Category Archives: Announcements

EV Charger Industry Sees First Major IPO – ChargePoint

When the electric vehicle charger company ChargePoint went public on September 24, 2020 through a reverse merger, there were a lot of investors celebrating the $2.4 billion valuation (enterprise value) that the company achieved.  The company had backers from the oil & gas, utilities and automotive industries including US firms Chevron and AEP and European firms Daimler, BMW and Siemens.  There was also a wide range of venture capital and private equity investors including GIC and Canada Pension Plan Investment Board.

In a buoyant stock market, the company’s valuation was a lofty 18x its calendar year 2020 expected revenue of $135 million.  And going forward, the company projected some big numbers: they estimated revenue would climb to $2.1 billion by 2026, a 58% CAGR over a seven year period, and gross margin would reach 42% (see Figure 1 and Figure 2).

Figure 1. ChargePoint’s Revenue 2017-2026

Source: ChargePoint Investor Presentation, September 24, 2020

Figure 2. ChargePoint’s Gross Margin 2017-2026

Source: ChargePoint Investor Presentation, September 24, 2020

But despite the hockey stick revenue growth, there is still a long way to go even before the company reaches profitability.  For the Fiscal Year ended January 2020, ChargePoint posted revenue of $147 million, but a loss of $133 million driven by high R&D expenses ($69 million) and sales & marketing expenses ($57 million).  The company expects to become EBITDA positive by FY2025.

As shown in Figure 2, the company’s gross margin declined from 2017 to 2019 before bouncing back in 2020.  Until 2018, ChargePoint focused exclusively on the Level 2 market.  When it came out with a DC fast charger product in 2018, the margin declined owing to one-time charges and initially low manufacturing volumes of the new product, followed by new product introductions in Europe.  But the margins are expected to increase as the business scales.

Competition

Along with Tesla and Electrify America, thirteen-year-old ChargePoint is one of the leading players in the charger infrastructure market in the US and Canada.  They also have a presence in 16 European markets.  According to data from the US Department of Energy Alternative Fuels Data Center, ChargePoint operates more chargers than any other company in the US and Canada with about 38,000 Level 2 units and 2,000 DC fast chargers (Figure 3).  Together with Tesla and Electrify America, these three companies currently account for about 80% of all networked Level 2 and DCFC chargers in the US and Canada and 90% of DCFCs, the fastest growing market segment.  EVgo and Greenlots (Shell) are the #4 and #5 DCFC network operators.

Figure 3. Charger Portfolio by Network Provider (Number of Units)

Notes:

  1. Sorted by number of DCFC chargers
  2. Includes chargers across the US and Canada
  3. Some units may have multiple ports so the number of ports is higher.

Source: US DOE Alternative Fuels Data Center, October 2020

Value Chain and Business Model

Figure 4 shows the EV charger value chain.  For new installations, the value chain includes the hardware (which includes the charger, interconnection switchgear, transformers, panels and breakers), project development, site design and installation.  For the installed base of chargers in the field, the value chain includes charger ownership, the network provider (the company that provides the software that runs the charger and handles billing and reporting) and operations and maintenance.

Figure 4. EV Charger Value Chain

Source: Power Advisory

ChargePoint is primarily a hardware provider and network provider.  They have a charger product line (some of it contract manufactured) that they sell to their customers and then provide software and warranty subscription services to the installed base.  On a revenue basis, about 80% of ChargePoint’s revenue comes from selling charger stations and 20% from software and warranty.  The charger owner (the site host) collects revenue generated from the operation of the charger over the course of its life.  For installation, ChargePoint works with partners that they recommend to their customers, but ChargePoint does not have in-house installation or O&M staff, opting for a “capital light” approach.  They sell a parts and labor warranty called Assure which sits on top of the standard product warranty, both of which are fulfilled by their network of O&M partners.

Key points related to the business strategy of the top 5 network providers are shown in Figure 5.

