Healey playing catch-up with latest offshore wind procurement

THE HEALEY ADMINISTRATION made the best of a bad situation on Tuesday, issuing a draft of the state’s fourth request for offshore wind proposals that reworks the failed third procurement, pushes forward with a modest wind farm expansion, and provides some increased flexibility to future bidders.

The cloud hanging over this procurement is its predecessor, which looks as if it will turn out to be a bust. Avangrid pulled the plug on its 1,200-megawatt Commonwealth Wind project, saying the terms of the power purchase agreement it signed are no longer sufficient to finance the project given high interest rates, inflation, the war in Ukraine, and supply chain difficulties. The corporate team of Shell New Energies and Ocean Winds appears poised to do the same with its 1,200-megawatt SouthCoast Wind project, although the companies have shied away from saying so definitively publicly.

With the two round-three projects seemingly on the ropes (although technically not knocked out because no one seems to know how to resolve the situation), the Healey administration put together a request for proposals seeking up to 3,600 megawatts of power – 2,400 megawatts to cover the expected loss of the Commonwealth and SouthCoast wind projects and 1,200 megawatts of new generation.

Gov. Maura Healey tried to spin the situation positively, portraying her administration’s first procurement as the largest in the region’s history, enough to account for 25 percent of the state’s annual electricity needs. All true, except that this procurement is largely playing catch-up after the loss of the third procurement, which means the state’s bid to embrace offshore wind is running behind schedule.

The request for proposals was filed with the Department of Public Utilities on Tuesday. After review, it should go out to bid in June and the five offshore wind businesses with leases off the coast of Massachusetts – Avangrid, Orsted, Equinor, Shell/Ocean Winds, and Copenhagen Infrastructure Partners — have until January 31 to submit bids. The winners are currently scheduled to be announced in June 2024, with 15- to 20-year contracts with the state’s utilities signed, reviewed, and approved sometime in the fall of 2024.

It’s the first procurement process where the Department of Energy Resources is taking the lead and the state’s three major utilities are taking a more secondary role. State officials also left open the possibility of working out some sort of offshore wind collaboration with a neighboring New England state, although they were vague on how that would work.

The state’s last procurement went off the rails when the economy shifted and the wind farm developers were left with power purchase contracts they considered no longer sufficient to secure financing. The new procurement seeks to prevent that from happening again by giving wind farm companies the opportunity to submit one bid that assumes no major change in economic conditions and a second “indexed price bid” that would allow the price to move upward or downward by as much 15 percent if an adjustment is dictated by a shift in a set of indicators agreed to by the various parties.

One big area of interest with this procurement was how Avangrid and Shell/Ocean Winds would be treated if they defaulted on the contracts they negotiated and accepted last year. The default process is still playing out behind the scenes on Beacon Hill, but the RFP doesn’t appear to treat the companies too harshly.

Sen. Michael Rodrigues of Westport, the Senate’s top budget official, had called for Avangrid to be banned from the next procurement if it failed to follow through on its power purchase agreement. Avangrid urged the Healey administration to allow it to scrap its old project and move on to this procurement. SouthCoast Wind adopted a similar message.

The RFP unveiled Tuesday sides largely with the offshore wind companies, requiring bidding companies to disclose “past terminated projects and claims of financial difficulties” and notes anyone with a blemish on their record could be penalized in the point-scoring contract process. The RFP also requires those bidders who have previously defaulted on or terminated a power purchase agreement to provide additional security for their bids.

But the RFP does not bar Avangrid or Shell/Ocean Winds from submitting bids, which is what the companies wanted. How the default itself is resolved and what financial penalties are assessed will be determined separately.

Under current law, the state can procure up to 5,600 megawatts of offshore wind. The state’s first project, the 800-megawatt Vineyard Wind, is expected to start generating some electricity later this year. The Healey administration wants to procure a total of 3,600 megawatts on this latest procurement — 2,400 megawatts to replace the Commonwealth and SouthCoast wind projects. That leaves room for another 1,200 “new” megawatts this round and another 1,200 megawatts in a future round.

Sen. Michael Barrett of Lexington, the Senate chair of the Legislature’s Telecommunications, Utilities, and Energy Committee, said he liked the pacing of the Healey administration’s procurement. He said the electricity coming out of this procurement is likely to be priced pretty high (he used the term “sky-high rates”), given inflationary pressures, supply chain difficulties, and the expiration of a price cap requiring each bid to come in lower than the previous one.

Barrett said the Healey administration has to play catch-up with this procurement, but it was wise to hold off on the last 1,200 megawatts until the pricing environment improves. He also urged the administration to tread carefully in trading a higher price for electricity in return for onshore economic development. He noted clean electricity will increasingly be used to heat homes and power vehicles, and higher prices for power will make it more difficult to transition away from fossil fuels.