Maine passed legislation this month to advance the state’s nascent offshore wind industry, but largely absent were details that would interest anyone who pays an electric bill: What will offshore wind power cost customers?

Negotiations underway at the Public Utilities Commission may commit Maine to a 25-year agreement for buying electricity from a proposed research array of floating offshore wind turbines. The talks are largely confidential, but they suggest the question of cost can’t be answered yet.

Today’s uncertainty could end up being a good thing for electricity customers, years from now. Meanwhile, one public document compares the terms for a proposed contract, and hints at the complexity of making calculations for any future project that would test the emerging offshore wind technology.

The term sheet and subsequent filings show that PUC negotiators and the developer, Pine Tree Offshore Wind LLC, are at odds over key elements.

The disagreements focus on the starting price of the contract and whether it should be set before or after a final investment decision is made; the formula and percentage adjustment for future inflation; how any savings in energy prices might be shared between customers and the developers; and whether the contract should be contingent on the state’s construction of a special port facility for assembling and launching offshore wind components.

Acknowledging that several terms sought by Pine Tree Offshore are “fundamentally different” from those approved by the PUC, the agency last week asked parties in the case to file comments on questions related to those differences by mid-August.

One striking figure is PUC’s estimated starting price of $130 per megawatt-hour, or 13 cents per kilowatt-hour. That refers to the price for power when the project comes online, in about seven years.

It’s hard to make price projections for 2030. The 13 cents estimate is twice the 6.5 cents starting price at Vineyard Wind, the country’s biggest, conventional-technology offshore wind farm, now under construction off Massachusetts. Vineyard’s lower-cost supply contracts were inked before the latest market shift.

But 13 cents is also far less than the 20 cents or so that community solar farms in Maine have been getting under the state’s controversial net energy billing policy.

Both the PUC and Pine Tree Offshore Wind declined to discuss price issues with the Portland Press Herald/Maine Sunday Telegram, citing confidential negotiations. Pine Tree Offshore had its starting price estimate redacted from the public document. But in a letter to the PUC on July 18, Pine Tree Offshore noted that existing price estimates need to be updated to reflect the passage of time and increasing costs for turbines, cables, financing, labor and the intricacies of building and anchoring floating platforms.

‘A PRETTY BIG BUMP’

Those proposed price increases reflect an industry in flux.

There’s a multibillion-dollar surge of investment in wind power development on U.S. waters. But it’s happening just as the global industry is being roiled by supply chain shortages, higher interest rates, inflation and technology improvements.

Building and permitting a massive wind farm takes years. Today’s fast-changing market has made some price contracts and bids suddenly uneconomic, leading to high-profile pullbacks in recent weeks.

In Massachusetts, Avangrid ended its power purchase agreement with the state’s major utilities for Commonwealth Wind, set to be New England’s largest offshore wind project with a capacity of 1,200 megawatts, enough to power 700,000 homes. Avangrid, the parent company of Central Maine Power, agreed to pay a $48 million termination fee. It’s expected to rebid the project next year at higher prices.

In Rhode Island, developers of a similar-sized project, SouthCoast Wind, also signaled they would cancel their contract. Rhode Island Energy, the state’s largest utility, also ended a contract for another large project, Revolution Wind 2. The utility determined the price wouldn’t meet a state mandate to reduce energy costs for consumers, according to the Providence Business Journal.

“It’s a bump in the road but a pretty big bump,” said Sam Salustro, vice president for strategic communications at the Business Network for Offshore Wind, a nonprofit trade group working to develop the industry and its supply chain.

The cost of wind development had been falling in recent years. But now several early offshore projects are pressing to renegotiate terms. The lesson, Salustro said, is that long lead times and high capital costs require more flexibility in contracts.

The adjustments are happening for wind farms that feature steel towers set in shallow waters off the East Coast, using technology that has been proven in Europe for decades. Maine’s project is different. Turbines will float in deep water far offshore, where winds are stronger and steadier. Costs for this next-generation, experimental array will, by definition, be more expensive.

But Salustro said floating technology is where the industry is headed.

“Floating is likely to be even bigger than the fixed foundation industry,” he said. “But the world is still innovating and Maine is on the forefront of that conversation.”

