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As offshore wind struggles, are longer contracts the answer?

Boston Globe| Jon Chesto |May 7, 2024
MassachusettsTaxes & SubsidiesOffshore Wind

As the nascent offshore wind sector struggles to gain traction, industry lobbyists are pushing state lawmakers for longer contracts to finance these costly megaprojects. Currently, Massachusetts law limits the contracts between wind-farm developers and the utilities that buy their power to 20 years. Industry reps want the limit raised to 30, arguing that spreading the costs of these multibillion-dollar projects over a longer time period would reduce the monthly costs for businesses and consumers that ultimately pay for the power.


R.I. and now Conn. lawmakers allow developers to sign 30-year deals for offshore wind power, lowering the monthly cost of the power they generate. Will Mass. follow suit?

As the nascent offshore wind sector struggles to gain traction, industry lobbyists are pushing state lawmakers for longer contracts to finance these costly megaprojects. Currently, Massachusetts law limits the contracts between wind-farm developers and the utilities that buy their power to 20 years. Industry reps want the limit raised to 30, arguing that spreading the costs of these multibillion-dollar projects over a longer time period would reduce the monthly costs for businesses and consumers that ultimately pay for the power.

The massive expense has emerged as a major …

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R.I. and now Conn. lawmakers allow developers to sign 30-year deals for offshore wind power, lowering the monthly cost of the power they generate. Will Mass. follow suit?

As the nascent offshore wind sector struggles to gain traction, industry lobbyists are pushing state lawmakers for longer contracts to finance these costly megaprojects. Currently, Massachusetts law limits the contracts between wind-farm developers and the utilities that buy their power to 20 years. Industry reps want the limit raised to 30, arguing that spreading the costs of these multibillion-dollar projects over a longer time period would reduce the monthly costs for businesses and consumers that ultimately pay for the power.

The massive expense has emerged as a major obstacle in the buildout of offshore wind in the US, with rising interest rates and materials costs prompting developers to scrap contracts across several Northeast states. Only one commercial-scale wind farm has been built so far, serving Long Island, N.Y., and only one other has started construction: Vineyard Wind, to serve Massachusetts. Now, as regulators in Massachusetts, Connecticut, and Rhode Island weigh the next round of bids to build projects in waters south of Martha’s Vineyard, industry lobbyists have been pushing for longer financing deals. Rhode Island already allows 30-year contracts. This week, in Hartford, Connecticut state lawmakers enacted a bill to push their state’s limit to 30 years as well.

Now, the focus turns to Beacon Hill, where a long-awaited climate bill is expected in the coming weeks. However, key lawmakers appear split on the issue. “It’s ... my sense that the more options we have on the table, the better it will be for the ratepayer in the long run,” said Representative Jeffrey Roy, the House co-chairman of the Legislature’s energy committee and a backer of extending the limit to 30 years. “The thinking is to give us more options to get lower pricing for everyone.”

But Roy’s counterpart, Senate co-chairman Michael Barrett, isn’t sold on the idea. Three decades from now, new wind turbine or other clean-energy technologies could cost far less than they do now. Barrett is hesitant about locking Massachusetts consumers into paying prices that reflect the current market and technology for offshore wind through the 2050s. “Really? That’s pro consumer?” Barrett asked rhetorically, in an interview. “The fragility of the industry is being used in order to pursue additional advantages [for offshore wind].”

These state-overseen contracts between utilities and wind-farm developers are seen as crucial to sparking the birth of the offshore wind industry here. Political leaders in all three states want offshore wind power to wean the region’s grid off natural gas, and reduce carbon emissions. They are working together for this round of bids with the hope they can make up for lost time after the recent setbacks.
In March, four developers submitted bids to the three states that, if fully awarded, would bring contracts for nearly 5,600 megawatts of power — or potentially enough electricity for roughly 2.5 million homes. However, the states actually sought more energy than the industry was apparently willing to provide, by collectively asking for up to 6,800 megawatts. The prices have been kept secret for now, but they are almost certainly much higher than previous rounds, and there’s some fear in the industry that bids might get rejected as a result.

RENEW Northeast, an industry lobbying group, argues that the 20-year limit was based on older technology available seven or eight years ago, involving turbines that were not designed to last much longer than two decades. But turbine design has improved significantly since then, RENEW says, and extending the contracts to 30 years could save consumers hundreds of millions of dollars each year while not increasing a project’s overall cost. RENEW executive director Francis Pullaro likens it to the difference between paying off a house with a 30-year-mortgage instead of a 15-year one; the house costs the same, but the monthly payments are substantially lower.

“If you’re going to go out and buy a house today, a 30-year mortgage makes the house more affordable than a 15-year mortgage,” Pullaro said. The Ocean Winds joint venture behind the SouthCoast Wind proposal has been among those lobbying for the switch. Michael Brown, the head of its US operations, pointed to another big potential benefit of locking in stable offshore wind prices for a longer period: It could mitigate any huge rate spikes caused by soaring fossil fuel prices, a frequent occurrence in New England during cold spells or supply disruptions.

Even if the Massachusetts legislature joins with its counterparts in Connecticut and Rhode Island, it’s still not clear if the change would happen quickly enough for the current round of bids. RENEW argues there could be enough time to adjust the pricing in the current bids, and reduce the potential for sticker shock. The winners of this round are slated to be announced in early August. But Roy, who supports the 30-year contracts, said he isn’t sure the timing would work: He said his intention with legislation to extend the contracts would be to offer more options for the next round of bids, not for this current round.

The Healey administration remains open to the 30-year idea, particularly for the next round of bids, as a way of reducing energy costs while providing more certainty for the offshore wind industry, spokeswoman Maria Hardiman said. “Extending offshore wind contract term lengths could have an impact on project pricing,” Hardiman said in an email, “but must be weighed against the additional long-term costs and risks for customers.” The idea could end up facing pushback from the utilities. While two of the three major electric utilities in Massachusetts, National Grid and Unitil, declined to comment, an Eversource spokesman made it clear that his company is against 30-year contracts.

“Twenty-year contracts have shown to be the most feasible to protect against long-term developments with new technologies and in supply markets,” Eversource spokesman William Hinkle said in an email. “Because longer contracts increase the risk that those locked-in prices can get more out of sync with the market and new technologies, value for customers in those longer contracts must be demonstrated and justified.”


Source:https://www.bostonglobe.com/2…

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