Offshore wind in the U.S. has encountered an economic tsunami. Long-standing power purchase agreements (PPAs) going back years, the financial foundations for nascent wind projects, are cratering. A new U.S. government offshore wind site auction failed to attract substantial interest.
On Monday (Oct. 2), Connecticut-based Avangrid, a U.S. subsidiary of Spain’s Iberdrola, announced it was pulling the plug on its vintage PPAs for the proposed 804-MW Park City Wind project with distribution utilities Eversource and United Illuminating (which Avangrid owns), saying the price in the PPA made the project “uneconomical.”
Avangrid said, “One year ago, Avangrid was the first offshore wind developer in the United States to make public the unprecedented economic headwinds facing the industry including record inflation, supply chain disruptions, and sharp interest rate hikes, the aggregate impact of which rendered the Park City Wind project unfinanceable under its existing contracts.” The company said it plans to rebid the project. The Connecticut Public Utilities Regulatory Authority must approve the cancellation of the power sales contract. The contract calls for a $16 million cancellation penalty.
Park City Wind’s troubles threaten to derail New England’s plans for a transition to an electric system dominated by renewable power. Connecticut Gov. Ned Lemont said that when state officials approved the PPA after competitive bidding in 2020, “our expectation was to bring affordable, clean, reliable power to Connecticut ratepayers.”
Park City Wind’s failed PPA is not an isolated case. In August, CleanTechnica reported that co-developers Ocean Winds and Shell announced they had terminated PPAs with New England utilities National Grid, Eversource, and Until, with a $60 million penalty, for the 1,200-MW South Coast Wind project on a lease 30 miles south of Martha’s Vinyard.
In July, Utility Dive reported that “Eversource Energy, National Grid and Unitil have reached an agreement with Avangrid on terminating their power purchase agreements for the company’s 1,223-MW proposed offshore wind farm Commonwealth Wind.” A $48 million cancellation penalty is included in that contract.
At the same time as Park City’s PPAs were deep-sixed, Utility Dive noted that Rhode Island Energy announced “that it would not move forward with a long-term PPA with Ørsted and Eversource for their joint offshore wind project, the 884-MW Revolution Wind 2, calling it ‘too expensive.’”
Commenting on the Park City Wind PPAs, CleanTechnica, which describes itself as “an ardent supporter of offshore wind,” said ruefully, “There have been many proposed offshore wind farms along the New England coast and southward to New York and New Jersey, but to date, the five turbines installed near the coast of Block Island in 2016 are the only offshore wind turbines currently installed and operating in the United States.”
Hoping to rescue the faltering offshore wind industry in the region, on Wednesday (Oct. 4), Connecticut’s Lamont announced a “strategic roadmap for economic development in the offshore wind industry…a newly-formed public-private group known as the Connecticut Wind Collaborative.” The roadmap will convene “leaders from across the offshore wind industry to foster collaboration within the state and across the region,” with no specifics beyond that, suggesting that it is more political than practical.
While some of the economic woes of offshore wind are situational – high interest rates, materials inflation, supply chain problems (including a shortage of support vessels) – there may be underlying fundamentals that render offshore wind shaky. In 2020, the conservative Manhattan Institute laid out some basic economic issues with offshore wind.
One problem is familiar, as it was featured in the 1960s and 1970s hype for nuclear power: scale economies. A characteristic of the planned offshore wind projects has been ever bigger machines on ever taller towers, in order to create economies of scale. The Manhattan Institute critique says that “forecasts of rapidly declining costs through increasing economies of scale are unrealistic. Absent continued subsidies—such as state mandates for offshore generation and renewable energy credits, which force electric utilities to sign long-term agreements with offshore wind developers at above-market prices—it is unlikely that any offshore wind facilities will be developed.”
Also, says the analysis, the projects likely will have shorter lifetimes than the developers have assumed. “Experience in Europe over the previous decade,” says the report, “demonstrates that the performance of offshore wind turbines degrades rapidly—on average, 4.5% per year. As output declines and maintenance costs increase, project developers will have a growing economic incentive to abandon their projects before the end of their contracts to supply power.”
A recent Interior Department site auction highlights the headwinds new offshore projects could be facing. On August 29, Interior’s Bureau of Ocean Energy Management (BOEM) held what some have described as a “long awaited” auction for outer continental shelf sites in the Gulf of Mexico. BOEM offered three sites: 102,480 acres off Lake Charles, Louisiana, and two off Galveston, Texas, one for 102,480 acres and the other for 96,786 acres.
The Energy Law Blog reported, “Disappointingly, the sale resulted in a single $5.6 million winning bid for the lease area offshore Louisiana, submitted by the provisional winner, RWE Offshore US Gulf, LLC (RWE). According to results posted online by BOEM, the other two lease areas offshore Texas received no bids.”
The same lack of interest has also appeared in the U.K., which has a much longer experience with offshore wind than the U.S. In September, The U.K. government held the latest in a series of offshore auctions. Unlike prior auctions, the most recent drew no bidders. The Guardian commented, “Britain’s climate ambitions have suffered a blow after no new offshore windfarms were secured in the government’s latest clean energy auction despite there being the potential for 5 gigawatts of projects – enough to power 8m homes a year.”
Bidders said they would be unable to make money on the low price the government was mandating for the 15-year contracts. When the government-paid prices in prior auctions were considerably higher, offshore wind emerged as “Britain’s most successful clean energy sector.”
–Kennedy Maize
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