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Review of NYSERDA Request for Proposals for Purchase of Offshore Wind Renewable Energy Certificates

Last week, NYSERDA issued a draft Request for Proposals (RFP) to solicit 200 MW to 800 MW of offshore wind with proposals due in the Winter 2019. The draft RFP is in response to New York State’s Offshore Wind Master Plan that encourages the development of 2,400 MW of offshore wind by 2030.  The offshore wind projects will be procured in two phases to reach the 2,400 MW goal. Phase 1 entails procuring Offshore Wind Renewable Energy Certificates (ORECs) associated with approximately 800 MW of offshore wind. The New York Public Service Commission Offshore Wind Order authorizing NYSERDA to undertake this procurement further permits NYSERDA to award more than 800 MW in this first round of the Phase 1 solicitation if sufficient attractive offers are received.  The Phase 2 procurement will build on Phase 1 framework and seek to procure the remaining offshore wind energy to reach the 2,400 MW goal.

NYSERDA is employing a scoring system that considers price and non-price factors, with each project scored according to a 100-point scale based on three criteria:

  1. Project Viability: 10 points – Non-Price Evaluation
  2. New York Economic Benefits: 20 points – Non-Price Evaluation
  3. Offer Strike Prices: 70 points – Price Evaluation

The non-price evaluation components will be evaluated by a scoring committee.  Project viability will be assessed in terms of whether the proposed project can reasonably be expected to be in service on or before the proposed Commercial Operation Date. To maximize the score received, proposers must demonstrate that project development plans are mature, and technically and logistically feasible, that they have sufficient experience, expertise, and financial resources to execute the development plans in a commercially reasonable and timely manner.  New York Economic Benefits will be measured in terms of three considerations: (1) project-specific spending and job creation in New York State; (2) investment in offshore wind-related supply chain and infrastructure development in New York State; and (3) activities that provide opportunities for the New York offshore wind supply chain, workforce, and research and development.

Offer strike prices will be assessed in terms of a: (1) an index OREC price and; (2) a fixed OREC price. The index OREC price will vary monthly based on the value of Index OREC Strike Price specified minus the monthly Reference Energy Price and the monthly Reference Capacity Price. The fixed OREC price is based on the fixed price specified by the proposer.  In essence, the index OREC price is a contract for difference that considers relevant energy and capacity prices. The index OREC price will be given a weight of 0.9 and the fixed OREC price a weight of 0.1 to establish the weighted strike price for each proposal.   Either OREC strike price option can be chosen at NYSERDA’s discretion. NYSERDA’s decision will be based upon its projection of the relative costs of the Fixed ORECs and Index ORECs over the life of the contract compared to the relative price risks of the Fixed ORECs and Index ORECs over the life of the contract.

If the fixed OREC price option is chosen, the OREC price will remain for the entirety of the contact length. If the index OREC is chosen, the OREC will remain for the entirety of the contract unless the Index OREC price is invalidated.

This draft RFP will be open to public comment until Friday, October 5th, 2018. Subsequently, NYSERDA will review the public comments; refine the draft RFP; and publish a final RFP in Q4 of 2018.

A PDF version of this update is available here.

Review of NYSERDA’s 2018 Renewable Energy Standard RFP

On April 25, New York Governor Andrew Cuomo announced the second Request for Proposals (RFP) for large renewable generation projects under the Renewable Energy Standard (RES), a component of the Clean Energy Standard (CES). The solicitation will be conducted by the New York State Energy Research and Development Authority (NYSERDA). The RFP is for approximately 1.5 million MWh of Tier 1 Renewable Energy Certificates (RECs) per year. The CES was adopted in 2016 and calls for 50% of the state’s electricity to be generated by renewable energy resources by 2030 (also known as the “50 by 30” goal).

A few new provisions were added in this solicitation that were not included in the first solicitation in 2017. NYSERDA will favor renewable energy projects that avoid overlap with prime agricultural land. In addition, the state is encouraging proposals that consist of renewable energy pairing with energy storage and supports Governor Cuomo’s commitment to deploy 1,500 MW of energy storage by 2025.[1] The RFP provides for an in-service date prior to November 30, 2022.

The RES is the state’s main way of achieving the CES goal. Under the RES, all Load Serving Entities in the state must procure new renewable resources (called Tier 1 resources) annually as increasing percentages of their total load. The compliance mechanism is the procurement of RECs. The RES requires NYSERDA to conduct regularly scheduled solicitations for the long-term procurement of RECs. These are called RES RFPs. The first of which took place in 2017, in which approximately 3,200,000 MWh of generation was procured. For this second solicitation, eligible technology types are: biogas, biomass, liquid biofuel, fuel cells, hydroelectric, tidal/ocean, solar, and wind. If the project’s first commercial operation date is on or after January 1, 2015, it is eligible for this solicitation. However, older projects may be eligible if they have undergone significant upgrades after 2015 or if an otherwise eligible unit is returned to service after 48 consecutive months of being out of commercial operation. Imports from control areas that are adjacent to the New York Independent System Operator (NYISO) can be eligible Tier 1 resources.