Figure 5. Summary of the Top 5 DCFC Network Providers

Source: Power Advisory

Charger Manufacturers

Most network providers don’t have their own charger hardware product.  ChargePoint, along with Tesla, Blink and SemaConnect, are the exceptions.   ChargePoint also typically doesn’t adhere to industry communication protocols, instead going with their own proprietary standard.  Tesla is similar in that they are 100% focused on their own proprietary chargers that only talk to Tesla vehicles.  By contrast, other network providers provide services on chargers that have been manufactured by independent companies (see Figure 6 for a list of charger manufacturers around the world).

Figure 6. Charger Manufacturers Around the World (grouped by headquarter location)

Source: Power Advisory

Margins for hardware are comparable to electronic hardware margins in other industries.  We expect that gross margins will be in the 25%-30% range (+/-) though there could be some commoditization over time leading to margin erosion.  Installation gross margins are typically 20% and includes margin on all of the equipment items (i.e., interconnection switchgear, panels, breakers, transformers) except the charger itself.  O&M is a labor intensive business and gross margins in that business are higher than installation gross margins.  But the network provider, which is a software business, can do very well on margins, especially as the business scales, since incremental expenses are small.  That’s where ChargePoint will benefit as the installed base grows.

Fleets – the Growth Market

ChargePoint says that fleets are the fastest growing part of their business, and expects that segment to account for 38% of revenue by 2026 (see Figure 7).

Figure 7. ChargePoint Revenue by Market Segment

Source: ChargePoint Investment Presentation, September 24, 2020

Indeed, the fleet business has been growing steadily. Buses have been the early fleet market, but passenger cars and delivery vans won’t be far behind.  When the total cost of ownership for electric vehicles becomes lower than that of internal combustion engine (ICE) vehicles, fleets will rapidly move over to the new technology, and have begun doing so already.  Europe will likely be earlier due to higher gas prices than North America.

ChargePoint’s product offering for fleets is more expansive than for its residential and commercial businesses (Figure 8).  They provide the hardware solution and several associated subscription services.  Whereas for commercial customers they just provide a networking service, for fleets, they offer to optimize schedules and fueling, and manage the customer’s energy usage.  ChargePoint also provides professional services for design/build and provides parts and labor warranties.  This broader offering will result in a larger revenue stream per unit than for commercial customers.  The reasons why fleet operators opt for these products and services are shown in Figure 9.

Figure 8. ChargePoint’s Fleet Product and Service Offering

Source: ChargePoint Investment Presentation, September 24, 2020

Figure 9. Reasons Why Site Hosts electrify their fleets

Source: ChargePoint Investment Presentation, September 24, 2020

Following a challenging year during Covid in 2020, EV charger growth is expected to pick back up again for both the commercial and fleet businesses in 2021 as EV adoption continues. Many opportunities exist for companies to pursue revenue and margin across the value chain.  That includes new entrants and companies that already play in one part of the value chain, but might be able to leverage their position into other parts of the value chain.  With such a high growth market, there will be many opportunities.  Hardware and installation are the largest opportunities, but the downstream activities of network provider and O&M will grow as the installed base grows.  Other important supporting functions such as project development, site design, and software development will also find their niches.

 

Andrew Kinross is a Director with Power Advisory.  He can be reached at akinross@poweradvisoryllc.com.

PDF: EV charger industry sees first major IPO – ChargePoint

Recent New York White Paper Proposes Addition of Tier 4 (Renewable Energy Deliveries into New York City) to the Clean Energy Standard

July 10, 2020

Last month the New York State Energy Research and Development Authority (NYSERDA) and New York Department of Public Service (DPS) published a White Paper on Clean Energy Standard Procurements to Implement New York’s Climate Leadership and Community Protection Act. This White Paper aims to provide a framework to better align the state’s Clean Energy Standard (CES) with its Climate Leadership and Community Protection Act (CLCPA) passed in 2019 while also utilizing the existing CES procurement structure to achieve the state’s target of 70% renewable energy by 2030. In part, within this White Paper NYSERDA and the DPS staff propose the addition of a Tier 4 to the CES in order to promote greater renewable energy delivery into New York City (NYISO Zone J).[1]

In 2019, New York City alone represented 33% of state electricity consumption. Whereas the Tier 1 and predecessor Main Tier Program has resulted in the development of renewable energy largely in the upstate region. The new Tier 4 Program focuses on bringing more renewable energy downstate, specifically to New York City. The proposed program would provide financial support for renewable energy transmitted into Zone J and create a procurement structure distinct from the procurement for offshore wind which will also interconnect downstate.

