US offshore: New York holds firm on PPA prices

• New York has rejected calls from renewables firms to raise PPA prices
• This includes four offshore wind projects with total capacity of 4.2GW
• PPA-related uncertainty is now affecting 8GW of US offshore projects

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Next month, A Word About Wind’s parent firm Tamarindo is set to hold the Financing Wind Offshore conference in Boston. This is set to provide an opportunity for experts in the US offshore wind industry to discuss the opportunities and risks in the sector.

Much of the discussion this year has focused on risks: rows about power purchase agreements, whale death conspiracy theories, undersubscribed tenders, and even objections from the military. We discussed some of these in this analysis last month.

However, regulators have been unsympathetic to these rising costs.

On 12th October, the New York Public Service Commission rejected pleas from the developers of four offshore wind farms – BP, Equinor, Eversource and Ørsted – and 86 onshore renewables schemes for higher subsidies. The offshore developers have argued that PPAs awarded at the projects between 2019 and 2021 no longer make financial sense because of inflation, rising interest rates and supply chain disruption. The quartet have argued for average price rises in their power purchase agreements (PPAs) of 50%.

The four projects are BP and Equinor’s 816MW Empire Wind 1, 1.3GW Empire Wind 2, and 1.2GW Beacon Wind; and Ørsted and Eversource’s 880MW Sunrise Wind.

The commission rejected pleas for higher PPAs at the projects because it said that raising the rates would not be in the best interests of the state’s energy users. It said that amending the PPAs for all 90 projects would raise energy bills for households by 6.7%, and for commercial and industrial users by around 10.5%.

Rory Christian, chair of the New York Public Service Commission, said raising these PPA prices after the competitive bidding process was impossible. He argued: “The Commission has repeatedly stated that competition in the procurement process is necessary to protect ratepayers and provides the soundest approach to mobilise the industry to achieve our critical State goals dependably and cost-effectively.”

We sympathise with his position. Regulators don’t want to create a precedent where they unilaterally change the level of financial support in a tender after the process is closed. Doing so would undermine the integrity of past and future tender rounds.

The problem is that this leaves the developers facing tough decisions. Do they try to find ways to re-work the projects in light of the new commercial realities? Ideally yes, but we would assume that they have already done this. They now face the choice to cancel PPAs and bid again; put their projects on hold; or walk away entirely.

Cancelling PPAs

The preferred solution for US offshore wind developers in a similar predicament has been to cancel the PPAs and re-submit. 

This month, Iberdrola subsidiary Avangrid agreed with several Connecticut utilities to end the long-term PPAs at the 804MW Park City Wind project off the Massachusetts coast. It plans to bid again for PPAs for the project. The company has taken a similar approach at its 1.2GW Commonwealth Wind scheme, where it ended PPAs in July.

This appears to be the cleanest approach, but it is an inherently risky one too. There is no guarantee that these projects would win a tender for a second time, particularly when faced with competition from other developers in a similar situation.

Shell and Ocean Winds are also reportedly in discussions to end PPAs at the 2.4GW SouthCoast Wind project off the coast of Massachusetts; and Shell and EDF have said their 1.5GW Atlantic Shores 1 project is at risk without additional financial help.

These cancellations are not solely being led by offshore wind developers either. In August, utility Rhode Island Energy pulled out of a PPA at the 884MW Revolution Wind 2 project off the coast of Rhode Island and Connecticut as it was too costly. This leaves the 704MW Revolution Wind 1, which has PPAs from 2018 and 2019.

This means there are 8GW of offshore wind projects in US waters where developers are asking for help, and where we don’t yet see a resolution. Those with better news are 1.1GW Ocean Wind 1, which has been in question but where developer Ørsted has just given a $100m guarantee that the project will be online by December 2025; and the 2.6GW Coastal Virginia, which Dominion Energy said it on budget and due to be fully commissioned in 2026.

Overall, though, the US offshore wind industry is in a more perilous position than at any time since around 2015. The project pipeline is far bigger and projects are more advanced than back then, but developers need the confidence to take them to financial close. Otherwise, pioneering developments such as the 800MW Vineyard Wind 1, where turbine installation started this month, will look very lonely.

In New York, there is a sign of hope though. The New York State Energy Research & Development Authority has indicated it may hold an extra 4GW offshore wind tender so it can award support at higher levels for projects at risk of cancellation. It shows that NYSERDA is braced for project cancellations – although the fact that it is set to hold another tender with more lucrative PPAs will make cancellations more likely.

That renewed state commitment to offshore wind should give firms a sliver of hope.