THE DEVELOPER OF THE NATION’S first major offshore wind farm is promising to deliver wholesale power to Massachusetts at prices that are far below what Cape Wind was offering nearly a decade ago and not much more expensive than hydro-electricity just procured from Canada.
According to contracts filed with the state Department of Public Utilities on Wednesday, Vineyard Wind agreed to deliver electricity at an average price of 8.9 cents a kilowatt hour over the 20-year life of the contract, or a total levelized price of 6.5 cents.
While those prices are above the average wholesale price of electricity in New England (3.4 cents a kilowatt hour during 2017), they include the value of environmental attributes that are not included with electricity generated using natural gas. Taking those into account, Baker administration officials said, the offshore wind contract is very competitive with other types of power generation and will slightly lower bills for ratepayers over the 20-year life of the contract.
“We’re encouraged that the prices came in so low. This proves that competition works,” said Robert Rio, who follows energy issues for Associated Industries of Massachusetts.
Lars Thaaning Pedersen, the CEO of Vineyard Wind, a partnership of Copenhagen Infrastructure Partners and Avangrid Renewables, said federal investment tax credits played a key role in keeping the price down. “Today’s historic filing represents the start of an industry, one that will assure access to abundant clean energy resources for decades to come,” he said in a statement.
In a letter accompanying the contract filings, officials from the Department of Energy Resources indicated the deal with Vineyard Wind has great potential for transforming the state’s energy mix and building a home-grown industry in a field (energy) where Massachusetts has never been a leader.
“The implementation of this 800-megawatt Vineyard Wind project has the potential to support Massachusetts ‘first-mover’ advantage in offshore wind development, providing greater opportunities for development of local supply chain and offshore wind industry jobs in the Commonwealth,” the officials said in the letter. “This 800-megawatt Vineyard Wind project is the largest procurement of offshore wind generation in the US, and will help spur development of local industry and economic development, including the use of the New Bedford Marine Commerce Terminal.”
Legislation passed two years ago authorized the state to procure 1,600 megawatts of total offshore wind capacity, of which the 800-megawatt contract represents the first bite of the apple. The legislation requires that the price fall with each successive bid. A bill lawmakers approved on Tuesday authorized the state to explore adding another 1,600 megawatts by December 31, 2035.
Vineyard Wind was one of three bidders on the state’s initial offshore wind contract. The other two were Bay State Wind, a partnership of Denmark-based Orsted and Eversource Energy, and Deepwater Wind, which had a transmission partnership with National Grid. The three bidders submitted a total of 27 bids ranging in size from 200 megawatts to 800 megawatts.
Three utilities – Eversource, National Grid, and Unitil – ran the contracting process for the state and quickly determined that Vineyard Wind offered the best deal. The only difference of opinion was on how big the deal should be. National Grid and Unitil favored Vineyard Wind’s 800-megawatt bid, while Everource favored a 400-megawatt bid. Unable to reach a consensus, the decision bumped to the Baker administration’s Department of Energy Resources, which picked the 800-megawatt bid.
The Vineyard Wind project is split into two, 400-megawatt phases, with the first phase scheduled for completion by January 15, 2022, and the second phase by January 15, 2023. The price for energy and the environmental attributes (called renewable energy credits) starts at 7.4 cents a kilowatt hour in phase one and 6.5 cents a kilowatt hour in phase two. The prices escalate at 2.5 percent a year over the 20-year life of the contract, with an average blended cost of 8.9 cents a kilowatt hour.
Vineyard Wind estimates the project will support more than 3,600 full-time-equivalent jobs over the life of the project. The company has also agreed to provide $10 million to help the development of an onshore support industry, $2 million for workforce development, $3 million for initiatives to protect marine mammals, and $1 million a year for 15 years to support the development of battery energy storage and solar power projects.
The pricing of the Vineyard Wind contract is well below expectations for offshore wind, a fledgling industry in the United States even though it is well-developed in Europe. A University of Delaware study released just two years ago predicted the price of electricity from wind farms off the coast of Massachusetts would fall from 16.2 cents a kilowatt hour to 10.8 cents over the 10-year period between 2020 and 2030.
Cape Wind, before it went bust due to lack of investor interest, negotiated contracts with Massachusetts utilities that priced its electricity at 24 cents a kilowatt hour on a 20-year levelized basis. And Deepwater Wind, which runs a tiny wind farm off the coast of Block Island, is charging 30 cents a kilowatt hour for its electricity.
Massachusetts utilities recently announced a 20-year contract to import hydro-electricity from Quebec at an average price of 8.1 cents over the 20-year deal, or a total levelized price of 5.9 cents. The hydro contract represents firm power that will be available year-round, while the offshore wind farm will produce power only when the wind blows. Officials estimate the wind farm will generate roughly half of its 800-megawatt capacity, although its production is expected to be strongest in the winter months when pipeline constraints in New England can reduce the availability of natural gas for power generation and electricity prices sometimes spike.
As part of the filing with the Department of Public Utilities, Eversource, National Grid, and Unitil asked to split 2.75 percent of the annual payments under the contract as compensation for doing the deal and carrying the contracts on their balance sheets. The estimated value of the payout for the utilities was not included in the filing because it would have required an estimate of how much power the project will generate over the life of the project.