As proposed, any renewable energy system will be eligible under the Tier 4 Program, as long as it has a commercial operation date (COD) on or after the publication date of any New York Public Service Commission order authorizing this new tier. The White Paper outlays the delivery requirement as the renewable project must either be located in Zone J or involve a new transmission connection to deliver renewable energy to Zone J. Tier 4 RECs would also be eligible to meet compliance standards set by New York City Local Law 97, which aims to reduce building emissions but allows RECs delivered to the city to serve as an alternative form of compliance.

Importantly, the eligible resources are proposed to include the full complement of renewable resources including large scale hydropower. In this way the procurement is expected to have a number of similarities to the Massachusetts 83D renewable energy procurement that resulted in the selection of the 1,200 MW New England Clean Energy Connect (NECEC) to import hydropower from Hydro-Québec.  Similarly, given that CES Tier 4 resources will have to be delivered to New York City this proposal is likely to support the development of new transmission.

However, there are some key differences that are likely to result in greater opportunities for non-hydroelectric renewable energy resources from upstate New York and/or Canada. In the White Paper, NYSERDA seeks the ability to procure RECs from hydropower that does not involve new impoundments and is additional to the baseline production of energy from the supplier. Effectively these constraints are likely to limit the Tier 4 opportunity to hydro units that are already under construction or hydro energy that was previously spilled and also seeks to prevent hydroelectric energy from being diverted from other markets.

The White Paper recommends a procurement target for Tier 4 resources of up to 3,000 MW and suggests using the same solicitation and contracting process as used for Tier 1 resources. This process would include negotiating the COD on an ad hoc basis as well as allowing NYSERDA to enter into contracts with a tenor of up to 30 years and with multiple entities as necessary. The White Paper also proposes enabling NYSERDA to solicit both Fixed and Indexed REC bids under Tier 4 with a price cap. This price cap aims to ensure that renewable penetration into New York City increases without undue ratepayer impacts. Similar to Tier 1, compliance with the Tier 4 would be the financial responsibility of all load serving entities (LSEs) but the program would be centrally administered by NYSERDA.

Next Steps

With the publishing of the White Paper in docket 15-01168/15-E-0302, a 60-day public review and comment period was initiated. After which the Commission will act on the proposals in the White Paper and issue any orders determining the program design and implementation.

[1] The White Paper’s other proposals are not reviewed within this Power Advisory client note.

John Dalton, President; Carson Robers, Senior Consultant; and Sophia Vitello, Research Analyst

A PDF version is available here Power Advisory_New York Tier 4 Client Note_2020-7-10.

Power Advisory LLC Kicks Off Procurement Process for Tidal Energy in Nova Scotia

Toronto, Ontario, November 6, 2019 – Power Advisory LLC (Power Advisory) has initiated the procurement process for an in-stream tidal energy demonstration project in Nova Scotia, which offers one of the largest tidal energy resources in the world.

In October Power Advisory was appointed as the Procurement Administrator for this procurement process by the province of Nova Scotia. As Procurement Administrator, Power Advisory will be responsible for ensuring that the procurement is fair, transparent and competitive. The province will consider projects with nameplate capacity of no more than four megawatts. Projects are to be restricted to Berth D within the Fundy Ocean Research Centre for Energy (FORCE) marine renewable-electricity area. Project selection and subsequent awarding of a Marine Renewable-Electricity Licence and Power Purchase Agreement is conditional upon providing adequate financial security for the retrieval and disposal of the abandoned CSTV turbine at the site. Power Advisory expects to open the Call for Applications process in the near future, concurrently with the request for approval of the Power Purchase Agreement from the Nova Scotia Utility and Review Board.

Interested parties that would like to participate in the procurement process should register at the tidal energy procurement website.  https://nstidalrenewables.poweradvisoryllc.com/

Further details regarding the procurement process will be shared with parties that have registered on the website shortly. The procurement objectives are to achieve the best value for Nova Scotia ratepayers and to support the advancement of Nova Scotia’s marine renewable energy sector.

