Category Archives: Procurement Initiatives

New England Class I REC Market Update

While most Class I REC markets across the country are generally oversupplied, the smaller New England Class I REC market stands apart as recent events have driven prices dramatically higher over the last year (Figure 1). In fact, 2019 vintage Class I RECs have climbed all the way from $7/REC a year ago to about $40/REC today, a stunning 5.7x increase. This suggests a shortage of RECs available in the marketplace to compliance entities who need to meet state Renewable Portfolio/Energy Standards.

Figure 1. 2019 Vintage ISO-NE Class I REC Prices, Last 12 Months ($/REC)

Source: S&P Global, Power Advisory analysis

The main factor influencing the REC market is the anticipated timing of completion of a series of large offshore wind projects. There are currently 2,304 MW under contract in New England (including the 804 MW Mayflower Wind project which is negotiating PPAs with the Massachusetts electric distribution companies) and more expected in the future (namely an ongoing Connecticut procurement process for up to 2,000 MW). While the 800 MW Vineyard Wind project owned by Avangrid Renewables and Copenhagen Infrastructure Partners had appeared construction-ready, and almost at financial close, it suffered a setback when the Bureau of Ocean Energy Management (BOEM) delayed the project’s federal permitting on August 9, 2019. BOEM has mandated that Vineyard Wind to go through a supplemental draft Environmental Impact Statement (EIS) process that takes account the cumulative impacts of offshore wind development in the region.The timing of this analysis is unclear and is subject to normal public comment and review. Vineyard Wind is expected to be delayed at least six months, with potential knock-on effects for the rest of the offshore wind pipeline.

Other significant events that have driven prices higher by increasing REC demand or reducing supply include:

  • Maine increasing its RPS in June 2019 following the election of a new clean energy-friendly governor last year, and
  • National Grid selecting only one significantly smaller solar project for negotiation from its 400 MW renewable RFP in Rhode Island.

But it’s the offshore wind that is the big driver. Assuming a 48% capacity factor, the three ISO-NE utility-scale offshore wind farms alone that are under contract, consisting of Vineyard Wind (800 MW), Revolution Wind (700 MW) (Orsted/Eversource) and Mayflower Wind (804 MW) (Shell/EDPR), would generate almost 10 million MWhs when they are connected to the grid. Should those projects be connected by 2030 as expected, the modest amount of onshore renewables recently contracted come online, and trends in behind-the-meter solar continue, a gap of about 11 million MWhs would remain to meet RPS requirements within New England as a whole. However, Connecticut’s targeted 2,000 MW procurement and an additional 1,600 MW of offshore wind planned by the Massachusetts Department of Energy Resources will fill – and then exceed – the estimated gap.

When considering the balance of the REC market it is important to note that each state has its own renewables standards and procurement statutes, with respective definitions, eligibility requirements and targets (see Figure 2 for the current Class I equivalent standards). Furthermore, RECs are tradable within ISO-NE and from adjacent control areas.

Figure 2. Current New England Class I Standards Through 2050

Once the contracted offshore wind projects reach commercial operation, expected to be in the 2023-2026 time frame, Class I REC pricing will presumably stabilize and then begin eroding as the much needed RECs hit the market. Until then, the pricing could remain high, as the market appears to be undersupplied. The additional 3,600 MW of offshore wind expected to be contracted by Connecticut and Massachusetts will result in an oversupplied market starting in the late 2020s.

Alternative Compliance Payment (ACP)

The alternative compliance payment (ACP) acts as ceiling to the market. The ACP is $70.44/REC in Massachusetts for 2019 and $55.00/REC in Connecticut. Thus, current bid-asks as lofty as $46/REC according to the Intercontinental Exchange, or 84% of the CT ACP, signal that we are nearing or at an undersupplied market. That’s because the alternative is to pay the ACP which is not that much higher.

