Offshore wind auction faces a new hitch
The second round of bidding for offshore wind contracts hasn’t even started yet. But the complaining sure has.
A spat is unfolding around whether National Grid can back out of its commitment to a wind-farm developer if a change in state laws or regulations somehow prevents the utility from being able to pass the contract costs on to ratepayers.
National Grid wants this exit clause to protect itself. But critics are telling the state Department of Utilities that this provision, known in utility-speak as a “regulatory out,” will undermine the upcoming auction.
A 2016 state law set these auctions in motion, by requiring the state’s three major electric utilities — National Grid, Eversource, and Unitil — to buy large amounts of power from offshore wind developers. The hope was to finally spark a new industry into life in Massachusetts, while curbing greenhouse gas emissions and diversifying our sources of electricity.
Round one was considered a big success. Three developers showed up to compete, with Vineyard Wind undercutting its rivals last year with a surprisingly low price. Vineyard Wind plans to use the contracts, approved by the DPU earlier this month, to finance the construction of an 800-megawatt wind farm south of Martha’s Vineyard.
Now, we’re on to round two — and the fun has begun. An independent evaluator waved a red flag earlier this month about the “regulatory out” provision that National Grid wants this time around. The evaluator, Peregrine Research Group, acknowledged that the odds of the Massachusetts rules changing in the future are slim. But this exit clause could make wind-farm financiers nervous, Peregrine noted, potentially discouraging bidders or driving up the costs for the ones who remain.
The Conservation Law Foundation agreed with Peregrine. CLF told state regulators that the exit clause threatens the integrity of the entire process, noting that Eversource and Unitil aren’t seeking a similar provision.
No state official wants costs to go up. But there’s an added complication if they do: That 2016 state law requires that the next bid come in lower than the winning price in the first round. Peregrine argues that National Grid’s exit clause will make it that much harder for the bidders to get under the cap.
As a result, Eric Wilkinson of the Environmental League of Massachusetts says he envisions a scenario where no deals get done at all in the next round. (ELM is among the environmental groups protesting the exit clause.) That would be an embarrassment for all involved, and could allow other states — keep an eye on New York and New Jersey — to pull ahead of us in the offshore wind game.
Meanwhile, Representative Pat Haddad of Somerset is prodding her colleagues on Beacon Hill to lift the price cap, to give the wind-farm developers more leeway to invest in economic development in the South Coast region. But it’s hard to know how successful she will be at this early stage.
National Grid shows no signs of backing down. Peregrine says these exit clauses are rare in the industry. But National Grid makes a point of citing its contract with Deepwater Wind (now Orsted) in Rhode Island, which includes a similar provision. National Grid told the DPU an unfavorable legislative or regulatory change at some point in the future with regard to cost recovery “could be catastrophic” for the company.
Spokesman Bob Kievra issued a brief statement, saying that National Grid is including these terms in its model for long-term contracts “as a starting place for negotiations” due to the increasing number and scale of such contracts.
If the Department of Public Utilities has a position on the matter, it’s not saying – at least not yet.
No one said starting a new industry from scratch would be easy. But the Baker administration is finding out just how tricky it will be to get this one off the ground.