Power Advisory is a leading North American management consulting firm offering extensive knowledge of the Nova Scotia electricity sector and has deep expertise in renewable energy competitive procurements. Power Advisory previously served as the Renewable Electricity Administrator in Nova Scotia, overseeing the 2012 Request for Proposals (RFP) for 300 GWh of renewable energy from Independent Power Producers (IPPs).

For further information, please contact:

For Media Inquiries, please contact John Dalton at jdalton@poweradvisoryllc.com

For all other inquiries, please send email to NSTidalProcurementAdministrator-2019@poweradvisoryllc.com

New Jersey Awards its First Offshore Wind Renewable Energy Certificates Solicitation to Ørsted’s 1,100 MW Ocean Wind Project

Today the New Jersey Board of Public Utilities (BPU) unanimously approved the state’s first Offshore Wind Renewable Energy Certificates (OREC) award towards its 3,500 MW goal to Ørsted US Offshore Wind (Ørsted)’s 1,100 MW Ocean Wind project. Ocean Wind will be located in the federally leased New Jersey Wind Energy Area about 15 miles offshore Atlantic City, NJ. The commercial operation date for Ocean Wind is in 2024.

This award doubles Ørsted’s contractual commitments in the early 2020s including the 704 MW Revolution Wind project (between Connecticut and Rhode Island PPAs), 130 MW South Fork Wind Farm (Long Island Power Authority PPA), 12 MW Coastal Virginia Offshore Wind pilot and 120 MW Skipjack Wind Farm (Maryland ORECs). The majority of these projects are in partnership with other parties but still leaves only two currently contracted projects not affiliated with Ørsted, Vineyard Wind’s 800 MW project (Massachusetts PPA) and US Wind’s 268 MW Maryland Wind Project (Maryland ORECs).

Ocean Wind is to be developed in partnership with Public Service Enterprise Group (PSEG)’s non-utility affiliates under a memorandum of understanding. PSEG’s regulated distribution business, PSE&G, is New Jersey’s largest electric and gas utility serving almost two thirds of the state. PSEG also holds an option to be an equity investor in the project. The relationship between the two companies stems from PSEG’s partnership as Garden State Offshore Energy in acquiring an OSW lease area with Deepwater Wind, whom was subsequently acquired by Ørsted in November 2018. It also follows the model used by Ørsted offshore Massachusetts, where it has a joint venture with Eversource, Baystate Wind. Similar to PSEG, Eversource has a regulated electric and gas business and considerable local expertise that compliments Ørsted’s extensive OSW experience.

New Jersey OSW Background

The Offshore Wind Economic Development Act authorized the New Jersey BPU to establish an OREC program in 2010. After almost eight years of stalled implementation and development under the previous administration, newly sworn in Governor Murphy signed Executive Order #8 (EO8) on January 31, 2018. E08 directed all New Jersey agencies with responsibilities under the OWEDA to fully implement it to meet a goal of 3,500 MW from OSW by 2030. The timing of this first solicitation sought to maximize the selected project’s eligibility for the expiring federal Investment Tax Credit, which is estimated represent over $300 million in ratepayer savings. Two additional solicitations of 1,200 MW each are scheduled for 2020 and 2022 to reach the overall goal. Identifying these second and third large, near-term procurements is also intended to induce the OSW supply chain to locate in New Jersey.

The OREC structure in New Jersey differs from the other RECs, which provide an additional source of revenue beyond energy and capacity. The BPU’s OREC Funding Mechanism is based on the procurement of a bundled energy, environmental attribute and capacity product, with settlement based on realized wholesale energy and capacity prices.

2018 OREC Application Window for 1,100 MW and Awarded Pricing

Applications were received by the BPU from three OSW developers: Atlantic Shores Offshore Wind (an EDF Renewables and Shell New Energies joint venture), Boardwalk Wind (an Equinor project from its New York lease area) and the ultimately successful proponent, Ocean Wind. The primary evaluation criteria the BPU employed to review theses proposals included OREC purchase price, economic impact, ratepayer impact, environmental impact, the strength of guarantees for economic impact, and the likelihood of successful commercial operation.

