“SouthCoast Wind wants to walk away from contracts to sell power to Massachusetts. Here’s why.”
Alex Kuffner
The Providence Journal
June 5, 2023
PROVIDENCE – After months of uncertainty about the viability of SouthCoast Wind’s power contracts for its $5-billion offshore wind proposal off Massachusetts, the developer now says it is seeking to walk away from the nine agreements it signed to sell electricity to that state’s utilities.
The company, a joint venture between fossil-fuel giant Shell and Madrid-based renewable energy firm Ocean Winds, announced its intent to terminate the contracts in a filing submitted to the Rhode Island Energy Facility Board.
SouthCoast Wind: Sale prices too low to attract financing
In written testimony to the board, CEO Francis Slingsby said the company has concluded that the sale prices in the contracts are too low to attract financing in light of unforeseen increases in supply-chain costs and interest rates. Instead of sticking with the agreements, he said, SouthCoast plans to rebid the contracts under the latest solicitation for offshore wind power from the Massachusetts government.
“While SouthCoast has pursued, and is open to other solutions, and even after factoring in potential tax incentives, termination and payment of a financial penalty for termination has become the prudent commercial course to realize the project due to material and unforeseen supply chain and financing cost increases affecting the whole offshore wind industry,” Slingsby said in a statement.
The company, he continued, is committed to the proposal.
“We continue to move our project through federal and state permitting and have the grid connections necessary to ensure delivery of 2,400MW of power, the full capacity of our lease area, without needing significant and expensive system upgrades,” Slingsby said.
Filing is part of a larger question about financing offshore wind projects
SouthCoast, formerly known as Mayflower Wind, applied to the Rhode Island siting board last year for permission to run transmission cables through state waters in the Sakonnet River to the site of the former Brayton Point Power Station in Somerset, where they would plug into the regional power grid.
Last November, the board moved to consider suspending the application until questions about financing for the first 1,200 megawatts of the SouthCoast project were resolved, and twice scheduled a show-cause hearing. After the company asked for more time to consider its position, the hearing was postponed to June 12. The filing containing the decision to end the contracts was submitted last Friday.
Broader questions about financing were initially raised by Avangrid Renewables, the developer of a second 1,200-megawatt offshore wind project off Massachusetts known as Commonwealth Wind.
In a filing last October with the Massachusetts Department of Public Utilities, the company asserted that the project is “no longer viable and would not be able to move forward” under the terms of the long-term contracts it signed last spring to sell power to utilities. Inflation, shortages of equipment and interest rate hikes tied to the COVID pandemic and the war in Ukraine had changed the economics of the project, the company said.
SouthCoast, whose agreements were also pending before the DPU, joined with Avangrid in support of a month-long pause in the review of the contracts. In one filing with the agency, SouthCoast argued that “the resource may no longer be economic and financeable without adjustments to the PPAs.” In another, the company proposed solutions, including raising the power prices in the contracts and exploring the impact of new federal tax incentives.
The utilities that signed onto the contracts balked at any changes. The DPU subsequently denied the offshore wind developers’ request and ordered them to either commit to the contracts or pull out. While Avangrid eventually did the latter and signaled its intent to bid again, SouthCoast initially told regulators that it planned to move forward under the current agreements.
What changed?
What appears to have changed the company’s mind is a third-party analysis it commissioned of the economics of the contracts. The analysis found that the costs of building and operating offshore wind farms have increased more than 20% since 2019, according to Slingsby’s testimony to the siting board.
SouthCoast needs permission from the board to deliver power from its project, which would be built in Atlantic Ocean waters south of Nantucket and Martha’s Vineyard. The company proposes bringing two export cables from the lease area, which is about 59 miles southeast of the Rhode Island coast. They would run up the Sakonnet River, through the Island Park neighborhood of Portsmouth and across Mount Hope Bay before connecting to the substation where New England’s largest coal-burning power plant once stood.
In his testimony, Slingsby argued against suspending SouthCoast’s application to the board, pointing to requirements among New England states to increase their supplies of renewable energy.
“Further staying the proceeding would materially delay and jeopardize the development of the project and would be counter to the very same public policy requirements that drive the need for it,” he said.
