Is state’s largest offshore wind project headed for the shoals?
Connecticut could be in danger of losing its biggest offshore wind project — the more than 800-megawatt plan known as Park City Wind.
Its developer, Avangrid — parent of United Illuminating and the American arm of the massive, multi-national Spanish energy company Iberdrola — is trying to rewrite, renegotiate, rebid or otherwise alter its offshore wind contract with Connecticut, according to industry sources. Avangrid has cited inflation and high interest rates, along with their causes — COVID, supply chain problems and the Russian invasion of Ukraine — as the factors necessitating more revenue to ensure financing to build Park City.
It’s a development that has the potential to send Connecticut back almost to the starting gate on offshore wind — the energy source the state has, for several years now, viewed as the near-panacea that will deliver it from its fossil fuel past to its climate-change-mitigating future, including reaching its mandate for a zero-carbon grid by 2040.
“This situation is certainly unfortunate, and we wish that we weren’t here,” said Susannah Hatch of the contract upheaval. She is director of clean energy policy at the Environmental League of Massachusetts and also regional lead for the New England for Offshore Wind coalition, which the league started. “However, this is something that is a larger, much larger problem than any one project with inflation.”
Offshore wind has become a global market, she said. “The industry is definitely feeling pretty pinched right now.”
Indeed, Park City, which is located in Bridgeport, is not the only project whose developers are looking for some level of a do-over. Avangrid is embroiled in a similar battle with Massachusetts over Commonwealth Wind — the adjacent development on the same federal lease parcel as Park City. SouthCoast Wind, also a Massachusetts project, may be on rocky footing, though its officials are saying very little publicly. And developers for New York and New Jersey projects are also looking for leeway in contracts.
Avangrid and the Connecticut Department of Energy and Environmental Protection, which was responsible for negotiating the contract that was unveiled in December 2019, have refused to answer questions about the status of the project. Neither would agree to interviews and, when presented with a list of questions, provided a short emailed statement instead.
“The Park City Wind project was selected by Connecticut through a competitive bidding process, resulting in a contract between Avangrid and the EDCs [electric distribution company, meaning the state’s utilities]. DEEP expects Avangrid to fulfill its obligation to build Park City Wind, and honor its commitment to Connecticut ratepayers to deliver the offshore wind it promised,” said a statement attributed to DEEP Commissioner Katie Dykes.
Avangrid was equally circumspect.
“Avangrid is working with all stakeholders to find solutions to the global price increases outside of its control and deliver these important projects to Massachusetts and Connecticut,” said company spokesman Craig Gilvarg.
Although the exact status of the Park City Wind contract is unknown, the events leading up to this point are less of a mystery. It’s also clear that the contract is not the only problem facing the Park City project.
What happened and why?
A bit of background first.
Connecticut was already late to the offshore wind game in June of 2018 when it approved its first project — just 200 megawatts of what is now called Revolution Wind. Another 100 megawatts was added, and the project’s current total is a little over 300 megawatts. Another portion of Revolution will supply 400 megawatts to Rhode Island. Not huge, but the first grid-scale offshore wind power for each state.
Revolution is being developed by Eversource and Ørsted from hubs at the State Pier in New London and ProvPort in Rhode Island. The port authority running the State Pier has been mired in political, financial and ethical upheaval, but its redevelopment for offshore wind is moving along. One portion is complete, and in just a few weeks, turbine components will be delivered then assembled and shipped out for construction at a lease area called South Fork Wind. It’s another Eversource/Ørsted project that will provide power to New York from the waters between Block Island and Martha’s Vineyard.
The Northeast Bulkhead/Delivery Berth portion of State Pier in New London is now complete and usable for offshore wind construction work. It is a heavy-lift platform capable of handling loads of 5,000 pounds per square foot. Beginning in a few weeks, offshore wind turbine components will be delivered there and prepared for shipment to offshore wind lease areas for construction, starting with South Fork Wind. It is the first of two heavy-lift platforms that will be at State Pier.