The Ocean Wind project was accepted at a nominal levelized all-in OREC price of $116.82/MWh. After the forecast energy and capacity revenues are netted out, the levelized cost of the Ocean Wind OREC to ratepayers is estimated by the BPU to be $46.46/MWh. It is reported that the project is expected to result in net economic benefits of $1.17 billion to the state.

For comparison the levelized PPA prices for the Revolution Wind project, which has a similar COD in 2024, is $98.425/MWh in Rhode Island and $99.50 (200 MW) and $98.425 (104 MW) in Connecticut. This suggests New Jersey realized a significant premium relative to the pricing for these smaller OSW projects in New England. There are important differences between the two projects such as contract structure; wind resource, which is generally superior in New England; project size; level of ITC realization; and market conditions at the time of bidding. To date Massachusetts has realized the most cost-effective OSW project at a nominal average price of $84.23/MWh (Vineyard Wind). 

Note the last section of this memo was updated and a supplemental review of Ocean Wind’s pricing is available here.

A PDF version of this note is available here.

Eversource Acquires 50% Interest in Ørsted’s New England Leases and Northeast PPAs

Eversource announced February 8, 2019 that it had acquired a 50% interest in Ørsted’s Massachusetts North and Massachusetts South lease areas and its 700 MW Revolution Wind project and 134 MW South Fork Project.  Both projects are under development and have power purchase agreements (PPAs) with various Northeast electric distribution companies.

The purchase price of about $225 million (≈$540/kW assigning nominal value to the lease area), appears to represent a modest discount relative to what Ørsted recently paid for the Deepwater Wind holdings (≈ $630/kW assigning nominal value to the lease area). This possibly reflects the fact that Eversource didn’t acquire an interest in the operating Block Island Wind Farm, which as an operating largely de-risked asset would command a premium.

The deal provides Eversource with an investment runway to support its earnings growth target, which it needs after Northern Pass was denied by the New Hampshire Site Evaluation Committee and its Bay State Wind partnership with Ørsted failed to secure a contract in the first round of Southern New England OSW procurements.  With a US OSW portfolio that is comparable to Vineyard Wind’s and position as industry leader given the size of its worldwide OSW portfolio, Ørsted is a compelling partner.

The Eversource agreement provides Ørsted with cash and allows it reduce its exposure in the US Northeast.  Given the capital requirements for these projects, long development lead times, and limited permitting track record in the US, partnering for OSW development is a prudent strategy.   Furthermore, as the largest wires company in New England, Eversource represents an attractive partner as interconnection issues are likely to become more challenging for the second phase of Southern New England OSW projects.

IESO Energy Storage Advisory Group Recommendation Report Summary and Commentary

Date: January 21, 2019
For parties interested in: Energy Storage and innovation in Ontario

CONTEXT
• Independent Electricity System Operator (IESO) released “Removing Obstacles for Storage Sources in Ontario” report1 on December 19, 2018 based on consultation with its Energy Storage Advisory Group (ESAG).
• The report focuses on identified obstacles and mitigating strategies to help ensure fair
competition of energy storage resources in the Ontario electricity market.
• IESO makes a series of recommendations to support the mitigating strategies in the report; recommendations are for the IESO as well as the Ontario Energy Board (OEB) and the Ministry of Energy, Northern Development and Mines (MENDE).

BACKGROUND
As outlined in their Long-Term Energy Plan (LTEP) Implementation Plan, the IESO established the ESAG to “Identify potential obstacles to fair competition for energy storage with other technologies in the delivery of services and, where appropriate, propose mitigation strategies” 2. The ESAG3 was launched in April 2018 to advise, support and assist the IESO in evolving policy, rules, processes and tools to better enable the integration of storage resources within the current structure of the IESO-administered markets (IAM). The objectives of the ESAG are to:

• Support the IESO’s work to identify obstacles to fair competition for energy storage
resources;
• Provide input to the IESO’s work plan and/or list of priorities to address storage related issues and opportunities; and
• Advise, consult and coordinate discussions on issues which may affect storage participation in the existing IAM.

