Energy Musings - December 27, 2024
The offshore wind market was upended a week ago when Connecticut elected not to buy output from Vineyard Wind 2. It opted for solar and batteries. The decision cratered the wind project.
New England’s Offshore Wind Kumbaya Evaporates
Just over a year ago, Massachusetts, Connecticut, and Rhode Island governors were seen as saviors amidst New England’s offshore wind struggles. They agreed to collaborate in buying offshore wind to meet their state clean energy mandates. By partnering, the states were seen helping the industry deal with its problems of inflation, supply chains, and high interest rates.
The three-state Memorandum of Understanding has the three states collaborating on offshore wind solicitations, and any two or three states could agree to take the offered output. The collaboration would enable offshore wind developers to build bigger projects to reduce costs. This point was noted in a headline by Utility Dive about the agreement. “As the offshore wind market faces economic challenges, the states aim to cooperate to make projects cheaper and more viable.”
This was a critical development as previously negotiated offshore wind agreements were being ditched because project costs could not be recovered at the agreed electricity prices. The entire green evolution was a risk of going off the tracks.
The reality is that offshore wind is expensive, and the projects proposed were underpriced, preventing them from being financeable. In other words, these projects were economic failures – too much debt and not enough income.
One of the early offshore wind developers, Vineyard Wind, offered a 1,200 megawatt (MW) project for its adjacent lease in Vineyard Wind 2. On September 6, 2024, Massachusetts eagerly snapped up 800 MW of the offered power. Vineyard Wind 2 posted the following on its website.
Happier days for Vineyard Wind 2.
By not committing quickly to the deal, Vineyard Wind 2 was disappointed with Connecticut hesitation on purchasing the remaining 400 MW but moved forward with negotiations with Massachusetts over its pricing. Reports were that the power was expensive, but Massachusetts refused to disclose any details about its negotiations. Last Friday brought terrible news for everyone except maybe ratepayers.
Katie Dykes, commissioner of the Connecticut Department of Energy and Environmental Protection, announced that her state was securing other clean energy supplies - 518 MW of solar energy and 200 MW of battery storage capacity. Dykes said that cost played a role in their selection process, and solar and batteries had risen to the top of their list.
“We took a pass on this round,” said Connecticut Governor Ned Lamont about snubbing Vineyard Wind 2. He failed to mention the uproar last summer and fall from Connecticut residents upset with soaring utility bills due to the state’s clean energy program. That outrage came about at the time of the Vineyard Wind 2 bid. We suspect it was the reason why Connecticut passed. Nutmeg state politicians could see where offshore wind prices were going by following the negotiations in neighboring New York, where canceled projects were brought back to life but at more than twice their initial costs.
Lamont offered a salve for the climate change activists in the state. “Every state has got different priorities about how we increase capacity, which is how – ultimately – we’re going to bring down the cost of electricity and do it in as green a way as we can.” Funny how residents outrage swayed the decision. Maybe Lamont had visions of the French Revolution when government officials were hauled off in carts to the guillotine.
The last act in Friday’s drama was Vineyard Wind 2 announcing that without Connecticut’s support, it was pulling the 800 MW deal with Massachusetts off the table and looked forward to rebidding in a future solicitation. The next round for New England’s offshore wind will come once Donald Trump is sworn into office. He is an avowed critic of offshore wind.