Offshore wind power prices take big leap

THE PRICE OF ELECTRICITY from offshore wind is taking off, as New York awarded contracts to two developers on Thursday at prices more than double what Massachusetts negotiated during its last procurement.

A press release issued by New York Gov. Kathy Hochul indicated the average cost of the two contracts in New York is $150.15 per megawatt hour. The press release said the price “is on-par with the latest market prices,” but it’s a sticker-shock leap from the $76.73-per-megawatt-hour price that Massachusetts negotiated with Avangrid in March 2023.

Avangrid ended up paying a $48 million penalty to terminate that contract in July last year, saying rising interest rates, inflation, and economic upheaval caused by the war in Ukraine made the contract terms unworkable. That decision set off a domino effect in the industry, as a number of projects up and down the Atlantic seaboard were terminated.

The two winners of the New York procurement – Sunrise Wind (a joint venture of Orsted and Eversource Energy) and Equinor – went through the same process, terminating contracts negotiated in 2019 and replacing them with new contracts with prices roughly $32 to $40 per megawatt hour higher, according to press reports.

In Massachusetts, one offshore wind farm – Vineyard Wind 1 – is going up, with 5 of 62 turbines currently installed. But three other fully bid projects fell by the wayside amid economic turmoil. Gov. Maura Healey wants to play catchup with the next procurement, with bids expected March 27 and awards expected early next year.

But price is a big concern, so much so that Healey delayed the upcoming procurement by nearly two months to give developers more time to determine whether federal tax credits could help lower their bids. Massachusetts has also partnered with Connecticut and Rhode Island on the next procurement, looking for benefits of scale that could lower costs.

The Healey administration can always reject bids if they come in too high, but that would be a very difficult decision given that the governor has said repeatedly that the state desperately needs offshore wind to begin decarbonizing the economy.

Sen. Michael Barrett of Lexington, the Senate chair of the Legislature’s Telecommunications, Utilities, and Energy Committee, said the New York prices are very troubling. Barrett said Massachusetts in the past has focused on keeping electricity prices low because electricity usage is expected to play such a key role in decarbonization. Other states, meanwhile, have been willing to accept higher prices to lure more onshore wind development to the state.

In the past, Barrett said, offshore wind developers interested in doing business in Massachusetts had told him there would continue to be a price difference between Massachusetts and states like New York. Over the last six months, however, he said the message has shifted to suggest pricing may not differ that much.

“We’re basically looking at New York prices without New York benefits, and that’s a real problem,” he said.

The New York procurement offered some welcome news for Eversource Energy, a utility that serves Massachusetts, New Hampshire, and Connecticut. Eversource ventured into offshore wind as a partner with Orsted and suffered major losses. It recently exited the business, selling its stakes in several wind farms, including Sunrise Wind. Eversource had written off its entire investment in Sunrise Wind, but the fact that it won the New York procurement means the $1.22 billion impairment charge it took on the project could be reduced significantly.