Citing cost increases, Avangrid asks to back out of offshore wind contracts for project off Martha’s Vineyard

The move could delay one of the state’s largest offshore wind farms.

The state’s nascent offshore wind industry suffered a big setback on Friday when Avangrid told state regulators it wants to end its contracts with three major utilities to build a massive wind farm south of Martha’s Vineyard.

The move, made in a filing with the state Department of Public Utilities, was not unexpected: Avangrid had been trying to renegotiate contracts for its 1,200-megawatt Commonwealth Wind project to no avail, arguing that the original terms became untenable because of unforeseen supply chain costs and disruptions, in part caused by the war in Ukraine, as well as rapidly rising interest rates.

In September, chief executive Pedro Azagra said Avangrid would postpone construction of Commonwealth Wind, which could eventually provide enough power for up to 750,000 homes, by pushing its completion date out to 2028, and would need to rewrite the contracts because of a sharp increase in commodity costs. With Friday’s move, Avangrid has given up on those renegotiation efforts.

Connecticut-based Avangrid said it intends to enter the state’s next round of bidding for wind-farm contracts in the spring, to keep Commonwealth Wind alive. But there’s no guarantee Avangrid will win amid competition with up to three rival developers, each with its own offshore lease areas.

This move just adds to the pressure on policy makers. Offshore wind power is considered crucial for Massachusetts to meet its ambitious goal of cutting greenhouse gas emissions in half by 2030 from 1990 levels. Representatives for the Baker administration and Attorney General and Governor-elect Maura Healey expressed disappointment with Avangrid’s decision.

“It’s a setback but it’s not a fatal one,” said state Senator Michael Barrett, co-chair of the Legislature’s energy committee. “All these contracts could be rebid and the power could come in before 2030, or just around 2030, so we’re operating within the same rough time frame. This is not a moment for despair but it is a deep disappointment and it’s complicated as heck.”

Construction has begun on the state’s first offshore wind farm, Avangrid’s 800-megawatt Vineyard Wind joint venture, with completion expected in 2024. A third wind farm under contract, Mayflower Wind, isn’t expected to come online until 2028.

Avangrid senior vice president Kim Harriman maintains Commonwealth Wind can still be finished in 2028 if it wins new contracts in the next round. She accused the utilities of refusing to engage with Avangrid to address its cost issues.

“We’re committed to finding the right solution to bringing Commonwealth Wind forward,” Harriman said. “We’re not starting fresh. If anything, we’re further ahead than probably anybody else that’s going to bid.”

It’s unclear how much electricity the incoming Healey administration will seek to procure next spring. State law requires offshore wind contracts to go out to bid every two years, with a goal of securing a total of 5,600 megawatts of energy by mid-2027. Taken together, the contracts for the three proposed wind farms had represented 3,200 megawatts. But with Avangrid’s filing on Friday, roughly one-third of that amount came off the table, at least for now.

Eversource said the Commonwealth Wind contracts were negotiated in good faith, and would help meet the state’s clean energy goals and provide a reliable power source for the region. National Grid said that it’s disappointed Avangrid asked DPU to dismiss the “mutually-agreed-upon contracts” at a time when electricity costs are already high for consumers and businesses.

But Barrett said it’s hard for him to blame Avangrid for needing to cover unexpected supply costs. “I suspect they are being squeezed by their suppliers in a way that no one anticipated a year-and-a-half ago or two years ago,” Barrett said.