Energy Storage Advisory Group
The ESAG met monthly to identify potential barriers to energy storage, develop criteria and principles for assessment of the barriers, and finally develop mitigating strategies to the barriers. The ESAG and IESO identified thirty-five (35) obstacles to energy storage’s fair competition in the Ontario electricity market. The identified obstacles were sorted by the IESO based on those that were in scope (and would have a mitigation strategy developed) and those obstacles that were out of scope for the LTEP implementation plan objective.

Criteria for Identified Obstacles and Principles for Mitigating Strategies

The IESO applied criteria to each identified obstacle to determine if a barrier was in scope to develop a mitigating strategy. The main criteria question was:
• “Is storage prevented from, or burdened in, competing with other technologies in the
delivery of services that they are otherwise capable of providing?”
A “yes” to this criterion implies that the issue under consideration is an obstacle and warrants mitigation. If the answer to the main criteria was not clear, the IESO applied two additional test questions:

1) Are Ontario’s electricity market rules, codes and regulations able to accommodate the evolution and competition of new technologies such as storage resources? and
2) Is the treatment of storage resources, with respect to regulatory and market charges
consistent with the intent of those charges?

A “No” to either of these testing questions implies that the issue is an obstacle and warrants mitigation. Of the 35 obstacles identified by the ESAG, 15 were determined by the IESO to be in scope and appropriate to develop mitigating strategies for. A summary of the obstacles identified can be in a table at the end of this client note.
Mitigating strategies were developed under the guidance of the Market Renewal Program (MRP) Guiding Principles. The MRP is a comprehensive enhancement to Ontario’s wholesale electricity market design, addressing known issues with the market design. The principles of MRP are:

• Efficiency – lower out-of-market payments and focus on delivering efficient outcomes
to reduce system costs
• Competition – provide open, fair, non-discriminatory competitive opportunities for
participants to help meet evolving system needs
• Implementability – work together with our stakeholders to evolve the market in a
feasible and practical manner
• Certainty – establish stable, enduring market-based mechanisms that send clear,
efficient price signals

Find the full report in PDF format here.

Three New Wind Energy Leases Offshore Massachusetts: Review of BOEM Auction Results and Competitive Implications

Over the last two days BOEM auctioned three leases offshore Massachusetts to Vineyard Wind, Mayflower Wind, and Equinor Wind. Vineyard Wind is a joint venture of Avangrid Renewables and Copenhagen Infrastructure Partners, with an existing Massachusetts lease and a contract for an 800 MW project with the Massachusetts electric distribution companies (EDCs). Mayflower Wind Energy LLC is an affiliate of Royal Dutch Shell Plc. and EDP Renewables; it is the first position in the US OSW market for both companies.[1] Equinor is a Norwegian energy developer that holds the rights to the only existing BOEM lease offshore New York. This sale attracted historic attention from 19 qualified parties and 11 bidders. At the end of 32 rounds the total acquisition fee was $405.1 million ($135.1 million Vineyard Wind and $135 million for the other two winning parties).

Competitive Implications of ATLW-4A

Overall this should be a positive development for the competitiveness of the New England and broader Northeast OSW market. It introduces two new competitors to the region and strengthens Vineyard Wind’s position as an incumbent developer. Equinor represents a new competitor to the Southern New England OSW market. Equinor wouldn’t have been able to compete effectively in the Southern New England OSW market from its New York lease given the distance of this lease from New England and the associated incremental cost of transmission and the marginally worse wind resource in its New York WEA. While the primary opportunity will be for long-term contracts with the Southern New England EDCs, the projects from these lease areas should be able to compete in future New York procurements (which has a target of 2,400 MW by 2030) and possibly New Jersey (3,500 MW by 2030).

The interest of Equinor and Shell indicates the similarities of offshore wind and oil/gas development, both require significant engineering capability and careful management of project logistics, with significant capital requirements over an extended period of time before production begins.

The pricing relative to previous lease sales is a strong indication of market interest and the promise offered by the Northeastern OSW market. Adding two new competitors to the Southern New England market will enhance the competitiveness of solicitations. However, with one element of the evaluation criteria in the various OSW RFPs the project’s underlying maturity it may take a while for consumers to see the benefits of this increased competition.