The solicitation process consists of three steps. Step One is the Resource Eligibility Determination in which NYSERDA confirms that the bid facility meets the Tier 1 resource general eligibility requirements. If the bid facility is deemed eligible, it then must submit Step Two – Application for Qualification. In Step Two, NYSERDA will evaluate the application package to ensure that the bid facility meets or exceeds a minimum threshold in each of five Minimum Threshold Qualification categories. These categories are: site control, interconnection, permitting, project development, and resource assessment. Bid facilities that meet the minimum Threshold Qualifications will move on to Step 3 – the Bid Proposal where proposals will be evaluated and scored based on: (1) the Bid Price, which will be weighted at 70% of the overall score, and (2) non-price factors.  The non-price factors will have a combined weight equaling 30% of the overall score allocated in terms of: (1) 10% Incremental Economic Benefits to New York State; (2) 10% Project Viability beyond the Minimum Thresholds; and (3) 10% Operational Flexibility and Peak Coincidence.

The solicitation timeline is outlined below:

Table 1: Solicitation TimetableSource: NYSERDA

Since this is a REC-only procurement, renewable project developers will have to manage energy price risks. The following figure illustrates the average levelized future prices per zone for 2019-2027:

Figure 1: NYISO Levelized Futures Prices from 2019-2027

Source: SNL, Power Advisory

As shown in Figure 1, the lowest energy prices can be expected in Zones E and D. Project developers will have to strategically determine the best location to site their project to receive higher energy prices.

[1] 10% of the points in the final stage of the evaluation will be allocated based on operational flexibility and peak coincidence.

A PDF version of this report is available here.

Review of Possible Massachusetts Clean Peak Standard

Last week, Massachusetts Governor Baker submitted legislation to the Massachusetts Senate and House, “An Act Promoting Climate Change Adaptation, Environmental and Natural Resource Protection, and Investment in Recreational Assets and Opportunity”, as a key part of the administration’s Climate Change strategy.  The Legislation included $1.4 billion in capital authorizations for climate adaption and resilience.  Of particular relevance to New England’s electricity sector was a Clean Peak Standard that would require the Department of Energy Resources to establish a standard that requires “all retail electricity suppliers to provide a minimum percentage of kilowatt-hour sales to end-use customers in the commonwealth from clean peak energy resources.”

A Clean Peak Standard was first proposed by Arizona’s Residential Utility Consumer Office to ensure that a certain percentage of energy delivered to customers during peak load hours is delivered from clean energy resources.  Such a standard can help ensure that the environmental objectives of a renewable portfolio standard (RPS) are promoted and not frustrated by a significant reliance on fossil fuel generating resources during peak load hours.  RPS promote resources that provide the lowest cost energy, but with wind and solar providing the vast majority of such energy they can lead to an oversupply of energy in some periods (as reflected by negative market prices) and increases in the requirements for more flexible dispatchable resources in other periods.  This is illustrated by the Duck Curve, which reflects the significant increase in ramping capability that is required as result of the increased penetration of solar energy resources.  Figure 1 below shows California’s Duck Curve and the dramatic increase in the requirements for fast-responding resources, a significant proportion of which is likely to be natural gas-fired, from 4 to 7pm.

Figure 1: Net Load in California after Variable Resources: the “Duck Curve”

Source: CAISO (https://www.bloomberg.com/news/articles/2015-10-21/california-s-duck-curve-is-about-to-jolt-the-electricity-grid)

The Clean Peak Standard would require that a portion of qualifying electricity production be produced during the designated peak period to limit the need for natural gas-fired generating units that are commonly called upon to provide such a ramping capability.  Specifically, to qualify under the conditions reflected in Figure 1 generating resources would need to produce energy from 4 to 7pm and utilize a clean energy resource to produce this energy.  The filed legislation defines eligible resources as Class I renewable energy resources (which presumably would have to be dispatchable or schedulable), energy storage resources (which presumably would be charged with clean energy), or demand response resources.

With an objective to incent the development of new resources, rather than to increase the compensation realized by existing resources, there is likely to be a requirement that these be new resources.  This presents special challenges to demand response resources where it is more difficult to ensure that the resource is in fact incremental and not an existing resource seeking to secure higher revenues from a higher value market.  Similarly, energy storage resources presumably will need to demonstrate that the energy used for charging is “clean” and incremental.

The legislation calls for the Clean Peak Period to be when “electrical consumption results in a significant increase in greenhouse gas emissions, or an increase in electrical prices or transmission and distribution costs to end-use electricity customers” and be no more than 10% of the hours in the year.

Power Advisory would welcome the opportunity to assist clients in assessing opportunities created by the Clean Peak Standard regulation.

John Dalton, President, Power Advisory LLC

A PDF version of this report is available here.

Funding Opportunity: NRCan Emerging Renewable Power Program

On January 18, Canada’s Minister of Natural Resources, Jim Carr, announced the launch of an expression of interest for the Emerging Renewable Power Program (ERPP). The program was created to expand the portfolio of commercially viable renewable power technologies available in Canada, deploy demonstrated technologies at the utility scale, and achieve further electricity sector greenhouse gas emission reductions.

ERPP’s anticipated C$200 million in funding is part of the investment goal of C$21.9 billion that the federal government plans to roll out over the next 11 years under the Pan-Canadian Framework on Clean Growth and Climate Change. The collaborative plan was officially adopted in December 2016 by all provinces and territories, except for Saskatchewan and Manitoba, and targets a GHG emission level of 523 metric tons by 2030 (a 30% reduction from 2005 levels).


