Category Archives: Procurement Initiatives

Review of Atlantic Offshore Wind Procurement Policy and Developments

Over the last year major commitments have been made with respect to the US offshore wind (OSW) market. From only 30 MW operating, approximately 2,000 MW has been contracted and a cumulative +10 GW of installed capacity is now expected by the early 2030s. The growing interest in OSW has been concentrated in the Atlantic, particularly the Northeast which has the strongest state policies for OSW. An indicative schedule of this development by state is presented in the figure below.[1] Power Advisory then provides a high-level review of the procurement processes in New England, New York, and New Jersey as the primary markets, representing about 80% of this total.

New England

As part of the 2016 Act to Promote Energy Diversity, Massachusetts established a procurement target of 1,600 MW of offshore wind by 2030. The first solicitation for OSW proposals, referred to as the 2017 Section 83C RFP, resulted in the selection of 800 MW from Vineyard Wind in May 2018. The contracts for this project are currently before the Massachusetts Department of Public Utilities with a real levelized price for energy and RECs of $64.97 per MWh (2017$).[1]  On July 31st, An Act to Advance Clean Energy was passed, instructing a cost benefit analysis to be completed for an additional 1,600 MW of offshore wind by 2035 and specified that the Department of Energy Resources “may require said additional solicitation and procurements.” Governor Baker, who was recently reelected, signed a pledge to complete this study during the campaign. Given the compelling economics of the long-term contracts secured through the first Massachusetts OSW solicitation we believe that this effectively doubles the Commonwealth’s OSW goal to 3.2 GW by 2035 without the need for additional legislative authority.

In May, Rhode Island selected 400 MW from Deepwater Wind’s Revolution Wind Project.[2] Deepwater Wind has entered into contract negotiations with National Grid. An executed contract for energy and RECs is expected to be filed with the Rhode Island Public Utilities Commission by the end the year.

Connecticut also selected 200 MW from Deepwater Wind’s Revolution Wind Project. The wind farm will be part of the same project selected by Rhode Island, but will deliver electricity directly to the state via a separate export cable. On September 14th, Connecticut closed an RFP for 12 TWh of zero-carbon energy which is said to have received offshore wind proposals. The evaluation phase will be completed in Q4 2018/Q1 2019. Additional opportunities for OSW contracts from Connecticut are uncertain.

The southern New England states have each approached OSW with long-term contracts for bundled energy and RECs, consistent with contracting practice for other clean energy resources in the region. The retention of capacity value by developers provides an incentive for suppliers to maximize that value through efficient operating practices.  The PPA requires the seller to participate in the Forward Capacity Market so that this value can be considered by ISO-NE and ultimately realized by customers.

Evaluation of OSW proposals in New England has focused on economic benefits. For example, the evaluation procedure used in the 2017 Section 83C RFP was based on a 75/25 split between economic benefits and qualitative considerations. Direct economic benefits were assessed based on comparing the proposal price and any required transmission upgrade costs with its direct economic benefits as measured on the basis of the net present value of energy (by LMP) and the value of Class I RECs. Four indirect proposal benefits of wholesale energy price savings, RPS compliance cost savings, incremental greenhouse gas reduction compliance savings, and economic impact of resource winter firmness were also considered. Qualitative considerations included: (1) siting, permitting, and project schedule risks; (2) reliability benefits; (3) other benefits, costs and project risks; (4) environmental impacts from siting; and (5) economic development benefits to the state.

New York

Governor Cuomo established a goal of 2,400 MW of OSW by 2030 in 2017. Offshore wind is a key component of the state’s Clean Energy Standard (CES) of 50% clean energy by 2030. The Long Island Power Authority (LIPA) 2015 South Fork RFP that was open to all resources resulted in the selection of Deepwater’s 97 MW South Fork Wind Farm. This project is expected to come online in 2022 and counts towards the state’s 2.4 GW goal.

NYSERDA released a final RFP to solicit 800 MW or more of offshore wind today (November 8, 2018). Bids are due February 14, 2019. The remainder of the 2,400 MW goal (Phase II) will be procured at a later date. New York has also begun securing stakeholder input on the appropriate transmission development framework for Phase II.

