AS MASSACHUSETTS PREPARES to take bids for the state’s next offshore wind procurement, the question keeps coming up about how to deal with developers who won earlier contracts and terminated them because of changed economic circumstances.
In March, one of the most powerful senators on Beacon Hill urged the Healey administration to bar Avangrid from bidding on any future wind farm projects in the state if the company followed through on its decision to terminate its current offshore wind contract.
“I firmly believe that any company that non-performs on an existing contract should be deemed disqualified and be barred from bidding on any future projects in the state,” wrote Sen. Michael Rodrigues of Westport, the chair of the Senate Ways and Means Committee, on the state’s offshore wind procurement website. “When companies do not act in good faith, they should be stricken from future bids, plain and simple.”
State officials didn’t go along with Rodrigues’s approach, a wise choice in retrospect – now almost every wind developer along the East Coast has terminated a contract because they couldn’t move forward with their projects in the face of rising inflation and interest rates, supply chain disruptions, and the war in Ukraine.
Still, the Healey administration isn’t ignoring the past actions of bidders. According to the procurement documents, the state will ask bidders to provide information on any defaults in the past and may take that into consideration in the bid-scoring process.
The Healey administration is also doing something that has raised eyebrows – demanding significantly higher security deposits from any wind farm developer who reneged on a contract in Massachusetts.
Only two likely bidders – Avangrid and the partnership of Shell Energy Ventures and Ocean Winds – would be affected because of contracts they previously terminated in Massachusetts. As part of those terminations, the wind farm developers forfeited security deposits of $48 million and $60 million, respectively.
The state’s new approach would trigger much higher security deposits. On a 1,200 megawatt project, Avangrid and Shell Energy Ventures/Ocean Winds would be required to post a security deposit of $144 million, while developers who haven’t terminated a contract in Massachusetts would post only $96 million, a difference of $48 million.
In a Q&A between developers and the state about next month’s procurement, one unidentified prospective bidder called the provision discriminatory and said all bidders should be treated the same. The developer said the provision “will require bidders with these higher security requirements to assess risk more conservatively, resulting in higher power purchase agreement prices from bidders that may otherwise be able to offer more cost-effective pricing to Massachusetts.”
Connecticut and Rhode Island, which are conducting a joint procurement with Massachusetts next month, have different policies. Connecticut is assessing a higher security deposit on any wind farm developer who has reneged on a previous contract anywhere. Rhode Island, by contrast, is not assessing a higher security deposit on developers who previously terminated projects.
A Healey administration spokesperson declined to say why a bidder who reneged on a previous contract in Massachusetts should be treated differently than a bidder who reneged on a contract in another state.
The Bay State approach would mean the Danish company Orsted would not be required to pay higher security deposits to Massachusetts even though it walked away at the end of October from power purchase agreements in New Jersey for the Ocean Wind 1 and Ocean Wind 2 projects because of changed economic circumstances.
New Jersey Gov. Philip Murphy said he thought Orsted’s action was telling. “Today’s decision by Orsted to abandon its commitments to New Jersey is outrageous and calls into question the company’s credibility and competence,” he said. “As recently as several weeks ago, the company made public statements regarding the viability and progress of the Ocean Wind 1 project.”