Source: Pan-Canadian Framework on Clean Growth and Climate Change, 2016

The funding opportunity is available to renewable power technology projects that satisfy the following eligibility requirements:

  • Meet the definition of an emerging renewable energy technology
  • Produce electricity for sale or use in Canada
  • Renewable power technologies established commercially, but have yet to be established in Canada; or
  • Renewable power technologies available in Canada, but have yet to be implemented on a utility scale
  • Minimum Capacity:
    • 4 MW for geothermal, offshore wind, tidal, and concentrated solar projects
    • 1 MW for emerging technologies, such as next-generation biomass, river current, other marine resources and new solar technologies
  • Help meet the commitments made under the Pan-Canadian Framework on Climate Change

Strategic environmental assessments for energy planning purposes may also be submitted to this program. Projects that are able to commission during the funding period of April 1, 2018 to March 31, 2023 will be given priority. A per project funding limit of $50 million for up to 50% of eligible project expenditures is established in the Expression of Interest. However, greater than $50 million may be available with approval from the Treasury Board, such as for offshore wind which is likely to require more than the limit due to project size.

Expression of Interest (Due Feb. 11, 2018)

An expression of interest is now open but is not a prerequisite to participate in the forthcoming Request for Proposals. NRCan plans to use the expressions of interest to more accurately determine the level of funding that will be made available and the number of projects that can be expected to be funded.

Interested parties can receive the application package by submitting an email with company name, project name, and contact information. For your convenience we have made a copy of the EOI Applicant Guide and form on our website. The application requests details regarding applicant entity, general project information, and costs. The expression of interest application should be returned in Excel format along with a PDF of the signatory page by February 11, 2018, 11:59 pm EST.

Request for Proposals (Due Q3/Q4 2018)

Following the closure of the EOI process, the program will launch a Request for Proposals. Applicants will have approximately two months to complete the proposal template, which will be made available in the coming months. Our expectation is that the RFP could be released as soon as Q2 or Q3 2018.

Power Advisory would welcome the opportunity to support responses to the Emerging Renewable Power Program and to assess opportunities for emerging power technologies across North America’s electricity markets.

John Dalton, President, Carson Robers, Consultant and Caitlin Laber, Researcher, Power Advisory LLC

A PDF version of this report is available here.

Federal Lease Opportunity: BOEM Atlantic Wind Lease Sale 4A (ATLW-4A)

A competitive leasing process has been initiated by the Bureau of Ocean Energy Management (BOEM) for the previously unleased Massachusetts commercial lease areas, OCS-A 0502 and OCS-A 0503, in response to two unsolicited lease requests by Statoil Wind US LLC (December 16, 2016) and PNE Wind USA, Inc. (January 4, 2017). This lease sale follows the first offshore wind lease area auction for Massachusetts in 2014/15 (ATLW-4) and will be identified as Atlantic Wind Lease Sale 4A (ATLW-4A) in the Federal Register (These lease areas (0502 and 0503) are shown along with the existing lease areas and the parties that hold them in the figure below). The target is to hold the competitive auction near the end of September 2018 (See Figure 2 below).

Figure 1: Rhode Island and Massachusetts OSW Lease Areas

Given the policy support for offshore wind in Massachusetts, Connecticut and New York it is expected that the upcoming lease sale will be highly competitive. In ATLW-4 only Offshore MW LLC and RES Developments Inc. offered bids – the auction lasted two rounds and resulted in prices of $1-2 per acre. Bay State Wind (Ørsted and Eversource Energy) acquired OCS-A 0500 from RES and Offshore MW is now Vineyard Wind (Avangrid Renewables and Copenhagen Infrastructure Partners). For those who are not incumbent lease holders but interested in entering the Northeast offshore wind market and participating in procurements such as subsequent tranches of the Massachusetts 83C solicitation, this is the most immediate opportunity.  Additional lease areas offshore New York will also be made available, as new potential Wind Energy Areas (WEAs) are under consideration as of late 2017.

Figure 2: Indicative ATLW-4A Timeline

The timing of the competitive leasing process was estimated by Power Advisory based on the average of the previous seven OSW lease sales, BOEM’s regulations, and professional opinion. See our October report on the Massachusetts offshore wind lease opportunity for more information on the auction format and points to consider when evaluating participation.

John Dalton, President and Carson Robers, Consultant, Power Advisory LLC

A PDF copy of the report is available here.

Power Advisory would welcome the opportunity to help clients assess the opportunity presented by upcoming BOEM lease sales and to support North American offshore wind development activities.  

Review of New York State Clean Energy Proposals

To: Clients and Colleagues
From: John Dalton, President & Margaret Blagbrough, Consultant, Power Advisory LLC

On January 2, New York Governor Andrew Cuomo unveiled sweeping clean energy proposals touching every aspect of the renewable energy sector. The main purpose of these proposals is to allow the state to fight climate change and protect the environment, while also creating jobs in the renewable energy sector. The set of proposals, titled the 2018 Clean Energy Jobs and Climate Agenda, is in addition to ambitious clean energy goals already mandated in the state, including the mandate to generate 50 percent of the state’s electricity from renewable energy sources by 2030.

A major piece of this agenda focuses on energy storage. Governor Cuomo plans to add 1,500 megawatts of energy storage by 2020, the largest commitment of this type per capita by any state. In order to achieve this goal, the Governor is proposing a commitment of $200 million from the NY Green Bank for energy storage investments. Additionally, he is directing the New York State Energy and Research Development Authority (NYSERDA) to invest $60 million through storage pilots to reduce barriers for deploying energy storage. This will pave the way for utility procurements of energy storage in 2018. Additionally, energy storage will be incorporated into the criteria for future large scale renewable procurements.