Revolution Wind, at the time it was approved, however, was not enough to satisfy environmental advocates and others because the state still hadn’t done what its neighbors, Massachusetts, New York and New Jersey, had already done, which was to authorize large amounts of offshore wind to be developed. New Jersey had already mandated 3,500 megawatts of development by 2030 and, in addition to its own mandate, Massachusetts had rehabbed a port to handle offshore wind components and opened a turbine-testing facility.
It took another year after Revolution was announced for the Connecticut legislature to approve an authorization of up to 2,000 megawatts by 2030, not including Revolution. And that remains the only mandate in place.
In December of 2019, DEEP approved the 804-megawatt Park City Wind, which was to include a massive redevelopment at the port of Bridgeport, hence the project’s name. The department still faced criticism for only tackling one project from the new authorization. Part of DEEP’s explanation at the time was its desire to wait a few years until prices fell, which was already happening.
One pandemic, a European war, an energy realignment and economic meltdown later, and it’s clear that may not have been the best strategic decision, but no one could have predicted that. Then again, contracts for large energy developments such as offshore wind often do plan for the unexpected — building in mechanisms such as inflation indexing or other sorts of adjustments.
The Park City contract did not. Nor did Avangrid’s 1,200-megawatt Commonwealth Wind for Massachusetts.
“We had been sort of lulled into thinking the price of renewables was always going to go down,” said Rich Sweeney, an assistant professor of economics at Boston College who studies renewable energy with a particular emphasis on wind. “The thing we’re all learning now is everyone forgot that interest rates could go up for this, right?”
Greg Cunningham, vice president for clean energy and climate change at the regional Conservation Law Foundation, described the explanation that no one could have foreseen COVID or the Ukraine invasion, never mind the ensuing economic fallout, “the kinder and gentler version of it.”
“These are hard-hitting, very experienced energy companies and utilities, who have factored into long-term contracts lots of conditions over decades, and so they may own some of this,” he said. “I guess the overall message I’d like to convey is, we’re still in a learning process with this energy resource — how we contract for it, how we build it, how we permit, the precautions we put in place in the permitting process — while simultaneously trying to expedite what’s a much needed clean energy resource.
“I think it’s unrealistic for any of us to expect that this is going to have been entirely smooth sailing.”
John Carlson is the senior manager of state policy at CERES, a Boston-based nonprofit that works with investors, companies, capital markets and others to promote sustainable policy solutions. He oversees East Coast work. Connecticut does not work directly with CERES, though Massachusetts does.
“I think you can go back and forth a little bit on whether they should have planned for some things like inflation that had been a non-issue for so long,” Carlson said. “It probably should have been anticipated, but I'm not going to spread around too much blame for that.
“But there is clearly a moment of reassessment happening. And I think all of these projects and developments will look a little bit different going forward,” he said. “I am sympathetic to the developers’ issues, especially to the extent that they simply couldn't finance the project anymore. I do think there is some truth to that. But I also understand the frustration of the state officials who had a signed contract that is trying to get backed out on.”
Charles Rothenberger, climate and energy attorney at Save the Sound and also the Connecticut lead for New England for Offshore Wind, said the absence of certain provisions like inflation indexing seemed pretty ridiculous in hindsight.
“All of the parties involved are sophisticated commercial actors,” he said. “The question then becomes, who bears the risk? Certainly it shouldn't be, I don't think, Connecticut ratepayers. That being said, a contract is a contract.”
And there are a lot of contracts out there right now, with the potential for many more. Most of the action has come since the Biden administration took over.
A report on the state of U.S. offshore wind development released May 4 by the American Clean Power Association, a renewable power trade group, said while there are only 42 megawatts of offshore wind operating in the U.S. right now, there are 32 leases in various stages of development that represent more than 51,000 megawatts of capacity — enough, it said, to power about 20 million homes. About 85% of the capacity is on the East Coast, mainly in the Northeast and mid-Atlantic.
Connecticut’s place in that constellation is pretty small. ACP shows the state in sixth place with about 1,100 megawatts in the pipeline, far behind New York, New Jersey and Massachusetts — with nearly 4,400, 3,800 and 3,300 megawatts of offshore wind, respectively, in the pipeline. And if Park City falters, Connecticut’s rank will drop dramatically.
So where do things stand with Park City?