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

Project viability is 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 are 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 are 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, thereby providing a market price hedge that should support more attractive financing terms than the Fixed OREC.[3]  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 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, 20 to 25 years. If the Index OREC is chosen, the OREC will remain for the entirety of the contract unless the Index OREC price is invalidated.

New Jersey

The Offshore Wind Economic Development Act authorized the New Jersey Board of Public Utilities (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 31st, 2018. E08 directed all New Jersey agencies with responsibilities under the OWEDA to fully implement it in order to meet a goal of obtaining 3,500 MW from OSW by 2030.

On September 20, 2018 New Jersey opened its first “application” for 1,100 MW of OSW. This will be the nation’s largest OSW solicitation to date. The application window will close on December 28, 2018, with the BPU required to act on the proposals by July 1st, 2019. The goal of the compressed procurement timeline is to maximize the ability of developers to capture the expiring federal ITC and increase the attendant economic benefits that can be realized by the state from the development of the regional industry. Governor Murphy has also directed a target of 2020 and 2022 for two additional BPU solicitations of 1,200 MW to reach the overall goal of 3,500 MW. Identifying these second and third large, near-term procurements is also intended to induce the OSW supply chain to locate in New Jersey.

Separately, EDF Renewables and Fisherman’s Energy have submitted an OREC application to the BPU for approval of the 24 MW Nautilus OSW farm with a planned COD in 2020.

The OREC structure in New Jersey differs from the typical Renewable Portfolio Standard (RPS) programs (ex. RECs, SRECs), which provide an additional source of revenue beyond energy and capacity. The BPU’s OREC Funding Mechanism is largely based on the procurement of a bundled energy, environmental attribute and capacity product. The use of an OREC ultimately adds complexity with respect to the administration of the ORECs and risk to OSW developers (e.g., variances between actual and forecast OSW output) and in Power Advisory’s opinion could be more simply administered with stronger performance incentives with a PPA that procured energy and environmental attributes. However, this is the framework that was legislatively directed and is expected to be used for all three upcoming procurements.

Rather that issue a formal request for proposals the New Jersey BPU issued Guidelines for applications for the sale of ORECs.[4] These guidelines identify the requirements for applications and outline the six criteria that the BPU will use to rank proposals.  These six criteria are:

(1)   OREC Purchase Price, which can be fixed or escalating;

(2)   Economic impacts, which includes, the number of jobs created, increases in wages, taxes receipts and state gross product for each MW of capacity constructed;

(3)   Ratepayer impacts, which considers the average increase in residential and commercial customer bills along with the timing of any rate impacts;

(4)   Environmental impacts, which includes the net reductions of pollutants for each MWh generated and the feasibility and strength of the applicant’s plan to minimize environmental impacts created by project construction and operation;

(5)   The strength of guarantees for economic impacts, which considers all measures proposed to assure that claimed benefits will materialize as well as plans for maximizing revenue from the sales of energy, capacity and ancillary services; and

(6)    Likelihood of successful commercial operation, which includes feasibility of project timelines, permitting plans, equipment and labor supply plans and the current progress displayed in achieving these plans.

There’s very little transparency regarding the evaluation process and how tradeoffs regarding these six criteria will be assessed.  The Guidelines indicate that “ranking and weighting of the six criteria by the BPU will reflect the goals of the solicitation especially as stated in the Governor’s Executive Order No. 8.” Based on our experience we believe that this lack of detail regarding how these criteria as well as tradeoffs among these criteria will be assessed, may hamper the ability of proponents to craft proposals that best satisfy New Jersey’s objectives.

Power Advisory would welcome the opportunity to assist clients in understanding the opportunities presented by the emerging US offshore wind industry.

 

A PDF of this update is available here.

[1] Note the schedule represents anticipated commercial operation date versus when the capacity is expected to be solicited. For Massachusetts, Vineyard Wind was originally proposed as two 400 MW phases coming into service in late 2021 and 2022, but in its Supplemental Draft Environmental Impact Report Vineyard Wind announced that it would construct the full 800 MW simultaneously and commission the project in mid-2022.