The Governor is also calling for a procurement of at least 800 megawatts of offshore wind generation between two solicitations issued in 2018 and 2019. These will be the first procurements in a set of staggered procurements to reach the state target of 2.4 gigawatts of offshore wind by 2030, established last year. Governor Cuomo is directing NYSERDA to invest in job training in the offshore wind industry and to determine the most promising offshore wind port infrastructure investments. In October of 2017, New York State submitted an identified Area of Consideration for new wind lease areas to the Bureau of Ocean Energy Management (BOEM). New York requested that BOEM identify and lease at least four new wind energy areas, each accommodating at least 800 megawatts of offshore wind, within the Area of Consideration.

The Governor also addressed energy efficiency, calling on stakeholders to propose a far-reaching energy efficiency initiative by April 22, 2018, propose a 2025 energy efficiency target, and establish appliance efficiency standards. Other agenda items include: the development of a zero-cost solar program for 10,000 low-income residents; expanding the Regional Greenhouse Gas Initiative (RGGI) to other states and to broaden regulations to include smaller and less efficient peaking plants; and phase out all coal-fired power plants in New York by 2020.

Power Advisory would welcome the opportunity to assist clients in assessing opportunities in the New York renewable energy market.

A PDF version of this report is available here.

Review of Massachusetts Offshore Wind Energy RFP (83C) Proposals

To: Clients and Colleagues
From: John Dalton, President; Margaret Blagbrough, Consultant; Michael Ernst, Executive Advisor; Power Advisory LLC

On December 20, 2017, the Massachusetts investor-owned electric distribution companies (Distribution Companies) in coordination with the Massachusetts Department of Energy Resources (DOER) received three proposals for offshore wind energy generation projects, in response to the RFP they issued for 400 MW (and up to 800 MW) of wind energy under long-term contracts. This procurement is the first in a series of competitive solicitations under the state’s 2016 Act to Promote Energy Diversity mandate for 1,600 MW of offshore wind (OSW) by June 30, 2027. Winners of this first procurement will be announced on April 23, 2018. The bidders who submitted proposals are those that hold existing Bureau of Ocean Energy Management (BOEM) Massachusetts or Massachusetts/Rhode Island offshore leases: Deepwater Wind, Bay State Wind (Ørsted and Eversource Energy), and Vineyard Wind (Avangrid Renewables and Copenhagen Infrastructure Partners). The figure below shows the locations of each of the proponents’ lease areas.

Proposals are required for the target capacity of 400 MW, but additional proposals between 200 MW and 800 MW are allowed and were submitted. Any chosen proposal over 400 MW must be superior and provide significantly more economic benefits to Massachusetts ratepayers. Each proponent must include a proposal for a generator lead line to deliver offshore wind to the corresponding onshore ISO-New England (ISO-NE) Pool Transmission Facilities (PTF). Additionally, proponents must submit a proposal for an expandable transmission network providing nondiscriminatory access for all offshore wind facilities.

Proponents will be evaluated in three stages. In the first stage, proposals will be evaluated to see if they meet eligibility and threshold criteria. Proposals that meet the basic requirements of stage one will be evaluated based on the costs and benefits of the project in stage two. Quantitative evaluation criteria in this stage include direct costs and benefits and other costs and benefits to retail customers. Qualitative evaluation criteria will include: (1) the siting, permitting and project schedule; (2) reliability benefits; (3) benefits, costs, and contract risk; (4) environmental impacts from siting; and (5) economic benefits to the Commonwealth. In the third stage, the Evaluation Team will further evaluate proposals to ensure that they are the most cost-effective solutions for ratepayers and that they will provide reliable renewable energy for the long-term.

Confidential information including pricing has been redacted from the public versions of bids we have reviewed and summarized below.

Bay State Wind

Bay State Wind, the partnership between Ørsted and Eversource, proposed either a 400 MW or 800 MW wind farm 25 miles off of New Bedford, MA. The 400 MW project would be paired with a 30 MW/ 60 MWh battery storage facility, while the 800 MW project would be paired with a 55 MW/110 MWh battery storage facility. Ørsted, formerly DONG Energy, is the world’s largest offshore wind developer. Ørsted has constructed 3.8 GW of offshore wind capacity over the past 25 years and has another 5 GW under construction. Eversource is New England’s largest energy provider and is slated to develop and construct the project’s onshore transmission system.

The project would use New Bedford as the construction area and the base of its operations and maintenance throughout the project’s lifetime. Brayton Point in Somerset, MA will be the grid connection location for the project and the home of the battery storage facility.  The project would result in the development of the first Jones Act compliant installation and transportation vessels.

In their proposal, the company stated that they are the furthest along in the ISO-NE interconnection queue process compared to the other two eligible bidders. Their completed Feasibility Study shows that either of the two projects can interconnect into Brayton Point without any system upgrades. The timeline of the project was not publicly released.

Bay State Wind asserts that the scale of its proposed projects will better allow Massachusetts to become “the hub of the offshore wind industry in Massachusetts” and that Ørsted’s “develop, build, own, and operate” model ensures that it is vested in the long-term success of its wind farms, compared to other developers.

Deepwater Wind

Deepwater Wind proposed either a 200 MW or 400 MW wind farm, called Revolution Wind, with a commercial operation date (COD) in 2023.  Deepwater Wind also appears to have submitted an expandable offer, the details of which were redacted.  It proposed an initial 144 MW phase of the project in response to Massachusetts’ 83D solicitation for 9.45 TWh of clean energy. The state will announce the winners of that RFP on January 25, 2018.