“SouthCoast Wind wants to cancel its contract to build offshore turbines”
Chris Lisinski
State House News Service
June 5, 2023
The developer behind SouthCoast Wind wants to cancel its contracts and secure more money to build 1,200 megawatts of offshore wind power, throwing uncertainty over a majority of the already-approved energy capacity in the state’s offshore wind pipeline.
SouthCoast Wind, a joint venture of Shell and Ocean Winds, signaled to Rhode Island regulators that it plans to follow the lead of another developer and scrap a pair of previous agreements with utility companies.
The developer concluded that its 800-megawatt project bid selected in 2019 and its 400-megawatt project bid selected in 2021 are no longer financially viable at the previously negotiated prices.
“While SouthCoast has pursued, and is open to other solutions, and even after factoring in potential tax incentives; termination, and payment of a financial penalty for termination, has become the prudent commercial course to realize the Project due to material and unforeseen supply chain and financing cost increases affecting the whole offshore wind industry,” SouthCoast Wind CEO Francis Slingsby said in a statement.
He said the move was prompted by a “significant increase in projected capital expenditures and finance costs of our project.”
The developer informed the Rhode Island Energy Facilities Siting Board of its intention in pre-filed testimony on Friday. The Providence Journal first reported about the shift Monday afternoon.
SouthCoast Wind is effectively turning to the same playbook that another major wind developer, Commonwealth Wind, deployed after concluding that its own 1,200 megawatt installation “cannot be financed and built” under existing contract terms.
Commonwealth Wind in December filed a motion with the Department of Public Utilities asking regulators to scrap the power purchase agreements the developer and utility companies previously reached. The DPU rejected that proposal and sought to uphold the contracts, and the matter is now under appeal.
Officials for both projects are betting that by backing out and launching a new bid in the next solicitation round this summer, they can get selected once again with more favorable financial terms.
Slingsby said SouthCoast Wind officials “believe our project can deliver more than enough clean power for every home in Rhode Island” and for South Coast homes in Massachusetts “potentially ahead of other projects in development.”
“In fact, we expect to have our federal permit in hand at the end of this year,” Slingsby said. “In addition, our project will help meet state, regional and national climate goals, which at present are in jeopardy of falling short of target.”
Through three rounds of bidding — one in 2017, one in 2019 and one in 2021 — Massachusetts has procured a total of 3,200 megawatts of capacity for offshore wind power. Commonwealth Wind and SouthCoast Wind scrapping their contracts would cut that pipeline by three-quarters.
Slingsby said SouthCoast Wind “recently initiated discussions” with state regulators and utility companies about spiking the contracts, and a DPU spokesperson said Monday that the developer has not yet filed any formal paperwork.
“We encourage all parties to find clarity on the next steps before the fourth offshore wind solicitation becomes active,” DPU spokesperson Maria Hardiman said.
The Healey administration took uncertainty about the pair of previously approved wind projects into consideration when it drafted a request for proposals for the upcoming fourth offshore wind procurement. Previous procurements have drawn just a handful of bidders.
The administration proposed adding between 400 MW and 3,600 MW more wind power in the next round, much of which might be backfilling prior capacity if both Commonwealth Wind and SouthCoast Wind indeed back out. Officials also sought to add language taking into account a bidder’s “experience and track record” when considering new wind proposals, including “consideration of any project that has been delayed, failed, substantively amended, defaulted under, withdrawn, agreed to termination, or otherwise did not proceed.”
Sen. Mike Barrett, one of the Legislature’s point people on clean energy and offshore wind, said he does not see SouthCoast Wind’s push to cancel its contracts as a massive blow to the state’s climate goals.
“Losing something from our pace doesn’t mean that we lose the race. We can endure an extra two years of delay, as long as every single megawatt we’re counting on ultimately gets generated,” Barrett, who co-chairs the Telecommunications, Utilities and Energy Committee, told the News Service. “I’m not thrown by the prospect of delay. The world really has changed since the Ukraine [invasion], the inflationary spike, and the supply chain upsets. There’s no sense in pretending as if those things didn’t happen. We’re slowing down, but we’re still going to finish the course.”
Some elected officials, particularly in the House, have been voicing concerns that Massachusetts is losing its offshore wind competitive edge as other states like New Jersey take significant steps.