% a year for 20 years to $76.22. Mayflower has a fixed rate of $76.73/MWh.
Commenting on Mayflower’s higher rate, Shashi Barla, head of renewables research at the Brinckmann Group, said: “Considering the price increases, it may be challenging to make a decent [internal rate of return] on this project, which is expected to be operational by 2025.”
Numerous offshore wind projects undergoing US regulatory review are subject to the same financial pressures. “I expect that other offshore project developers would also request to renegotiate the PPA prices in the wake of inflation,” said Barla.