A TOP REGULATOR in Rhode Island is raising concerns about the way offshore wind developers are seeking to renegotiate the financial terms of their projects, saying policymakers are facing “a veritable Hobson’s choice” between protecting the interests of ratepayers and promoting the generation of electricity considered vital in the battle against climate change.
Ronald Gerwatowski, the chair of the Rhode Island Public Utilities Commission and the state’s Energy Facilities Siting Board, made his comments at the end of a 2 ½-hour hearing on Monday dealing with SouthCoast Wind, a project that secured a power purchase agreement in Massachusetts that the developer is now seeking to terminate so it can rebid the project at much higher prices in a procurement slated for next year. The project is before Rhode Island regulators because it seeks to run a transmission line connecting the wind farm to Massachusetts via Rhode Island.
Gerwatowski said his comments were not directed at SouthCoast Wind, but at all the wind farms that are currently having difficulty financing their projects because of rising interest rates, inflation, supply chain disruptions, and the war in Ukraine. He did not dispute the challenges wind farm operators are currently facing, but said their push for more money undercuts a procurement system designed to secure a fair price for ratepayers while giving developers the financial assurances they need to build their projects.
“This system works, but only when competition is real and contracts are honored,” Gerwatowski said. “It would not be in the public interest for lopsided negotiating and pricing leverage to reside in the hands of a small number of developers holding the exclusive rights to build the offshore wind projects in the only ocean area where, as a practical matter, large-scale projects can be built.”
In Massachusetts, SouthCoast Wind and Commonwealth Wind are seeking to pay a penalty to terminate power purchase agreements they signed last year and rebid them in a procurement coming up next year. In New York state, two major wind farm developers are asking regulators to sweeten the contracts they previously signed. Some of the wind farm developers have suggested prices may need to rise 20 to 30 percent or more to make the projects eligible for financing.
Gerwatowski suggested regulators are in a terrible bind – approving new contracts will require ratepayers to pay much higher rates while rejecting new contracts would run the risk of leaving policymakers without the green power needed to meet climate change goals.
During the hearing in Rhode Island, Gerwatowski pressed officials from SouthCoast Wind about the evolution of their thinking on the power purchase agreements, which were negotiated last year and approved by the Massachusetts Department of Public Utilities at the end of the year. SouthCoast repeatedly sent conflicting signals on whether it would honor the existing contracts until last week, when the developer announced it would seek to terminate its existing contracts and rebid them next year in an upcoming procurement.
Francis Slingsby, the chief executive officer of SouthCoast, said the delay was a reflection of the company’s willingness to pursue all angles before pulling the plug on the project. He said the company reviewed the possibilities for indexing contract terms to inflation, seeking higher rates via amendments to the existing contract, and securing federal tax credits. “We wanted to do what we could to preserve the contracts,” he said.
Only when the Healey administration released a draft of its next procurement document did Southcoast shift gears and decide to terminate its existing contract. Slingsby said the draft procurement language created the possibility of SouthCoast paying a fine, terminating its existing contract, and rebidding the project in a bidding process next year. Commonwealth Wind began pursuing that option months ago.
SouthCoast Wind officials declined to tell Gerwatowski how big a penalty they would have to pay to terminate their existing contracts, but a Massachusetts state representative last week said he understands SouthCoast would pay $60 million and Commonwealth Wind $48 million.
The draft procurement said wind farm developers would be judged in part on whether they followed through with their past procurements, but Slingsby didn’t think that provision would hurt SouthCoast because all wind farm developers are facing the same challenges right now.
“We would argue this is not something unique to SouthCoast Wind,” Slingsby said of the push to renegotiate contract terms. “Almost every development is seeing their project economics are underwater.”
Slingsby conceded SouthCoast Wind is not viable under the current contract terms, but he insisted the project is viable and should move forward with new terms in next year’s procurement. “The projects are viable. Moreover, they’re absolutely needed,” Slingsby said. “We feel we’ve got the momentum to build this project.”
Gerwatowski asked Slingsby his level of confidence on winning a new contract next year on a scale of 0 to 10, with 0 being no confidence and 10 being absolute confidence.
Slingsby said he would rate SouthCoast Wind’s chances at a 6 or 7.