New Build Capacity to Meet 2030 Targets

As noted above, Power Advisory estimates that the incremental 3,600 MW of offshore wind expected from Connecticut and Massachusetts in addition to the current renewables contracts and supply would entirely satisfy the 2030 New England RPS requirements. The aggressive offshore wind procurement targets combined with high capacity factors squeeze out opportunities for onshore wind and solar assets that have been used to comply with RPS to date. This is not to say that there are not onshore renewables development opportunities. For example, Maine will be issuing two near term Requests for Proposals for the equivalent of 14% of its 2018 retail electricity sales (discussed in Power Advisory’s July note on recently enacted legislation in the state).

Expected Long Term REC Pricing

Following the current New England Class I REC price spike, we expect prices to stabilize and then erode as the project development process catches up with the mandates, driven mainly by offshore wind and to a lesser extent, the Massachusetts SMART program and other procurements. Longer term (post-2030), we expect an oversupply of RECs leading to a substantially lower REC prices. Projects will become less reliant on RECs over time. Future regulatory and policy announcements, load growth due to electrification, or substantial retirements could support higher prices.

A PDF version of this note is available here.

Power Advisory welcomes the opportunity to assist clients’ understanding of the New England REC market and assessment of renewables development in the region.

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

US OSW Project Construction Pinch Points

Two weeks ago New York State announced that they were negotiating contracts with two OSW projects totaling 1,696 MW, with 2024 commercial operation dates (COD), a year when additional 1,348 MW is scheduled to enter commercial operation: Ørsted US Offshore Wind’s (Ørsted’s) 1,100 MW Ocean Wind Project and US Wind’s 248 MW Maryland project. With this the US Northeast/Mid-Atlantic has awarded or is anticipated to award this year OSW contracts representing over 6,000 MW. These are shown by their anticipated COD and developer below.

* Ørsted projects are with various partners including Eversource, PSEG and Dominion.

These projects will result in cumulative investment of about $22 billion and about 13,000 direct jobs (FTEs) and a total employment impact of over 42,000 during the construction period. This is a quick start to a major new industry where the supply chain to support it is just beginning to be developed. An obvious question is: can this industry develop at this pace, without significant and costly growing pains? While there are many challenges, work appears to be underway to address some of the largest pinch points. Oft-cited examples include ports, vessels and qualified labor in some trades (ex. metal fabrication and marine services).

States and OSW developers are aware of the port constraints and are seeking to ensure that the necessary investments have been made to enable the construction of these projects at reasonable costs and without undue delays.  Based on our assessment some gaps are that Vineyard Wind appears to need an additional port for its 800 MW contract with the Massachusetts EDCs beyond the New Bedford Marine Commerce Terminal and Equinor is in need of a port for marshalling, but New York State has earmarked $200 million for near term port development. 

Sufficient suitable vessels are another possible constraint. The Jones Act and port infrastructure clearly will shape the vessel spreads that developers will employ. While there are reportedly Jones Act compliant OSW installation vessels under construction, vessels and port restrictions including their size (both laydown area and quayside length), air draft restrictions and available infrastructure present challenges.

With respect to labor force constraints, this level of OSW development would result in about 2,400 fabricated structural metal manufacturing jobs and 1,600 marine services jobs (FTEs) during the construction period and over 500 OSW maintenance jobs. These are three areas with particular needs that could outstrip available resources, without training.  However, numerous investments being made by states and OSW developers to develop the workforce and suggests that this potential constraint is beginning to be addressed.

Some final questions:

  • Our initial analysis indicates that the critical pinch points are being addressed.   However, how do all these programs and investment fit together?
  • Is there unnecessary overlap or areas where additional investment will provide the greatest benefit in terms of avoiding supply constraints and facilitating the desired development of the OSW supply chain in the US?

Recently Enacted Legislation Opens Up New Renewable Generation Development Opportunities in Maine

Since Janet Mills was sworn in as governor in January and the democrats had also secured control of both chambers, the expectation was that 2019 was going to be a big year for climate and clean energy in Maine. This has certainly turned out to be true. As an early action, Governor Mills issued Executive Order 3 FY 19/20 to conclude the Maine Wind Advisory Commission and wind permit moratorium that had been in place since the beginning of 2018. A flurry of legislation was also introduced addressing everything from net metering (re-instituted in March through L.D. 91) to electrification, the renewable portfolio standard, procurement targets and Aqua Ventus floating offshore wind pilot project.