[1] This price escalates at 2.5% per annum and the project owner retains revenues from ISO-NE’s Forward Capacity market.

[2] On October 8th Ørsted announced that it was acquiring Deepwater Wind and its portfolio of 5 PPAs representing 810 MW for $510 million.

[3] An assumption must be made regarding the UCAP Production Factor so that the project nameplate capacity can be converted to UCAP.  NYSERDA allows a proponent to use a default UCAP Production Factor of 38% consistent with the NYISO’s Installed Capacity Manual or to specify a project-specific value. These values will be constant throughout the contract term. The ability to specify an alternative UCAP Production Factor presents an opportunity for proponents to change the risk/reward profile and as such warrants analysis.

[4] Guidelines for Application Submission for Proposed Offshore Wind Facilities

 

BOEM Atlantic Wind Lease Sale 4A (ATLW-4A) Proposed Sale Notice Published in the Federal Register

Earlier today, the Bureau of Ocean Energy Management (BOEM) released a Proposed Sale Notice (PSN) for the previously unleased commercial lease areas, OCS-A 0502 and OCS-A 0503, offshore Massachusetts. These lease areas represent the most immediate leasing opportunity for those who are interested in entering the Northeast offshore wind market, where states have already made commitments to procure almost 5,000 MW.

Today’s PSN outlines the proposed ATLW-4A sale, initiates a 60-day comment period, and will be followed by a public seminar (date to-be-announced, expected in the coming month). To participate in the lease sale your organization must be qualified as an eligible bidder by BOEM. All bidder qualification materials must be postmarked no later than the end of the public comment period – June 11, 2018.

Opportunities for Long-Term Contracts

 As established in the 2016 An Act to Promote Energy Diversity and under Section 83C, the Commonwealth of Massachusetts has a mandate to procure 1,600 MW of offshore wind by June 30, 2027. The state issued the first offshore wind RFP for 20-year Power Purchase Agreements in July 2017. The winner of Tranche 1, a project in the range of 200-800 MW, will be announced at the end of April or early May. The parties that acquire OCS-A 0502 and OCS-A 0503 are expected to be able to participate in subsequent tranches of Massachusetts’ OSW procurement.

Three factors,1) the capabilities of existing offshore transmission technologies, 2) relative proximity of these lease areas to other states, and 3) allowance of delivery to an adjacent control area that has been included in clean energy procurements to date, suggest that the opportunity for a long-term PPA extends beyond Massachusetts’ procurements to the rest of the Northeast and Mid-Atlantic. In fact, Connecticut has already sought proposals from the incumbent Massachusetts OSW area lease holders and NYSERDA has been clear in its intention for those lease holders to participate in their upcoming procurements.

Figure 1 below illustrates the existing and proposed federal lease areas and labels the known state procurement targets by 2030 (Massachusetts, New York, Connecticut, and New Jersey). Rhode Island has announced a goal of 1,000 MW of clean energy of which 400 MW are expected to be procured this year. Offshore wind is included in this goal, but there is not a clear procurement target in the style of Massachusetts 83C.

Figure 1: US Atlantic Offshore Wind Projects, Lease Areas, and Current Procurement Targets

       Source: BOEM, Power Advisory LLC

*National Grid has a transmission right-of-way for the operating Block Island Wind Farm. The inclusion of this ROW on the map does not indicate that National Grid is an OSW lease holder.

While a portion of these targets are anticipated to be committed before the ATLW-4A auction takes place and a winning bidder for OCS-A 0502 or OCS-A 0503 is in a position to submit a bid, opportunities for long-term contracts will remain under these targets. Furthermore, given the regional interest in OSW development, the region’s aggressive decarbonization goals, and anticipated cost reductions for OSW that are likely to allow it to compete directly with other clean energy resources additional opportunities for long-term contracts are anticipated.

