Massachusetts utilities land offshore wind for $65/MWh

Massachusetts utilities have entered into contracts to buy power and renewable energy credits from 800 megawatts of offshore wind at what appears to be a record-low levelized price of $65 per megawatt-hour.

The Massachusetts Department of Energy Resources on Aug. 1 asked the Department of Public Utilities to approve the contracts between the utilities — National Grid USA, Eversource Energy and Unitil — and Vineyard Wind, a joint venture between Copenhagen Infrastructure Partners and Avangrid Renewables.

“By utilizing federal investment tax credits within the structure of a long-term power purchase agreement, Vineyard Wind was able to offer an attractive price to the benefit of consumers while creating value for its shareholders,” said Lars Thaaning Pedersen, Vineyard Wind chief executive officer.

The contracts were the result of a request for proposals driven by a Massachusetts law that requires the state's regulated electric utilities to buy up to 1,600 MW of offshore wind by mid-2027.

The contracts for power from two 400-MW blocks start at $74/MWh and $65/MWh, respectively, in nominal dollars and increase in price by 2.5 percent a year for an average, levelized cost of $84.23/MWh or $65/MWh in 2017 dollars, according to the DER.

In comparison, the Maryland Public Service Commission in May 2017 approved two offshore wind contracts totaling 368 MW with a levelized price of $131.93/MWh.

Also, the utilities are separately seeking state approval for hydroelectric generation from Quebec that costs $59 per MWh over 20 years.

Over the life of the offshore wind contracts, ratepayers will save about $1.4 billion compared with the estimated cost of wholesale electricity and renewable energy credits, according to the DER, which estimated the deal would lower electric rates by up to 1.5 percent.

"The implementation of this 800 MW Vineyard Wind project has the potential to support Massachusetts' 'first mover' advantage in offshore wind development, providing greater opportunities for development of local supply chain and offshore wind industry jobs in the Commonwealth," the DER said.

Also, Vineyard Wind will deliver the power from the wind farm to Southeastern Massachusetts, improving reliability in the area, which has seen power plant retirements, according to the utilities.

The utilities said the project may also help cut down on winter-time prices spikes in New England when power plants compete for natural gas with heating for buildings.

In their offshore wind solicitation, the utilities received 27 pricing proposals from three companies and couldn’t agree on which one to accept, according to the DER. National Grid and Unitil favored Vineyard Wind's 800-MW proposal and Eversource want to go with a 400-MW proposal from the same company.

Working with an independent evaluator, DER selected the larger project, saying it provided more benefits and should help drive down future offshore wind costs. Going with the larger project also maximized the value of the ITC, which is being phased out, the department said. The tax credit is available for projects that start construction before Dec. 31, 2019.

Vineyard Wind expects to build the wind farm near Martha’s Vineyard in 400-MW phases, with the first segment starting operations by Jan. 15, 2022, and the second block coming online a year later.

Offshore wind has been slow to develop in the United States, which has one offshore facility, the 30-MW Block Island wind farm developed by Deepwater Wind off Rhode Island.

The company in May won a contract to sell Rhode Island utilities power from a proposed 400-MW offshore project.

Meanwhile, the U.S. Department of Energy on Friday issued a request for information seeking comments on existing capabilities and needs of national-level offshore wind research and development test facilities.

Information on the RFI is available here.