Leading up to the adjournment of the legislative session on June 20th a number of these bills passed and were subsequently signed by the Governor. Most notable to renewable generation development in the state were L.D. 1494 and L.D. 1711, which are reviewed below. These offer direct opportunities for long-term contracts for new projects. Respectively, about 400-800 MW of utility scale renewables and 375 MW of distributed solar by 2024.

An Act To Reform Maine’s Renewable Portfolio Standard (L.D. 1494 / Chapter 477 PL)

L.D. 1494 passed the legislature on June 18th, 2019 and was signed into law by the Governor the following week. It expands Maine’s RPS to 80% by 2030 and to 100% by 2050 from 40% (Class I – New 10% and Class II – Existing Resources 30%) while creating a new class of RPS resources, Class IA, for the incremental renewable generation capacity targeted.

In addition, it calls for the competitive procurement of Class IA resources to the level of 14% of 2018 state retail electricity sales, about 1,500 GWh, through a series of two RFPs to be issued by 2021. Energy storage, mechanical, chemical or thermal, can be awarded contracts if paired with eligible Class IA resources. The first RFP is likely to be issued in late 2019 or early 2020 for approximately 750-1,100 GWh (7-10% of 2018 sales per the legislation). A second RFP will then be issued in late 2020 but no later than Jan 15th, 2021 for 450-750 GWh (14% of 2018 electricity sales minus the generation contracted in the first RFP).

The Maine Public Utilities Commission is responsible for administering the reformed RPS  including the two mandated procurements. In this role, the Commission is to direct the Maine investor-owned transmission and distribution utilities to enter the long-term contracts selected from the RFPs. The state’s two investor owned utilities are Avangrid’s Central Maine Power (CMP) and Emera Maine (Bangor Hydro Electric Co. and Maine Public Service Co.), which is pending sale to ENMAX Corporation. While the Commission will retain significant discretion in the solicitations certain aspects were directed in L.D. 1494.

Overall the estimated near term opportunity resulting from the reformed Maine RPS is 400 MW of  land based wind, 850 MW solar or a combination of the two technologies.This opportunity for new renewable generation resources could be up to 25% lower to the extent that sufficient resources that began commercial operations on or prior to June 30, 2019 are available.

An Act To Promote Solar Energy Projects and Distributed Generation Resources in Maine (L.D. 1711 / Chapter 478 PL)

L.D. 1711 calls for the competitive procurement of distributed generation (DG) resources in sequential blocks for a total of 125 MW commercial or institutional DG (i.e. non-residential customers) and 250 MW of community shared DG by July 1, 2024. The initial procurement must occur on or before July 1, 2020 with the rules for both solicitations to be in place by January. Four additional blocks of DG are then to be used by the PUC to meet the overall procurement goals with stipulations on each block that the contract rate be equal to 97% of the preceding block. For the purposes of these procurements a DG resource means an electric generating facility with a nameplate capacity less than 5 MW that uses an eligible renewable fuel or technology and is located in the service territory of a Maine T&D utility. Solar is understood to be the predominant distributed renewable technology.

There are number of specifics in this law with regards to the competitive procurements and net energy billing which should be reviewed. An earlier version included a 400 MW utility-scale procurement provision with a $35/MWh cap, but that was struck from the enacted version.

Carson Robers, Senior Consultant, Power Advisory LLC

A PDF version of this note is available here.

Review of New Jersey Ocean Wind Project Pricing

This memo updates our review of the New Jersey Board of Public Utilities (BPU) Offshore Wind Renewable Energy Certificates (OREC) award to Ørsted US Offshore Wind’s 1,100 MW Ocean Wind project. The BPU made available its order and this provided additional details, which required that our earlier memo be updated. In this memo, we focus on the Ocean Wind contract pricing.