In contrast to Bay State Wind and Vineyard Wind, Deepwater Wind’s value proposition is focused on the economies offered by the gradual and sequenced development of the offshore wind industry from smaller to larger wind farms.  This strategy leverages off existing its existing OSW project and contract to develop another OSW project. Deepwater Wind built the 30 MW Block Island Wind Farm in 2015 and 2016 and has a contract with Long Island Power Authority to build the 90 MW South Fork Wind Farm foundations in 2021 and install the turbines in 2022.  Deepwater Wind proposes to build the Revolution Wind foundations in 2022 and install the turbines in 2023.  We believe that its redacted expandable proposal provides for subsequent phases of the Revolution Wind project to further develop the OSW supply chain.  Deepwater Wind asserts that its approach avoids a “boom-bust cycle.” Presumably, the pricing for the expandable offer reflects projected economies that will be realized from the development of the OSW supply chain.

The proposal includes an agreement with the Northfield Mountain Generating Station, a pumped-storage hydroelectric plant in Northfield, MA.  If the Distribution Companies select this Storage Feature, the facility would store energy generated by the wind farm during off-peak hours and deliver energy to electric utilities during on-peak hours.

Deepwater Wind also partnered with GridAmerica Holdings Inc. (a National Grid subsidiary) to develop the Project interconnection and an offshore transmission network. The network could support up to 1,600 MW of wind energy for Revolution Wind and future wind farms. Revolution Wind would connect to the Brayton Point substation in Somerset, MA (1,000 MW) and to Davisville substation in North Kingstown, RI (600 MW), and will be operated and maintained in New Bedford, MA. The project is set to begin construction in 2022 if approved, and commence operations in 2023. Deepwater Wind is the developer of the Block Island Wind Farm off the coast of Rhode Island, which is the United States’ first commercial offshore wind farm and another GridAmerica affiliate constructed the Block Island Transmission System for the interconnection into Rhode Island.

Vineyard Wind

Vineyard Wind, a joint venture of Avangrid Renewables and Copenhagen Infrastructure Partners, submitted proposals for either a 400 MW or 800 MW wind farm. For the 400 MW project, the generation would be bundled with Vineyard Connector 1, which is an 800 MW expandable transmission project. Vineyard Wind Connector 2 is an optional phase two of the expandable transmission project, which would have another 800 MW of capacity. For their 800 MW project, Vineyard Wind is bundling Vineyard Wind 1 and Vineyard Wind 2, each a combined generation and transmission project with individual capacities of 400 MW. An optional phase would be Vineyard Wind Connector 2, an expandable transmission project, which would have another 800 MW of capacity. The lines would interconnect to Barnstable, MA, and West Barnstable, MA.  Vineyard Wind would use Vineyard Haven, MA as its site for the operations and maintenance port during the life of the project.

The 400 MW project would have a COD of December 2021, which Vineyard Wind claims to be the earliest possible project in Massachusetts given its position as the “most mature and most advanced” large scale wind project as evidenced by its recent December 2017 applications for a federal Construction and Operations Plan with BOEM and with the state Energy Facilities Siting Board. The second 400 MW would be commissioned in 2022.  Vineyard Wind has a Community Benefits Agreement and letters of support from local fishermen and all six towns on Martha’s Vineyard plus Nantucket.

Vineyard Wind would establish a $15 million Massachusetts Offshore Wind Accelerator Program to support upgrade of local ports for staging, support set-up costs for supply chain companies, training local workers and investing in new technologies to protect marine species.  Vineyard Wind would also establish a self-sustaining Resiliency and Affordability Fund that invests in local energy storage facilities.

Avangrid, Inc. owns regulated utilities and renewable energy assets throughout the United States. However, none of these regulated assets are Massachusetts utilities. * Avangrid Renewables, another one of Avangrid’s subsidiaries, recently won BOEM’s competitive lease auction for a wind lease area off the coast of North Carolina. Copenhagen Infrastructure Partners is a fund management company that has developed and invested in large offshore wind projects worldwide.

Power Advisory would welcome the opportunity to assist clients in assessing opportunities in the US offshore wind market, especially the upcoming BOEM Massachusetts and NY lease sale auctions, submission of comments on the 83C RFP, and participation in subsequent solicitations.

A PDF version of the report is available here.

*A previous version of this report incorrectly identified Until as part of Avangrid’s portfolio. Avangrid does not have an ownership stake in Until, nor any other Massachusetts electric utility.

BOEM Massachusetts Offshore Wind Lease Opportunity Review

John Dalton, President & Michael Ernst, Executive Advisor, Power Advisory LLC

The Bureau of Ocean Energy Management (BOEM) has indicated that it will be conducting auctions for two additional lease areas for the Massachusetts Wind Energy Area (WEA) in 2018.  The auction of the two lease areas, an aggregate of 388,569 acres (248,015 and 140,554 acres, respectively) with a maximum development potential of 4,717 MW, is in response to unsolicited lease applications from Statoil Wind US LLC and PNE Wind USA Inc. from December 2016 (See Figure 1 below). These Norwegian and German affiliated developers have announced plans for multiple +400MW projects, but since both expressed interest in the same lease area BOEM must hold a lease auction in which all qualified parties may participate.   Lease Areas OCS-A 0502 and 0503 make up the remaining Massachusetts WEA.

Figure 1: MA and RI Offshore Wind Project Areas

Source: BOEM

The interest in these two additional lease areas is expected to be strong given that lease holders will be able to participate in subsequent rounds of the Massachusetts offshore wind RFPs for 20-year power contracts issued to allow the Commonwealth to realize its legislated objective of 1,600 MW of offshore wind by 2027.[1]  The total area to be leased is over four times the size of the New York lease area. This memo reviews the anticipated form of auction to be employed by BOEM and opportunities for interested parties to begin to prepare to participate successfully in such a process.