Here’s what we don’t know: If there was or is an effort to renegotiate the Park City contract. In Massachusetts, industry sources said Avangrid is looking to void its contract, pay the fine associated with such action and then rebid it in a future solicitation, even though there’s no guarantee Avangrid would win it again.
Although there is some indication Avangrid would like to do the same in Connecticut, it’s not clear if that option is actually on the table. An announcement in early March by DEEP that it is planning for a new round of proposals for offshore wind projects could be seen as a tool for rebidding the Park City projects, but the solicitation has no time frame or parameters.
On May 2, Massachusetts announced a new 3,600 megawatt request for proposals (RFP) — the first step in a solicitation that would run through the end of January 2024 and fulfill its mandate for 5,600 megawatts of offshore wind by 2027. There has been much speculation that Connecticut would link its solicitation to Massachusetts', which contains language about a coordination announcement in the fall if states choose to work together.
A spokesperson for the Massachusetts Department of Energy Resources provided a statement via email responding to a question about whether Massachusetts and Connecticut were presently discussing coordination.
"The Healey-Driscoll Administration is committed to working with our state partners to grow our clean energy economy, enhance the reliability of our shared electric grid, and drive down consumer costs by leveraging project scale," the statement said. "The latest proposed RFP was drafted to allow for flexibility in Massachusetts' procurement timeline and possible coordination with other New England states should they seek their own procurements. We'll continue to be in dialogue with neighboring states throughout the process and communicate with potential bidders through the proposed Coordination Announcement."
But Sweeney at Boston College thinks both states should consider whether to even allow Avangrid to re-bid in those solicitations. “If you have a vendor who backs out on a deal, you just try to look for another vendor next time, right?” he said. “That only works when all potential participants are the same on all dimensions. But if one participant has now revealed to you that they’re a risk, you want to penalize them in some way and an extreme way to do that is to just say, ‘we don't trust you, you're excluded.’”
He would have support for that from Aziz Dehkan, executive director of the Connecticut Roundtable on Climate and Jobs.
Other problems and warning signs
Dehkan’s main concern is the port redevelopment Avangrid promised in Bridgeport and the jobs expected along with it, which are tremendously important to the trade unions he works with and the environmental justice community in the area. But that port development was already in big trouble when inflation, high interest rates and Ukraine hit.
Avangrid’s original proposal included a multibillion-dollar redevelopment of an 18-acre area at the port in Bridgeport. It would include staging for construction and long-term operations, maintenance and management. The Connecticut Department of Economic and Community Development commissioner at the time said this work would provide nearly $900 million in direct economic benefits and more than 2,000 direct jobs, though not all would be permanent, and an equal number of indirect and induced jobs.
As of now, not a speck of dirt has been moved toward that goal.
Instead, the Ganim administration in Bridgeport has rezoned much of that port area as residential, making it almost impossible to have enough space for a staging area. According to Dehkan, Avangrid could have applied for a waiver but didn’t.
“They told us in meetings that they couldn't get a variance and when asked ‘did you apply for a variance?’ They said ‘no, we didn't apply for a variance.’ To which I replied, ‘If you don't apply for a variance, how do you know you can't get a variance?’”
It may not matter at this point. There are indications Avangrid is now considering other port areas out of state for staging and other operations for Park City. Avangrid did not respond to written questions on that subject.
“We’re very disturbed by the action of an international conglomerate, who promises things that they can't deliver on and don't seem to want to attempt to deliver on,” Dehkan went on. “You won your contracts based on what you were promising. Otherwise, they may have been let out to other people.”
He said his organization wants stricter negotiations and more stringent repercussions if a company backs out. “It can't just be a corporate slap on the wrist. We would like to see companies being barred from bidding.”
There are other uneasy signs, however, that offshore wind development broadly may be cooling a bit just as Connecticut is trying to, and to some degree is being forced to, have a reset.
A year ago it was widely reported that Eversource was looking to sell its offshore wind operation — presently consisting of three active projects and proposals for two more, all of which are 50/50 partnerships with Ørsted. A spokesman now refers to that as a “strategic review.”
While the spokesman said in an email “there has been significant interest from multiple sophisticated potential buyers,” it has not gone unnoticed that Eversource’s holdings have not been snatched up yet, though some decision is expected later in this quarter.
