Energy Musings contains articles and analyses dealing with important issues and developments within the energy industry, including historical perspective, with potentially significant implications for executives planning their companies’ future.
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June 20, 2023
Offshore Wind Confronts A Deteriorating Market
Last week, a show cause hearing for SouthCoast Wind was held by the RI EFSB to understand why the company wants the approval process for its transmission cables to go forward while the financial viability of the project is in doubt. SouthCoast Wind, as well as other Massachusetts, Connecticut, and New York projects, are terminating or renegotiating their power purchase agreements because the price of the electricity contracted to be sold to utilities will not finance the wind farms’ construction.
The unfinanceable status of these wind farms arises because the power was sold on the assumption that construction costs were always declining and would continue that trend. Billions of dollars of capital have been wagered on that assumption, and now developers are looking at huge financial losses. They do not want to admit any responsibility for the financial disasters. They want to be rewarded for terminating PPAs and given reconfigured bidding procedures to save them.
We watched the two-plus hour hearing. We analyze the issues raised, the challenges facing the market today, and how developers expect to be absolved of mismanagement. SouthCoast Wind’s CEO was the star witness, and he delivered an impressive Alfred E. Newman imitation.
The offshore wind market is in turmoil like never before. Utility regulators face Hobson’s Choices, suggesting no one is going to be happy where the industry lands and especially its upcoming journey. Given shifting attitudes toward “green energy,” wrapping oneself in the flag of public policy may not be the answer as much as developers try. READ MORE
Offshore Wind Confronts A Deteriorating Market
Up and down the East Coast, offshore wind developers are waking up to find their power purchase agreements (PPA) underwater. Trying to avoid financial disasters, they are scrambling for solutions. Why the turmoil? Simple. Actual project costs are wildly off from the estimates when PPA prices were locked in. Penalties to get out of PPAs are a cheaper option, especially if you are not going to be penalized for terminating the contracts. Even the inflated renewable energy subsidies in the misnamed Inflation Reduction Act won’t save these bad deals.
The turmoil’s magnitude was at the center of a hearing before the Rhode Island Energy Facility Sitting Board (RI EFSB) last week. SouthCoast Wind, a 1,200 megawatt (MW) project in federal waters off Rhode Island to supply nine Massachusetts utilities with clean electricity, needs the RI EFSB’s approval to land its transmission cables and allow their passage across the state to connect with the regional power grid at Brayton Point in Somerset, Massachusetts.
The two-plus hour “show cause hearing” on June 12 had twice been rescheduled at the request of SouthCoast Wind – December 19, 2022, and February 27, 2023 – as the company’s assessment shifted from a viable project to an unfinanceable one. As the RI EFSB outlined in its show cause hearing notice, the need arose when it learned from the media on November 10, 2022, that SouthCoast Wind was requesting the Massachusetts Department of Public Utilities (MADPU) to suspend their review of the PPAs given the company’s realization the project was no longer financeable, i.e., unprofitable.