Auction Format

BOEM has typically employed a multiple-factor auction format, under which BOEM considers a combination of monetary and nonmonetary factors.  Non-monetary factors are considered by a panel which determines whether the bidder has earned non-monetary credits and the percentage that the credit may be worth.  The previous Auction for North and South Rhode Island and Massachusetts lease areas provided for a credit of up to 25% of a monetary bid for a Power Purchase Agreement or Joint Development Agreement.

The auction is based on ascending bidding, i.e., ascending clock auction, over multiple rounds.  To enhance competition BOEM shares information with bidders on the number of bidders for each Lease Area for each round.  At the start of each round BOEM specifies an asking price for each Lease Area.  A bidder must submit a bid for the full asking price for at least one lease area to participate in the next round of the auction.  A bidder may submit an intra-round bid, which is greater than the last round’s price, but less than the current round.  In essence, the bidder may elect to bid less than the BOEM asking price as a final exit bid.  When there are multiple lease areas activity rules are employed that allow bidders to switch lease areas that they bid on, but require minimum levels of participation.  A bid deposit must cover each bid, and will be deducted from the winning bid price or refunded if the bid is not successful. Bid deposits have been $450,000 for the most recent BOEM lease auctions.[2]

To participate in the auction, the bidder must first be qualified by BOEM and become an eligible bidder.  Qualification requirements focus on legal, technical and financial capability as specified in 30 CFR 585.106 and 585.107.[3]  Eligible bidders must complete a Bidders Financial Form, which provides details of accounts from which funds will be provided and to where refunds will be directed and individuals authorized to bid and submit bid deposits generally two weeks prior to the date of the auction.  At this time, bidders would also provide a non-Monetary package if they were applying for a credit for community benefits based on an executed agreement with a qualified community organization or municipality.

Evaluating Participation in the Massachusetts WEA Lease Auction

In assessing whether to participate in the BOEM auction, prospective bidders will want to assess the opportunity offered by these two lease areas to ensure that they offer a reasonable prospect of competing successfully with the three existing leaseholders.   Specifically, these two lease areas will require a greater transmission investment.   However, the four Massachusetts WEAs were delineated to provide roughly equivalent water depths, and thus similar costs for foundations for the initial several hundred megawatts of capacity.  Offsetting the greater required transmission investment are greater wind speeds in WEAs 0502 and 0503.   Interestingly, the average wind speed in Lease Area 0502 is the highest of the four WEAs according to analysis performed by NREL.  More importantly, the lowest depths in Lease Areas 0502 and 0503 are associated with higher wind speeds. This suggests that these lease areas could have lower foundation costs and higher overall output levels. This combination could allow them to compete effectively with other leaseholders in the Massachusetts RFP even with higher transmission costs.  Figure 2 reviews the water depths of these lease areas and Figure 3 reviews the wind speeds of these different lease areas, relative to the cost of participating in the auction and the Power Advisory estimates.

Figure 2: Massachusetts Offshore Wind Speeds

Source: NREL

Figure 3: Massachusetts Offshore Water Depths

Source: NREL

BOEM has issued an Environmental Assessment of the entire Massachusetts WEA and issued a Finding of No Significant Impact.[4] Lease Areas 0502 and 0503 are also located over 20 miles from Nantucket and Martha’s Vineyard reducing visibility of the turbines from shore which has been a significant obstacle to earlier proposed offshore wind farms such as Cape Wind off of Massachusetts.

To assess the potential economic value of the higher output offered by Lease Areas 0502 and 0503, we used the increased annual energy output estimated by NREL for each WEA for a 500 MW OSW project configuration and projected the incremental value of the WEA assuming a 20-year PPA term and a PPA price of $110/MWh.  The incremental value was considerably below the estimated incremental cost of transmission interconnection.  This suggests that additional cost savings from lower water depths would be required.

In sum, based on this high-level analysis Lease Areas 0502 and 0503 warrant more detailed analysis.  On October 4, 2017, the Director of the Office of Renewable Energy Programs for BOEM announced plans to issue the Proposed Sale Notice for these lease areas by the end of 2017 with the auction during the summer of 2018.

Power Advisory would welcome the opportunity to assist clients in assessing opportunities in the US offshore wind market, especially the upcoming BOEM Massachusetts and NY lease sale auctions, submission of comments on the 83C RFP, and participation in subsequent solicitations.

[1] See Power Advisory’s May 12, 2017 memo that reviewed past BOEM WEA leases.

[2] The most recent BOEM lease auction was for New York in December 2016. See  https://www.boem.gov/NY-FSN/.

[3] Power Advisory has assisted clients with complying with these requirements.

[4] The EA and FONSI are located here: https://www.boem.gov/Revised-MA-EA-2014/.

A PDF version of the report is available here.

U.S. Offshore Wind Current Progress and Cost Drivers

Though the offshore wind (OSW) industry in the United States has lagged behind Europe, given the   commitment by policymakers to support the development of the industry and allow the realization of economies achieved in Europe, future prospects for the industry appear bright. The purpose of this report is to summarize the short history of offshore wind in the United States, outline the current state of the industry, and then consider the cost drivers that will shape the industry in the future.

