AT LEAST THREE of the five offshore wind developers with leases off the coast of Massachusetts are likely to submit bids in the state’s next procurement, but it’s unclear whether that level of competition will be enough to act as a brake on price escalation.
Two of the developers, SouthCoast Wind and Vineyard Offshore, confirmed that they will be participating in the upcoming solicitation. Avangrid did not respond immediately to a query about its plans, but it has indicated in filings with state regulators and public comments its eagerness to bid in the next round.
Ørsted, a Danish company that last week said it was writing down the value of its US wind farm projects by $2.3 billion, declined to comment. Equinor, which has never bid on projects in Massachusetts, did not return phone calls.
Having more developers bidding in the state’s fourth procurement could help hold down prices at a time when inflationary pressures are raging through the industry and a state-imposed price cap that limited how much prices could rise has been lifted. Three companies bid in each of the state’s first two procurements, but only two bid in the last one.
SouthCoast Wind and CommonWealth Wind, owned by developers who are paying millions of dollars to terminate earlier contracts that became unfinanceable due to inflation, rising interest rates, supply chain disruptions, and the war in Ukraine, are eager to recover their costs. Vineyard Offshore is partnering with Avangrid on Vineyard Wind 1, the nation’s first commercial scale wind farm that is scheduled to start producing electricity later this year. The other two wind farm developers with lease areas off the coast of Massachusetts are facing pricing challenges elsewhere along the East Coast and may be reticent to bid in Massachusetts.
Sen. Michael Barrett of Lexington, the Senate chair of the Legislature’s Telecommunications, Utilities, and Energy Committee, said he is concerned that sharply higher prices for offshore wind power could stall the state’s decarbonization effort, which is reliant on using clean electricity to displace fossil fuels in the transportation and heating sectors.
“Competition means more than the number of developers bidding,” he said in a phone interview. “It means objective reliable evidence that developers are still bent on economizing and on giving New England consumers affordable rates. I want to see us move to high, high proportions of clean energy, but the long game here requires electricity prices that the public will accept. You don’t want to ignite a backlash against the entire climate policy project.”
This past July, Rhode Island’s leading utility refused to move forward with an offshore wind procurement because the lone bid was too high. New York offshore wind developers are also seeking big increases in previously approved contracts to make the numbers work.
As a result of market pressures on the offshore wind industry, all bids are expected to be priced higher than they were during the last procurement. However, there is also fear that developers will take advantage of the market conditions to make exaggerated adjustments to the price. Barrett said regulators must say no to exorbitant bids.
“I expect to be disappointed by these bids whether there are two respondents or five,” Barrett said. “It’s not a great position to be in, but you have to play the cards you’re dealt and you have to find a way to regain leverage even in an unfavorable negotiating climate. And the leverage here is giving life to the ‘no’ option.”