The Ocean Wind project will be developed in three tranches of 368 MW each with a COD in 2024. The first year all-in OREC price is $98.10 per MWh and this price is realized only by Phase 1 for one-month after which it escalates. The price escalates at 2% per year such that in 2045 the contract price will be $148.68/MWh. This equates to a nominal levelized price of $116.82/MWh, representing a 19% premium relative to the price for the smaller Revolution Wind project secured by Rhode Island, which has a similar COD in 2024. The premium is considerably greater relative to the contract price for the Vineyard Wind project, which is able to realize a higher investment tax credit.

Nominal Levelized Pricing Comparison ($/MWh)

Frankly, we are surprised by the magnitude of this premium, even with the superior wind resource that is available to the Revolution Wind project. Interestingly, the OREC Order provides for an annual OREC allowance, which implies a 50%, capacity factor which is higher than that reported for Revolution Wind. However, Ocean Wind is precluded from selling more ORECs than its annual allowance, so this allowance is likely to be greater than a P50 estimate.

The lack of transparency regarding the evaluation and scoring framework used by the BPU doesn’t help in explaining this outcome. The BPU evaluation criteria were identified as the OREC purchase price, economic impact, ratepayer impact, environmental impact, the strength of guarantees for economic impact, and the likelihood of successful commercial operation. However, the relative weights of these evaluation criteria aren’t specified and the tradeoffs that the BPU made in selecting Ocean Wind cannot be ascertained.

Nonetheless, it does appear that there were tradeoffs with respect to these evaluation criteria. Specifically, the BPU order indicates that the Ocean Wind project “provides the best economic development benefits to the state of any of the applicants.” Further, it notes that “Although other projects presented a lower PVNOC [Present Value of Net OREC Cost], given the Ocean Wind 1,100 MW project’s strength in all of the other evaluation criteria, an award to Ocean Wind is in the best interest of the State of New Jersey and its ratepayers” (BPU Order, p. 19).

A PDF version of this memo is available here.

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.

Tennessee Valley Authority 2019 Renewables Request for Proposals

On April 1, 2019 the Tennessee Valley Authority (TVA) issued a Request for Proposals seeking at least 200 MW of renewable energy.[1]  The RFP is open to either stand-alone renewable energy resources or renewable energy resources with battery storage. The Commercial Operation Date (COD) deadline is no later than October 31, 2022, and all proposals must be submitted to TVA by May 15, 2019.

This announcement comes on the heels of TVA’s draft IRP and previous 2017 Renewable RFP, both of which indicate increased momentum by TVA to increase the amount of renewable energy in their resource mix. In February, TVA released their draft 2019 Integrated Resource Plan (IRP), which outlined potential capacity resource mixes over the next 20-years.[2] In contrast to an absence of any new capacity for coal, hydro, and wind, there was an increase in the amount of solar across all scenarios, with solar projected to expand by 3,700 to 8,800 MW by 2038.[3]  In its 2017 Renewables RFP, TVA executed several solar PPAs in partnership with Google and Facebook, with the power purchased by TVA via PPAs, and the technology companies repurchasing the power to satisfy the electricity requirements of various data centers.[4]

While the prices associated with the 2017 PPAs are not publicly available, Figure 1 provides points of comparison with a regional solar cost benchmark alongside some known PPA prices for recent projects in the Southeast US.  The regional solar Levelized Cost of Energy benchmark is based off the rate of decline from the Lazard V.10 and V.11 Southeast US LCOE.[5] While the regional benchmark is based on a theoretical project of 30 MW size, recent projects (including those reflected in Figure 1) in the Southeast are larger and would benefit from economies of scale and offer lower prices.  The River Bend solar project, which came online in 2016, is 75 MW in size and has a levelized price of $51 per MWh (in 2013 dollars).[6] The average PPA price across three solar projects resulting from Georgia Power’s 2017 Renewable Energy Development Initiative (REDI) RFP was reported as $36 per MWh.[7] These three projects were 200, 160, and 150 MW solar farms, owned by subsidiaries of First Solar, Invenergy Solar Development North America, and NextEra Energy Resources respectively (the First Solar project has since been sold to Origis Energy)[8]. Given these recent procurements, limited resource potential in TVA’s service territory, and the absence of wind in TVA’s draft IRP scenarios, opportunities for wind in response to this 2019 RFP seem unlikely.[9]


Figure 1: Cost Benchmark and Recent Southeastern Renewable Energy PPA Prices



*Forecast based on the percentage decline between the V.10 and V.11 Southeast Lazard forecast. Assumes a project size of 30 MW.