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 NYSERDA Renewable Energy Standard RFP 1 Results

On June 2, 2017 the New York State Energy Research and Development Authority (NYSERDA) issued the 2017 Renewable Energy Standard Request for Proposals (RESRFP17-1). The RFP was the first issued under the state’s Clean Energy Standard. The Clean Energy Standard requires that 50% of the state’s electricity come from renewable sources by 2030, representing about a doubling of the state’s renewable energy requirements. The standard puts an obligation on retail electricity suppliers to purchase increasing amounts of renewable energy to supply their customers. To assists these retailers in meeting their obligations, NYSERDA is required to support the development of large-scale renewable projects by issuing periodic requests for proposals (RFPs) to enter into long-term contracts (i.e., up to 20 years) with renewable energy developers. These RFPs provide for the purchase of renewable energy credits (RECs), rather than bundled energy and RECs.

The 2017 Renewable Energy Request for Proposals resulted in agreements to develop 26 new large-scale renewable projects. Of the 26 projects selected, 22 are solar, 3 are wind, and one is a hydroelectric project. In addition, one of the selected wind farms will include an energy storage component. The 26 projects will add 1,383 MW of capacity and generate 3.2 TWh per year, providing about 2% of the 50% 2030 target. The weighted average price for the Tier 1 RECs purchased was reported as $21.71. A map of the selected projects is included below:

Review of 83D Selection: Northern Pass Transmission, Hydro

Today, the Massachusetts investor-owned electric distribution companies in coordination with the Department of Energy Resources (DOER) announced the completion of the evaluation of responses to the Massachusetts Clean Energy Generation RFP (83D RFP). Northern Pass Transmission, Hydro was selected as the sole winning bid; representing a purchase of 9.45 TWh per year. Eversource Energy and Hydro-Québec Production (HQ) are the proponents of Northern Pass Transmission (NPT), which will deliver 1,090 MW of hydropower to the region.

Overview of Northern Pass Transmission

The NPT project is a 320 kV 192-mile transmission line from the Quebec border to Deerfield, New Hampshire where it will connect to the rest of the New England grid.  With a capacity rating of 1,090 MW, the project will have a capacity factor of +98%. The line will be developed in two segments – a 158 mile HVDC partially overhead and partially buried section from Stewartstown, NH to Franklin, NH and a 34 mile HVAC overhead line from a new substation in Franklin, NH to the southern terminus. Up to 80% of this construction will take place within existing right of way. Having made considerable progress on the development of the transmission and with the HQ hydroelectric facilities already constructed or under construction, the project has been touted by the developers as “shovel-ready”, with a 2020 in-service date.

One challenge that remains for NPT is receiving final permitting and regulatory approvals from:

  • the New Hampshire Siting Evaluation Committee (NH SEC);
  • Army Corps of Engineers (Section 404 permit);
  • and the Federal Energy Regulatory Commission (rate authority and firm transmission capacity agreement approval).

This is especially the case for the NH SEC, given the delays in receiving a permit from the Committee and the substantial public opposition NPT has faced in Northern New Hampshire. A twelve-day period of public deliberations will begin on January 30th for the NH SEC, leading to an oral decision by February 23, 2018. The project has already received a Presidential Permit from the U.S. Department of Energy and key Canadian permits.

Hydro Québec’s Position in New England

 Overall HQ participated in six of the forty-six submissions to the 83D RFP, including three of the proposed transmission projects with offers of hydro with and without 300 MW of Quebec wind. Already HQ supplies about 10% of New England’s annual energy requirements and with the addition of this project will be providing upwards of 17%.

A PDF version of this update is available here.

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.

Alberta REP 1 Results – Summary and Commentary

December 14, 2017

To:       Power Advisory LLC Clients and Contacts

From:   Sarah Simmons, Jason Chee-Aloy, and Kris Aksomitis, Power Advisory LLC

Yesterday, the Alberta Electricity System Operator (AESO) announced the results and contract awards from their first Request for Proposals (RFP) under their new Renewable Electricity Program (REP), known as REP 1.  The results and contract awards are available on the AESO’s website: https://www.aeso.ca/market/renewable-electricity-program/rep-round-1-results/.