Comparison to Atlantic Wind Lease Sales

Prior to ATLW-4A there have been 7 lease sales for 11 areas from North Carolina to Massachusetts. The average acquisition fee was $6.7 million. One of the first Massachusetts lease areas was acquired by OffshoreMW LLC (now Vineyard Wind) for as little as $150,197. The next highest sale after today’s results is the New York lease sale of OCS-A 0512 to Equinor in 2016 for a total acquisition fee of $42.5 million from 33 rounds of bidding by 6 total participants. Even in comparison to the New York sale the result of ATLW-4A is more than seven times greater.

Power Advisory_ATLW4A BOEM MA Lease Sale_2018-12-14

[1] Shell did qualify for the North Carolina lease sale (ATLW-7) in 2017 but did participate in the auction.

Competitive Implications of Ørsted’s Acquisition of Deepwater Wind

Yesterday, Ørsted A/S (Ørsted) announced that it agreed to acquire Deepwater Wind (Deepwater) from D.E. Shaw & Co. LP for $510 million. With this acquisition Ørsted, who was unsuccessful in the various New England competitive procurement processes, will get access to Deepwater’s 5 PPAs and 810 MW contracted project development portfolio. The transaction is subject to review by US competition authorities, the US Department of Justice (DOJ) and the Federal Trade Commission (FTC). Given the nascent state of the US OSW industry the acquisition of one of the US industry leaders by the world’s largest OSW project developer may raise some competitive concerns, particularly when the lease holdings of the combined company are considered in several relevant geographic markets.

Specifically, Ørsted will have ownership interests in two of the three existing BOEM leases in the Rhode Island/Massachusetts Wind Energy Areas (WEAs) through its Bay State Wind partnership with Eversource Energy and its acquisition of Deepwater. In addition, Ørsted will have development rights to two of the three existing leases off the coast of New Jersey as result of its Ocean Wind project and with the acquisition of Deepwater’s 50% interest in the Garden State Offshore Energy project, a joint venture with Public Service Electric & Gas that holds the rights to a BOEM lease off the coast of Delaware and New Jersey. (See Figure 1 below.)
A critical issue with respect to the assessment of the competitive implications of mergers is defining the market, which considers the relevant products and geographic definition of the market. The geographic definition of the market considers the ability of competitors to compete effectively with the merged entity recognizing that there is a cost to accessing a more distant market (e.g., for OSW the cost of undersea transmission cables or transmission service).

The Rhode Island/Massachusetts WEAs offer more attractive wind regimes than the New York (NY) or New Jersey (NJ) WEAs, suggesting that it may be difficult for leaseholders in NY or NU WEAs (e.g., Equinor) to compete effectively with the RI/MA leaseholders. The competitiveness of the New England OSW market will be enhanced when BOEM issues the two additional MA leases that are scheduled for auction in early 2019. However, the ability of these new leaseholders to compete in the forthcoming Massachusetts 83C OSW RFP may be constrained by the relative immaturity of the corresponding projects and the fact that Massachusetts OSW RFPs typically considered the development status of projects in the evaluation and project scoring.

Figure 1: Ørsted US Offshore Wind Portfolio

A PDF version of this memo is available here.

Potential Asset Sale: Canadian Utilities Limited’s Generation Portfolio

On September 13, Canadian Utilities Limited (CU), a subsidiary of ATCO, announced that it would be exploring strategic alternatives for its Canadian electricity generation business. Canadian Utilities Limited is engaged in electricity (generation, distribution, and transmission), pipelines and liquids (natural gas transmission, distribution and infrastructure development), energy storage and industrial water solutions, and retail energy (electricity and natural gas retail sales). The company has 5,200 employees and assets of $21 billion.

CU owns and operates 2,391 MW across six Canadian jurisdictions, with the majority located in Alberta. The geographic composition of these generation assets and their fuel type are indicated in the pie charts below.  An overview of the individual generation assets is provided in the table below.