In the interim, Eversource and Ørsted have bid on offshore wind solicitations in New York and Rhode Island. Theirs was the only bid in Rhode Island. While some said the solicitation was not well-constructed, many noted the lack of interest was a far cry from the mob scene solicitations generally have been. And there is some concern that it reflects broader financial difficulties and that upcoming solicitations could have few to even no bidders, or prices could be so high as to be prohibitive.
A so-called liftboat in place off Long Island is part of the initial construction of New York's South Fork Wind project, owned by Eversource and Ørsted. In a few weeks that construction will be supported by operations at State Pier in New London, which will eventually handle construction and other operations for Connecticut's Revolution Wind. SOUTH FORK WIND
It may mean states with offshore wind interests find themselves trying to navigate diametrically opposed factors. On one side inflation, high interest rates and supply chain problems are making projects more expensive, so it’s not an ideal time to bid for them. On the other side, the Biden administration is providing historic levels of funding and other incentives for them, making it absolutely an ideal time to get in.
So what do we do now?
“If we're actually going to be procuring things at what one might assume is a peak, are there going to be any opportunities to adjust downward should materials become relatively less expensive?” asked Rothenberger of Save the Sound. “Or is that all just going to be profit that accrues to the developer?”
An initial answer might be found in the just-announced Massachusetts solicitation, which does provide options for inflation and other economic considerations. Some of the more recent solicitations by other states also include inflation indexing.
Rep. Jonathan Steinberg, D-Westport, co-chair of the Energy and Technology Committee and an offshore wind advocate going back to his first year on the committee in 2011, said there have been discussions about the lessons from the unfolding experience with Avangrid. And he had a warning.
“Contracts are about certainties, are about long term consistency. Throwing indexing in either direction undermines some of those assumptions,” he said. “But the bottom line is, are we on the brink of a new rubric for making such decisions? Or is this just a hiccup we can wait out and things will smooth out again in two years?
“We're going to be paying a premium because of uncertainty currently.”
Carlson of CERES said without adjustment mechanisms, bidders would have to assume the worst-case scenario for the long term. “Which means they're going to come in at a higher price that ends up falling to ratepayers in the states,” he said. “So, I think by including the adjustment mechanisms, you're actually protecting the states and ratepayers.”
Carlson also suggests thinking creatively. For instance, as turbines get bigger and can generate more power — something already happening at a pretty rapid clip — it means offshore wind installations could produce a good bit more power than initially thought. Finding buyers for that excess power could relieve some of the financial pressures.
In the meantime, he’s not worried the current situation is fatal.
“This is going to happen. It makes too much sense,” he said of the adoption of offshore wind broadly. “There are hiccups. There are problems we are planning around, but I don't think it's going to be a series of dominoes that stops everything in its tracks.”
But for Connecticut with its four-year-old authorization for 2,000 megawatts of offshore wind, if Park City’s 800 megawatts disappears, the state will essentially be starting over.
But no one thinks these difficult economic times warrant a voluntary pause in offshore wind development.
“I don't think we can afford it, number one. We can't from a climate mitigation perspective,” said Cunningham at the Conservation Law Foundation. “I would suggest rather than stopping and taking a breath, instead we proceed. We continue to learn from history, and particularly the recent history. We modify our RFPs and draft contracts appropriately and accordingly and if we don't get any bids in this round, we do it over again. And we improve upon the RFP and we improve upon the contracts. But it's more, I think, vigilance that's needed than a pause.”
The point, everyone said, is to deal with climate change at its core — eliminating the use of fossil fuels in favor of non-carbon energy like offshore wind.
“We need to decarbonize as fast as possible. And we need to build a lot more renewables, and we're not going anywhere near fast enough,” Sweeney at BC said.
“Specific mechanisms aside, I think we are really interested in making sure that the states and the utilities learn from this experience so that we don't go through this again,” said Hatch of New England for Offshore Wind. “Frankly, we need these projects. And if we don't get these projects in the water, we're getting more gas power plants and more pipelines in New England.
“We will see what happens. We’re all waiting on the edge of our seats here.”