 

Power Advisory would welcome the opportunity to assist clients in assessing potential opportunities presented by TVA’s RFP, as well as other opportunities across the United States.

 

A PDF version of this report is here: Power Advisory TVA 2019 RFP


[1] TVA, “2019 Renewable RFP”. Link.

[2] TVA. 2019 Integrated Resource Plan. Link.

[3] TVA. 2019 Integrated Resource Plan. Section 7

[4] Google, Press Release. Knox News, TVA announces solar farms.

[5] Lazard LCOE, V.10; V.11. Assumes a crystalline utility-scale, 30 MW, solar project with a fixed-tilt design, and a 30-35% capacity factor for V.10 (2016) and 17-19% for V.11 (2017).

[6] Lawrence Berkley National Laboratory, Report.

[7] pv magazine, article. Georgia Power, Press Release.

[8] Origis Energy, Press Release.

[9] NREL, Section 7.6.10, Link.

Tennessee Valley Authority Draft IRP and Potential for Solar Development

On February 15, 2019, the Tennessee Valley Authority (TVA) released their draft 2019 Integrated Resource Plan (IRP), which outlines potential capacity resource mixes over the next 20-years.[1] The plan puts forth resource mix projections based on five different planning strategies and six scenarios for a total of 30 different outcomes. TVA will announce a preferred planning strategy after finalizing the IRP in summer 2019. Nonetheless there are still significant signals on future resource mixes within the draft plan. Notably, in contrast to an absence of any new capacity for coal, hydro, and wind, there is an increase in the share of solar across all projections, with differences between the amounts of utility-scale and distributed solar.[2]

Solar is projected to expand by 3,700 to 8,800 MW by 2038.[3] A large majority of these projected additions are utility-scale solar.[4] In two of the planning Strategies (A – “Base Case” and D – “Promote Efficient Load Shape”) all additions are projected to be utility-scale solar additions; and in the other three planning Strategies (B – “Promote DER”, C – “Promote Resiliency”, and E – “Promote Renewables”), there are varying amounts of distributed solar growth in addition to utility-scale growth. Exact numbers are not provided in the draft IRP, but the differences are visually illustrated in Figure 1 on the next page.

Results from past RFPs provide an indication of future opportunities for solar development. For example, a 2015 RFP for solar resulted in a 53 MW project owned and operated by Silicon Ranch.[5] More recently, as a part of TVA’s 2017 Renewables RFP and in partnership with Google, two 150 MW solar projects are being developed by NextEra Energy Resources and Invenergy. All power will be purchased by TVA via PPAs, with Google buying and using any power required for their data center needs.[6] This November, a similar partnership in scope and structure was made with Facebook, and the developers NextEra and First Solar.[7] While the more recent project was not attributed to the 2017 RFP, it is clear that regardless of what planning strategy is adopted by TVA, they see solar playing a significant role in their future energy mix.

Figure 1: TVA Nameplate Capacity – Solar Additions

Power Advisory would welcome the opportunity to assist clients in assessing potential opportunities presented by TVA’s draft IRP, as well as other opportunities across the United States.

[1] TVA. 2019 Integrated Resource Plan. Link.

[2] TVA. 2019 Integrated Resource Plan. Section 7.1.3 “Capacity Plans”

[3] TVA. 2019 Integrated Resource Plan. Section 7

[4] TVA. 2019 Integrated Resource Plan. Figure 7.7

[5] TVA, 2015 RFP, Link. News article, Link.

[6] Google, Press Release. Knox News, TVA announces solar farms.

[7] TVA, Press Release.

 

A PDF version of this post is available here: Power Advisory – TVA Solar Development Opportunity

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.