Figure 1: US Offshore Wind Value Proposition[1]

Industry History

One of the groundbreaking, albeit controversial landmarks in the U.S. offshore wind industry was the Cape Wind Project. Cape Wind submitted an application in 2001 to the US Army Corps of Engineers (USACE) to construct a met tower. Though the USACE gave Cape Wind permission to build a met tower, the Energy Policy Act of 2005 shifted Federal authority to the Department of the Interior, which slowed the project’s progress. For the next decade, Cape Wind faced numerous obstacles, including determinations that the planned site in the Nantucket Sound qualified as traditional cultural, historic and archaeological property. Cape Wind’s power purchase agreements provided a price of $187/MWh, escalating at 3.5% per annum for 15 years.  In January 2015, National Grid and Northeast Utilities notified Cape Wind that they were terminating their power purchase agreements (PPAs) given the project hadn’t achieved its financing and construction initiation milestones in the PPAs. Cape Wind was planned to total 468 MW, with these two PPAs covering about 75% of its capacity.

Avoiding many of the regulatory hurdles of its predecessor, but requiring legislative changes to the regulatory standard for approval of its PPA, Block Island Wind Farm (BIWF) began construction in 2015, and became the US’s first operational offshore wind farm in December 2016. It is located 3 miles off of Block Island, in Rhode Island state waters. The project includes 5 turbines, capable of producing 30 MW. BIWF signed a 20-year PPA with National Grid for its full output, set at $244/MWh for the first year of commercial operation with an annual escalation of 3.5 %. One factor contributing to the project’s support is that it connects Block Island to the New England grid, allowing it to avoid high cost diesel generation that the island otherwise relied upon.

Current Developments

Leases for OSW have been issued in Massachusetts, Delaware, Maryland, Virginia, New Jersey, North Carolina, and New York by the Bureau of Ocean Energy Management (BOEM).[2]These states are leaders in promoting the development of an OSW industry, with the greatest activity in Massachusetts, New York, and Maryland.  Activities in each are reviewed below.

Figure 2: US Atlantic Offshore Wind Projects and Lease Areas[3]

*National Grid area represents electric cable from Block Island Wind Farm

The Massachusetts investor-owned electric distribution companies issued a Request for Proposals (RFP), seeking long-term contracts for 400 MW and up to 800 MW of OSW generation. Proposals are due December 20, 2017. This RFP is open to the three-existing wind energy area leaseholders: Deepwater Wind; Bay State Wind LLC (Dong Energy and Eversource); and, Vineyard Wind (Copenhagen Infrastructure Partners and Avangrid Renewables). This will be the first procurement in response to the state’s legislated goal to reach 1,600 MW of OSW development by 2027.

Because more than one party expressed interest in securing leases for the two remaining Massachusetts lease areas within the Massachusetts Wind Energy Area (WEAs), BOEM will hold a lease sale auction in late 2017 or early 2018. BOEM has yet to announce the specific auction date. These lease areas are adjacent to those that are expected to bid in the first Massachusetts RFP, though they are further from shore and have the greatest average water depths. The two lease areas to be auctioned are 248,015 acres and 140,554 acres, which can support a maximum of approximately 4,717 MW of OSW generation. Winners of these leases will be eligible to bid into the second auction for long term contracts in Massachusetts.

BOEM has also issued two leases off New Jersey, whose legislature has authorized the sale of 1100 MW of OSW to be purchased by the state’s electric distribution companies through Offshore Renewable Energy Credits (ORECs).  The NJ Board of Public Utilities has been developing the rules for these Ocean Renewable Energy Credits for several years.

Off the coast of Maryland and Delaware, two projects have recently been awarded ORECs in response to the state’s 2013 RFP for offshore wind. US Wind LLC has outlined a proposed 62 turbine, 248 MW wind farm, to be connected to the Indian River Substation in Delaware and operational in 2020. Skipjack Offshore Wind, a subsidiary of Deepwater Wind, has proposed a 15 turbine, 120 MW wind farm to be connected to the Ocean City, Maryland substation and operational in 2022. Maryland has issued unbundled ORECs to US Wind LLC and Deepwater Wind Skipjack. US Wind bid a first year OREC price of $201.57/MWh or a levelized price of $177.64/MWh (2012$) and Skipjack an OREC price of $166.0/MWh or a levelized price of $134.36/MWh (2012$).  A 1% price escalator will be applied to these first-year prices for the next 20 years of each project’s operation.[4]  In addition to the revenues from these ORECs, the projects will realize production tax credits and energy and capacity market revenues.  These energy and capacity market revenues are likely to represent a value of about $50/MWh.

Figure 3 summarizes US OSW PPA pricing to date by project vintage. Recent European PPA prices are also reported for reference.

Figure 3: US Offshore Wind PPA Pricing[5]

* Cape Wind PPAs terminated do to a failure to achieve financing and construction milestones.

**Average adjusted strike price and average capacity for 2023-2025 projects in the Netherlands, Denmark and Germany from NREL 2017.

Already, there is some evidence of PPA price reductions in the US market.  However, trends are masked by varying competitiveness of RFP processes; in particular, the Maryland process where it appears that US Wind was able to capitalize on its position as the sole leaseholder in Maryland. Future reductions will be driven by the factors discussed in the next section.

Cost-Driver Analysis: 4 Main Drivers

  1. Site Evaluation and Characterization

While potential sites for offshore wind in the US share some characteristics with those of the more mature European market, there are major differences. Sites in the US lack critical data about geological, oceanographic, and meteorological conditions, which increases the initial development risks of OSW projects, and therefore the costs to finance them. With the development of additional projects and collection and verification of data the uncertainty associated with these variables and the impacts on project costs and performance would fall.

  1. Technological Advancement

Continuing research and development to produce larger, more cost-effective equipment (including wind turbine generators, which benefit from European experience, and foundations) will be necessary to further decrease costs. This applies to adapting and advancing existing technologies from Europe, developing new technologies, and creating new installation techniques.