This announcement is a culmination of efforts that began in 2015 following the release of the Government of Alberta’s (GOA’s) Climate Leadership Plan (CLP), which called for the addition of 5,000 MW of new renewable generation capacity by 2030 as part of a plan to supply 30% of Alberta’s electricity needs from renewable energy.

By all accounts, REP 1 was expected to be a highly competitive procurement – and the results of yesterday’s announcement has delivered on that expectation.  Exceeding the REP 1 procurement target by nearly 200 MW, a total of just under 600 MW of wind generation was procured, with a weighted average contract price of just over $37/MWh:

  • Capital Power’s 202 MW Whitla;
  • EDP Renewable’s 248 MW Sharp Hills;
  • Enel Green Power’s 115 MW Riverview; and
  • Enel Green Power’s 31 MW Phase 2 of Castle Rock Ridge.

With contract prices ranging between $30.90/MWh to $43.30/MWh, the energy industry in Alberta, and across Canada, will take note and time to reflect on what these results mean going forward.  These prices are record setting for Canadian wind generation projects.

The following summary and commentary reflects on the outcomes of yesterday’s announcement by providing background on the competition and reflects on the next steps the AESO may consider for future rounds of the REP.

Contract Price

Originally the CLP called for a cap of $35/MWh for Renewable Energy Credits (RECs).  At the start of the consultation with industry regarding the design of the REP in 2016, the AESO had initially considered a simple, fixed-price contract approach for RECs.  In other words, the proposed a fixed-price REC would be paid on top of wholesale energy market revenues.   While the approach was considered to address the objective of maintaining the impact of market price signals and would be compatible with a price collar (i.e. the cap), the AESO ultimately adopted an Indexed-REC approach as outlined in their recommendation report to the GOA in May 2016.  Given the variability in predicting cash-flows from wholesale market revenues, an Indexed-REC was adopted to help ensure that the overall unit price for contracted renewable generation was as low as possible.  The Indexed-REC provides a predictable revenue stream, which unlocked wide-ranging industry participation by enabling broader debt-financing options.  This approach also provides protection to Alberta’s electricity customers, who would see a benefit if pool prices are greater than the contract price.

The resulting weighted average contract price of $37/MWh is indictive of the Indexed-REC price approach and the ability to put downward pressure on the costs for renewable energy projects. The decision to move to a ‘contract-for-difference’ approach not only achieved low prices by attracting relatively low-cost capital, but also reduced ratepayer exposure to higher future payments (i.e., the average contract price is lower than 2018 forward energy prices and in-line with expected wind realized prices).

Indeed, the contract prices achieved in REP 1 are notable from a national perspective.  The prices are significantly lower than the Ontario Independent Electricity System Operator’s (IESO’s) Large Renewable Procurement (LRP) in 2016 (299.5 MW of wind generation contracted at an average price of approximately $86/MWh) and Hydro Quebec Distribution RFP results from December 2014 (446.4 MW of wind generation contracted at an average price of approximately $76/MWh).  The Alberta result is more aligned with recent Power Purchase Agreement (PPA) prices in U.S. jurisdictions as illustrated the figure below from Berkley Lab.

Source:  Berkley Lab, Wind PPA Prices (https://emp.lbl.gov/wind-ppa-prices)

Successful Proponents

Two incumbents and one new entrant to Alberta’s electricity market were successful – each with an aggressive approach.

As one of Alberta’s largest electricity generators, with a fleet consisting primarily of fossil-fuel generation, Capital Power clearly made a push towards achieving their wind generation development goals for 2017.  Enel Green Power, relatively new to the Alberta market, expands upon their existing Castle Rock Ridge wind generation project which was completed in 2012, and moves forward with a new sizable project.

New to Alberta, EDP Renewables competed and won against a strong incumbency as well as other competitive would-be new entrants.

Both EDP Renewables and Enel Green Power are building upon recent successes in North American renewable generation procurements; EDP Renewables being successful in IESO’s LRP I RFP, and Enel Green Power setting a record-breaking low price of $17.70/MWh in Mexico’s most recent renewable energy auction.

What’s Next?

