Posted on October 10, 2023
Electric utility Avangrid is pulling out of what was to have been Connecticut’s biggest offshore wind project, Park City Wind, saying inflation and other adverse economic factors that have hit the offshore wind industry made the project “unfinanceable.”
The decision by Avangrid, part of the Spanish energy giant Iberdrola Group, was widely expected and mirrors the financial headwinds confronting other players in the multi-billion dollar Northeast offshore wind market.
Avangrid had been negotiating for a year with the administration of Gov. Ned Lamont in an ultimately unsuccessful effort to obtain more favorable terms on the contract, or power purchase agreement it won through competitive bidding to provide electricity to Connecticut ratepayers.
Price spikes, higher interest rates and supply chain bottlenecks since the bid award — much of them attributable to the war in Ukraine — turned the project into a money loser at its contracted price and Avangrid has opted to pay the $16 million withdrawal penalty rather than move forward.
The company said in a statement that it warned the Lamont administration a year ago that the Park City Project was “unfinanceable under its existing contracts.”
“After exploring all potential solutions to the financial challenges facing the project, and engaging in good-faith and productive discussions with Connecticut state officials regarding these challenges, it is clear the best path forward for Park City Wind is in the termination of the Power Purchase Agreements and a rebid of the project,” the company statement said.
Lamont, who has aggressively pushed offshore wind as a reliable energy source, had refused to discuss the talks with Avangrid, but said Tuesday he is “disappointed” by the company’s decision to walk away from Park City Wind.
FILE – In this Aug. 15, 2016 file photo, three wind turbines from the Deepwater Wind project stand off Block Island, R.I. Rhode Island Gov.
“Offshore wind remains a critical resource to meet state, regional, and federal clean energy goals and help maintain reliable operations in the wintertime while creating thousands of good-paying jobs,” Lamont said.
Katie Dykes, commissioner of the state Department of Energy and Environmental Protection and the administration’s point person on wind energy, said she had “engaged” Avangrid and industry experts in an effort to understand project economics and the challenges facing offshore wind projects in general.
“We hoped to hear proposed solutions to enable the Park City Wind project to move forward while protecting Connecticut’s ratepayers and respecting our state’s commitment, embodied in statute, to conduct competitive procurements,” she said. “Unfortunately, these discussions failed to materialize in a proposal that met these goals.”
Avangrid competitors and others in the industry considered its winning bid on Park City to be in the words of one observer, “very aggressive.”
Dykes said her agency will work with state utilities to ensure that, in future offshore energy procurements, the project developers “are able to deliver completed projects at the prices they offer and face steeper penalties if they do not.”
Lamont has made offshore wind in particular and renewable energy in general a priority. He has set a goal of making Connecticut carbon free by 2040 and the state is completing a $300 million rebuild of the State Pier in New London to position it as a supply hub for the outer continental shelf wind industry.
Had Park City been completed, it would have been the larger of two offshore wind projects authorized so far by the state to deliver electricity to Connecticut ratepayers. In 2018, after its first auction, DEEP signed a power purchase agreement with Revolution Wind, a partnership involving Danish multinational Orsted and Eversource. A year later, in another auction, it signed the Park City agreement with Avangrid, which owns United Illuminating.
Together, Revolution and Park City were to have provided Connecticut with 1,108 megawatts of electricity, just over half of the 2,000 megawatts the legislature has authorized DEEP — so far — to buy from offshore developers. DEEP estimated the two projects would fill about 20 percent of the state’s energy needs.
DEEP is planning another auction, perhaps as early as this month to be timed with similar efforts by Rhode Island and Massachusetts, according to industry officials. Those officials said any such efforts to build and buy additional offshore wind power in the Northeast will be watched closely in view of the financial factors that led to the Avangrid withdrawal and that are affecting the industry generally.
Those adverse financial factors have made the short term forecast for offshore wind projects grim. Russia’s Ukraine invasion created a spike in natural gas prices and resulted in a rush across Europe to wind energy. Global competition for parts, along with inflation and rising interest rates caused construction costs to soar – in the U.S. and Europe.
Avangrid recently bailed out of another wind project, Commonwealth Wind in Massachusetts, for the same reason it closed Park City. Several other projects across the northeast have either withdrawn or are considering doing so, while pleading with state regulators for contract modifications. Orsted has said that without additional tax breaks or other relief, it faces more than $2 billion in “impairments” on its U.S. offshore wind portfolio.
At the same time, the Northeast states are pleading with the Biden administration to grant additional tax incentives for developers so they can meet carbon reduction goals. Their fear is that if project costs are not lowered, offshore wind generated electricity could become prohibitively expensive for rate payers.
In September, Lamont signed a letter with the governors of six coastal Northeast states telling Biden that “Absent intervention, these near term projects are increasingly at risk of failing. Without federal action, offshore wind deployment in the U.S. is at serious risk of stalling because State’s ratepayers may be unable to absorb these significant new costs alone.”
The New York State Energy Research and Development Authority recently estimated that offshore wind developers are seeking, on average, a 48% increase in their contract prices to keep their projects profitable.
Amid the calls for contract modifications and increased subsidies, there are bright spots in the offshore picture. In general, developers who signed contracts early in the rush offshore — among them the Orsted-Eversource Revolution Wind project — are succeeding.
“On the one hand we are seeing enormous challenges of cost and financing these massive multi billion dollar infrastructure projects,” said Dan Dolan, president of the New England Power Generators Association. “On the other hand we are actually seeing real movement and development going forward on offshore wind.”
Vineyard Wind, a project developed early by Avangrid to deliver electricity to Massachusetts, is expected to be the first Northeast wind project to go commercial, as early as within the next month or so. And the rebuilt State Pier in New London is packed with wind turbine components in anticipation of impending, final regulatory approval of three Orsted-Eversource projects.
Dolan predicted the project developers will push on in spite of immediate term economic setbacks.
“I will leave it to others to decide whether that is the right approach or not,” he said. “ But I think that is exactly what they are going to do.”