Power Advisory would welcome the opportunity to assist clients in understanding the opportunities presented by Canadian Utilities Limited’s announcement and other potential generation acquisitions across North America. 

A PDF version of this note is available here

John Dalton, President, Carson Robers Consultant, Robie Webster Jr., Researcher, Power Advisory

Review of Massachusetts Compromise Bill ‘An Act to Promote a Clean Energy Future’

On July 30, 2018, the conference committee appointed to reconcile the Senate and House clean energy bills finalized a compromise bill, H.4857. The bill’s contents more closely align with the House of Representatives bills passed last week (H. 4756 and H. 4739) than the omnibus Senate bill (S. 2545) (see Power Advisory’s report on the differences between the initially proposed bills). The House and Senate voted in favor of the bill on July 31, the last day of the legislative session.

Renewable Portfolio Standard

The compromise bill will increase the state’s Class I Renewable Portfolio Standard (RPS) at the rate proposed by H.4756. Between 2020 and the end of 2029, the rate would increase to 2% per year. After 2030, it would return to the current growth rate of 1%. The rate will ensure that the state procures 35% of Class I renewables (new resources) by 2030.

Offshore Wind

The bill directs the Department of Energy Resources (DOER) to conduct a cost benefit analysis for the procurement of an additional 1,600 MW of offshore wind by the end of 2035 and “may require said additional solicitations and procurements.”  This suggests that DOER doesn’t require additional legislative authority to mandate the distribution companies to solicit and procure this additional 1,600 MW of offshore wind.  The DOER can also require distribution companies to hold competitive procurements for offshore wind transmission to deliver energy from designated wind energy areas as long as it can serve more than one project. The transmission service cannot exceed 3,200 MW of total capacity. The procurement of offshore wind transmission must be the most cost-effective means to deliver offshore wind.

Interestingly, in the filing letter that it submitted to the Massachusetts Department of Public Utilities (DPU), DOER expressed strong support for the 800 MW Vineyard Wind Project and asserted that the “Project is highly cost-effective [and] significantly aligns with the Commonwealth’s goals of creating a clean, affordable, and resilient energy future for the Commonwealth.”  This clearly suggests that DOER has a favorable view of offshore increasing the likelihood of DOER mandating the procurement of an additional 1,600 MW of offshore wind.

Clean Peak Standard

The bill also provides for the creation of a Clean Peak Standard (CPS) for all retail electricity suppliers, which was detailed in H. 4756. The CPS will be in place starting January 1, 2019 and will require each retail electric supplier to meet a baseline percentage of sales with clean peak certificates. The clean peak certificate would be a credit received for each MWh of energy or energy reserves provided during a seasonal peak period. After 2019, every retail electricity supplier must provide a minimum of at least an additional 0.25% per year of sales met with clean peak certificates.  The legislation defines seasonal peak periods as the times when net electricity demand is the highest. The periods must be more than one hour but less than four hours in any season. A clean peak resource according could be any qualified RPS resource, an energy storage system, or a demand response resource that delivers energy to the distribution system during seasonal peak periods or can reduce load on the system. The DOER will need to establish the procurement mechanism of the certificates, the percentage of kilowatt-hour sales from clean peak resources, the seasonal peak periods, and an alternative compliance mechanism.

Energy Storage

Massachusetts’ current energy storage target is 200 MWh by 2020. The compromise bill increases this target to 1,000 MWh by December 31, 2025. Neither the House nor Senate bills included this specific target. Similar to H. 4739, the comprise bill will require electric distribution companies (EDCs) to file an annual distribution system resilience report that would highlight areas of the distribution system where non-wires alternatives could serve as system resiliency measures. EDCs can hold competitive solicitations for such non-wires alternatives. The legislation provided guidance on which monetary and non-monetary factors to be considered in a solicitation, which include: 1) resiliency improvements, 2) reduce greenhouse gas emissions, 3) reducing peak demand, 4) reducing congestion in constrained areas, and 5) benefits to low-income areas.

Power Advisory would welcome the opportunity to assist clients in understanding the opportunities created by these changes to the Commonwealth of Massachusetts’ clean energy policies.

A PDF version of the report is available here.