FAR OUT

Pine Tree Offshore Wind is a partnership between global energy companies Diamond Offshore Wind and RWE Renewables. Together, they would build an array in federally leased waters 45 miles east of Portland. The project would consist of up to 10 floating turbines with a capacity of up to 144 megawatts. The lease is expected to be issued in 2024, with the project planned for commercial operation around 2030.

The array has an estimated cost of $1.2 billion. Building it would trigger at least $500 million in spending in the state, create 3,250 jobs and generate $43 million in tax revenue, the developers estimate. It would generate enough power to meet the annual needs of roughly 80,000 homes.

But what will that mean for electric customers?

Cornerstone legislation supporting the state’s plan to encourage development of a floating research array, L.D. 336, contains critical language. It directs parties to “determine the lowest reasonable cost to ratepayers that is sufficient to enable the financing, construction and operation” of the project.

That’s what Pine Tree Wind and its parent company, New England Aqua Ventus, are spending millions of dollars to find out, according to Tony Buxton, an attorney for the companies and a lead author of the legislation.

“We are negotiating how to determine the cost and when,” he said. “It’s a challenge when you’re this far out.”

Buxton offered two examples of why costs can’t be nailed down in 2023 for a project starting in 2030.

Each floating platform will be the size of a football field, weigh thousands of tons and use a lot of concrete. Developers can’t get bids now on material that won’t be needed for seven years.

Turbine technology also is changing. Plans for a smaller pilot project off Monhegan Island in 2014 envisioned a pair of 6-megawatt turbines on two platforms. That was updated to a single 12-megawatt turbine on one platform. The research array might use turbines rated at up to 15 megawatts, so the number of turbine platforms and how the wind farm is configured will affect the ultimate development cost.

Language in L.D. 336 anticipates the changing nature of wind technology. The legislation “recognizes and accommodates the commercial challenges in long-term cost estimation for large marine energy infrastructure” and allows adjustments “based on changing costs prior to the final investment decision by New England Aqua Ventus” as well as “indexing and inflation adjustment mechanisms.”

NEAR-TERM IMPACT

The lack of a near-term cost projection troubles AARP Maine, which represents many older adults on fixed incomes who struggle with electric bills. In a letter to the PUC last year, AARP unsuccessfully argued for making the energy contract process more transparent for customers.

“Unfortunately,” wrote Noel Bonam, the group’s executive director, “the proposal and accompanying documents do not include any information on the cost of the project or the price of the proposed contract that, if approved, must be paid by ratepayers …”

Those concerns are also shared by the Office of Public Advocate, which began raising similar issues in a Press Herald story last year. The questions have only gotten more pointed, because elements of the state’s renewable energy policies could shift the project’s financial risks from the developers to ratepayers, according to Susan Chamberlin, senior counsel for the OPA.

There’s great economic potential for Maine in an offshore wind industry that uses floating technology, Chamberlin said. But that has to be balanced against a basic goal of Maine’s 2000 utility restructuring law, which was meant to insulate customers from the investments of power generators.

“But with public policy initiatives around climate change, ratepayers are being drawn in again and there’s tension around that,” Chamberlin said.

Maine’s distribution utilities, which will have to buy the power, don’t want their customers to pay higher rates. In a filing last week, a lawyer representing Versant Power, David Littell, told the PUC that the costs and risks would be greater than any previous long-term power purchase contracts.

“As such,” wrote Littell, a former PUC commissioner, “there will be substantial customer costs, and additional risks, in excess of any ordered by the commission to date in a prior contract.”

In a best case, inflation will continue to cool and a robust, domestic supply chain will trigger more price competition for materials and contracts. That’s starting to happen, according to a quarterly market report released earlier this month by Salustro’s trade group.

The report shows a $7.7 billion jump in market investments and a 47% growth in U.S. market supplier contracts since last August’s signing of the federal Inflation Adjustment Act, which includes massive renewable energy incentives. There’s been a 100% increase in new vessels being built or retrofitted in U.S. shipyards over the past two years.

“We are proud to say that we have steel in the water, steel in our factories, and steel in our shipyards today,” Liz Burdock, the chief executive of the Business Network for Offshore Wind, said in a statement. “Thanks to supportive federal and state policies, we are seeing unprecedented growth in the U.S. offshore wind supply chain across the nation.”

Copy the Story Link

« Previous

India cuts rice exports, triggering panic-buying of food staple by some Indian expats in the U.S.

Next »

Maine actors say strike is about getting streaming services to play fair