THE CEO of Avangrid told financial analysts on Wednesday that his company needs price relief on two of the biggest renewable projects in New England – a major wind farm off the coast of Nantucket and a transmission line carrying hydroelectricity into the region from Quebec.
In his remarks, Pedro Azagra also voiced support for building some form of price flexibility into future offshore wind procurements so prices can be tweaked to accommodate changing economic circumstances.
“You’ve seen some index considerations in other states in terms of offshore development,” he said. “That has to be taken into account. It’s important in the auctions – the process takes so long that a lot of things can happen in the middle and there should be some adjustments.”
Massachusetts officials may be thinking the same thing. The Department of Energy Resources is seeking comment for the next offshore wind procurement and one question it is asking is how best to “account for current and future rates of inflation and other supply chain and economic pressures on the offshore wind industry to both ensure project viability and protect ratepayers.”
Avangrid is a major player in the state’s and the region’s efforts to displace fossil fuels with renewable energy. The company is currently building Vineyard Wind, an 806-megawatt wind farm that is expected to begin producing electricity by the end of this year.
The company is also building a 2,036-megawatt wind farm with the power output to be split between ratepayers in Massachusetts and Connecticut. The Massachusetts portion of the project is called Commonwealth Wind and the Connecticut portion is called Park City Wind.
Avangrid already has power purchase agreements in place with Connecticut and Massachusetts utilities, but it is trying to scrap those contracts because it no longer believes the pricing is adequate to finance the projects.
In Massachusetts, Avangrid would like to scrap the existing contract and bid again in the next procurement later this year. It has filed a lawsuit to overturn a December 30 decision by the Department of Public Utilities approving the contract, and is also talking with state officials about options that would not involve a court fight.
“Let me be clear. While we are terminating our PPAs with Commonwealth Wind, we remain fully committed to our offshore business. This is not a question of commitment or capabilities, but rather a unique economic situation,” Azagra told the financial analysts.
“Unfortunately, the impact of historic inflation, sharp interest rate increases, supply chain bottlenecks, and existence of a price cap prevent us from moving Commonwealth Wind forward under unviable economic conditions,” he said.
Maria Hardiman, a spokeswoman for Gov. Maura Healey’s Executive Office of Energy and Environmental Affairs, indicated the administration is interested in finding a solution.
“The Healey-Driscoll Administration is urgently working to ensure an affordable clean energy transition for our residents and support our growing offshore wind industry,” she said in a statement.
Azagra said Vineyard Wind was not similarly impacted by the recent economic downturn because labor costs on that project are fixed or capped and construction supplies are already purchased.
Azagra also said the company may be pursuing price relief on its transmission line to Quebec. That project stalled after voters passed a law that would have blocked it, but parts of that law were subsequently deemed unconstitutional by Maine’s highest court. The company has scored several other legal and regulatory wins recently on the project, but it still has other hurdles to overcome.
“We have legal things ahead of us and we need to finalize them,” Azagra said.
But the CEO also said the company needs to review the economics of the project. He said the company is closely scrutinizing costs going forward and also looking to boost revenues from the project.
“It’s both things,” he said. “There is a change in law and those additional costs – legally, we believe we are entitled to them.”
He appeared to indicate that the pricing of electricity from the project, which is being financed by Massachusetts ratepayers, could rise because of the delays in Maine. Company officials said they couldn’t provide any clarification on his remarks.
The main focus of the Avangrid presentation to financial analysts was on the company’s finances. Topline numbers were strong, with net income rising from $707 million in 2021 to $881 million in 2022, an increase of 25 percent.