Massachusetts mulls inflation protection for 3.6GW offshore wind tender

East coast state is proposing indexing for offshore wind tender pricing to account for inflation and other soaring costs, a move that wind giants have been seeking for months.

Massachusetts is expected to issue guidelines this summer on the forms of index pricing developers can include in bids (pic credit: ReDunnLev/Getty Images)

On 2 May, Massachusetts unveiled a draft request for proposals (RfP) for 3.6GW in its fourth offshore wind solicitation to date. This would be the largest procurement for offshore wind energy generation in New England. Individual projects can be 400MW-2.4GW in size.

Bidders can submit two sets of pricing – one with a standard pricing, and an alternative proposal with indexed pricing.

The state has not yet decided what form of indexed pricing can be suggested and is expected to issue guidelines this summer. There are many ways of calculating indexing.

“This draft RfP is a signal to the rest of the world that Massachusetts is all-in on offshore wind and ready to be the industry’s hub,” said governor Maura Healey. “Our proposal is also a commitment to Massachusetts ratepayers to chase after all clean energy for our homes and businesses.” 

The issue of rising costs has been under discussion in Massachusetts for some time, with offshore wind leaders such as Ørsted, Avangrid, GE, Vestas and Siemens Gamesa calling for inflation protection earlier this year. New York, for example used an index in its 2022 tender.

In Massachusetts, a final RfP is expected to be issued next month. Bids must be received by 31 January 2024. The 3.6GW to be awarded represents 25% of Massachusetts’ annual electricity demand, said the Massachusetts Department of Energy Resources (DOER).  

The state awarded 3.2GW of offshore wind across three previous tenders and has a legally mandated requirement to procure 5.6GW of offshore wind by mid-2027.

Wider issue

Inflation in offshore wind costs has been a high-profile issue in Massachusetts and elsewhere.

Last year, Iberdrola-owned developer Avangrid had objected that its 1232MW Commonwealth Wind offshore wind project, selected in the third solicitation for a site off Massachusetts, had become “uneconomic” due to macroeconomic factors that were outside its control.  Avangrid formally asked to have its power purchase agreements (PPA) with three local utilities revoked.

The request was declined, and the wind company has since sued regulators so that it can exit the PPAs. 

The owners of the 1200MW SouthCoast Wind 1 (formerly Mayflower Wind) have also said their project was facing harsh difficulties because of inflation. But they have taken no formal action to change the PPAs.

Europe has seen disputes over rising costs as well. Ørsted has said that the £8-billion (€9 billion) 2852MW Hornsea Project Three , currently the world’s largest offshore wind project, is at risk of being cancelled because of inflation and supply chain costs unless the UK government takes action.

In Massachusetts, Avangrid has said it would like to rebid its Commonwealth project in this upcoming fourth round. There is nothing in the draft RfP that would prohibit Avangrid from resubmitting its project.

But importantly, a bidder can be awarded 15 points, out of a 100 total, for “experience and project viability” for both quantitative and qualitative criteria, including for projects that did not proceed. A submitted project can be awarded negative points for the same criteria.

In addition, the RfP will account for the potential for savings resulting from federal tax credits. The draft tender requires details on how the bids would use applicable support  such as the investment tax credit typically used by offshore wind projects and allows for flexibility in its schedule if Internal Revenue Service programme guidance on the Inflation Reduction Act is announced late in the bid preparation timeline.