The GOA and the AESO will reflect on the results and success of REP 1 as they move forward with the design of future rounds.  With these Canadian record-setting contract prices, any proposed changes to REP will need to be weighed against the potential for putting upward pressure on future contract prices.  That said, the AESO has been clear that the Indexed-REC approach would be used for REP 1, leaving it open for discussion in future rounds.

As more renewable generation is procured, the AESO will need to consider broader system impacts.  The REP 1 wind generation projects will be built with no new transmission requirements.  The AESO had previously stated that the existing as-built transmission system can accommodate approximately 2,600 MW of new renewable generation.  However, all the REP 1 projects are located in southern Alberta; incremental generation proposed in this region may give rise to congestion issues in future rounds.  Inevitably, the AESO will likely need to consider new transmission investments to achieve the 5,000 MW renewable generation target.

As the industry analyzes the results and contract awards from REP 1, we should anticipate that the AESO may move quickly to launch the next procurement rounds.  For this reason, Power Advisory encourages interested proponents to use this time to prepare by considering the needs or interests for proposed changes to the REP procurement process.  For example, should the REP consider mechanisms to promote regional diversity?  A benchmarked-approach to provide benefit to solar resources?  How might future rounds consider Aboriginal support?  These questions should be considered in context of the success of this first round to deliver low contract prices.

A PDF version of this analysis is available here.

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

Massachusetts 83C RFP For Long-Term Offshore Wind Energy Contracts Issued

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

With approval from the Department of Public Utilities earlier in the week through D.P.U Order 17-103, the Massachusetts electric distribution companies issued a Request for Proposals for Long-Term Contracts for Offshore Wind Energy Projects on June 29, 2017. This kicks off the first in a series of competitive solicitations under Section 83C of Chapter 169 of the Acts of 2008 for 1.6 GW of offshore wind (OSW) capacity by June 2027.

Three existing Bureau of Ocean Energy Management (BOEM) Massachusetts lease holders – Deepwater Wind, Bay State Wind LLC (DONG Energy and Eversource), and Vineyard Wind (Copenhagen Infrastructure Partners and Avangrid Renewables) – meet the definition of an eligible bidder and are expected to submit proposals by the December 20, 2017 deadline. Proposals are required for the target capacity of 400 MW, with both a project specific generator lead line and expandable transmission option. Additional proposals between 200 MW and 800 MW may also be submitted, but proposals with project capacities greater than 400 MW must be determined to be superior to other proposals, as well as to likely offer significantly more economic net benefits to Massachusetts ratepayers than procuring this capacity through subsequent solicitations.
TIMING OF SOLICITATION Although the DPU also reviewed the method for solicitation and execution, the timetable was the only component of the RFP where changes were directed. A one-month reduction in the evaluation period by and three-month reduction in the selection and contract negotiation periods by was directed by the DPU. This change reflects commenters (including Bay State Wind) and DPU contentions that acceleration will maximize ratepayer and environmental benefits.

The scheduled phaseout of the 2.3 ¢/kWh Production Tax Credit (PTC) primarily motivated this timing decision. Each year from now through 2019 the PTC is reduced by 20%, so that the amount for projects initiating construction in 2017 is 80%, 2018 60% and 2019 40% of the full amount, after which it is no longer available. Completing the solicitation in the middle of Q3 instead of Q4 2018 increases the chances that the successful proponent(s) will qualify for the PTC. Find the revised schedule below.

Overall the accelerated schedule is expected to result in lower development costs and increased project viability, with projects online sooner and offering more benefits than under the initially proposed RFP. The effect of the four-month schedule advancement is largely a greater likelihood of the successful proponent being able to capture the PTC available in 2018, but the change supports the development of US offshore wind industry. To realize cost reductions that have been achieved in Europe’s OSW industry, the supportive policy environment offered by policymakers and regulators in states like Massachusetts are essential.

Power Advisory would welcome the opportunit y to assist clie nts in assessing opportunities in the nascent US offsh ore wind market, especially the upcoming BOEM Massachusetts WEA lease sale auctions , participation in subsequent 83C solicitations, and submitting comments on this RFP.

A PDF version of this commentary is available here.