Currently, 75% of the world’s deployed offshore wind resources use monopile fixed-bottom structures, which may not be feasible for water depths of greater than 60 meters. As more than 58% of the US’s technical resource capacity is located at water depths greater than 60 meters, many new projects will use lattice steel foundations installed at the Block Island Wind Farm and pioneered by the oil and gas industries and floating foundation technology anchored to the seabed with tension anchor chains. Floating foundation technology is just being constructed in Europe. Norwegian energy giant Statoil is scheduled to connect the first floating wind farm in late 2017 with their 30 MW Hywind farm[6], with 237 MW expected to be fully installed globally by 2020[7]. Currently, floating offshore wind accounts for 7% of the known global pipeline[8], making future developments in this area likely.

Higher capacity turbines offer significant reductions in OSW LCOEs. The Block Island Wind Farm utilized 6 MW WTGs, compared to current turbines produced in Europe that can produce upwards of 9 MW and 10 and 12 MW turbines in design. Capacity factors will also rise with larger rotor diameters and improved accessibility to turbines for maintenance, as this will decrease their downtime. Improved accessibility is an especially important consideration on the Pacific Coast, where ocean conditions are generally rougher than those on the Atlantic Coast.[9]

Technological developments will enable the integration of turbine and substructures to create a single system that will enable design optimization that will drive further cost reductions. Installation cost would also fall as more specialized vessels suited for installation are deployed in the US. Such vessels currently exist in Europe, but are not available in the US due to limited market that hasn’t justified the construction of such vessels. As turbines and rotors become larger, these vessels become more important.

As for operating expenses, cost reductions will occur with improvements in turbine reliability and monitoring technology that will allow operators to identify problems in real-time, keeping resources operating longer and at higher availabilities.

  1. Supply Chain Development

Not surprisingly, there are significant gaps in the current US OSW supply chain that prevent the realization of cost savings being achieved in Europe. Currently, the US supply chain is not well inventoried, and lacks necessary workforce, port facilities, and vessels needed to support a robust and efficient industry.

Geographic concentration of the supply chain would further reduce OSW costs, as proximity decreases transportation costs and fosters better communication between supply chain members. This “clustering” strategy also allows for more robust project management and top-to-bottom collaboration on wind energy projects[10].

Almost all of the OSW components, including rotors and turbines, are currently manufactured in Europe. Specialized equipment for installing offshore wind turbines, like installation vessels, are also often only available from European firms, resulting in high costs. Desired investments in the supply chain that will realize these cost savings will occur, if there is a visible, stable development pipeline.

4. Market Visibility

Market visibility is a commitment to the steady procurement of a pipeline of OSW projects over a defined period of time. Greater market visibility would reduce costs for OSW for two main reasons. First, more entrants will be attracted to the market, increasing competition and lowering their bargaining power. Second, as projects get relatively less risky, investors with a lower hurdle rate may be drawn to invest when they had not previously. A visible pipeline of projects can reduce capital, maintenance, and insurance costs and is critical to ensuring that these costs are minimized.  Construction of turbine manufacturing facilities on European coastlines have reduced the levelized cost of OSW below $100/MWh. The lack of certainty around the US PTC and how this frustrated the development of US onshore wind energy supply chain is a relevant warning. Per the 2015 extension of the PTC it is to be phased on it steps by 2020, so that the value in 2017 is 80% of the initial $0.023/kWh value, 60% in 2018 and 40% in 2019. Also, by generating repeated investments from equity investors with knowledge of the renewable energy sector, WACC could be lowered, reducing the cost of equity and debt.

Conclusion

Though the U.S. OSW market has taken longer to develop than its European counterpart, its future prospects are promising.  The comparatively high OSW costs in the U.S. reflect the immaturity of the industry; however, by adopting best practices from Europe and committing long-term to OSW development, the U.S. can drive costs down significantly. Coupled with future technological innovation, the U.S. OSW industry is well-positioned to represent a cost-effective source of clean energy.

Power Advisory would welcome the opportunity to assist clients in assessing opportunities in the US offshore wind market, especially the upcoming BOEM Massachusetts and NY lease sale auctions, submission of comments on the 83C RFP, and participation in subsequent solicitations.

A PDF version of this report is available here.

[1] US Department of Energy and Department of the Interior, National Offshore Wind Strategy, 2016

[2] Norton Rose Fulbright, US Offshore Wind, 2017

[3] BOEM 2016

[4] US Department of Energy: Offshore Wind Technologies Market Report, 2016

[5] Power Advisory analysis of various public orders and studies. Size of marker represents the relative nameplate capacity

[6] Statoil: Hywind Scotland

[7] Bloomberg: Race to Build Offshore Wind Farms That Float on Sea Gathers Pace, 2017

[8] NREL: Offshore Wind Energy Resource Assessment for the United States, 2016

[9] US Department of Energy and Department of the Interior, National Offshore Wind Strategy, 2016

[10] Clean Energy Pipeline, Offshore Wind Project Cost Outlook, 2014

Power Advisory Presents at CanWEA Spring Forum

Yesterday, our President John Dalton presented at the CanWEA Spring Forum on the Opportunities Offered by the New England Electricity Market for Eastern Canadian Wind Projects.  The presentation and discussion presented Power Advisory’s perspective on renewable energy drivers in the New England electricity market including recent State-level initiatives that are creating opportunities for clean energy from Eastern Canada. Hear on market drivers, State policy updates, renewable energy incentives (RECs, RPS) and opportunities for Canadian wind energy

For more information, please click here