Energy Musings - October 20, 2023
Part 1 reviews pre-filed testimony of Rhode Island Energy officials who evaluated the rejected Revolution Wind 2 bid. The comments suggest it was poorly prepared. Is it representative of other bids?
Revolution Wind 2 Bid Rejection Analysis – Part 1
On July 18, Rhode Island Energy, the state’s primary electric utility, announced it would not pursue a power purchase agreement for 884 megawatts of offshore wind energy from the Revolution Wind 2 project. The wind farm, a development of joint lease owners Ørsted and Eversource, was the lone bid submitted in response to the October 2022 offshore wind power solicitation. Buying more offshore wind power would be a step for Rhode Island Energy to meet Rhode Island’s clean energy mandate.
RIE solicited the bid under an amendment to the state’s Affordable Clean Energy and Security (ACES) Act passed into law on July 6, 2022. RIE had to issue a Request For Proposal for the supply of at least 600 MW to no more than 1,000 MW of offshore wind by October 15, 2022. RIE issued its RFP on the 14th. The law requires the RFP to be issued in consultation with the Rhode Island Office of Energy Resources and the Rhode Island Division of Public Utilities. Those agencies were also to be involved in evaluating bids. If RIE determines bids are unlikely to lead to a PPA, it must submit a filing to the PUC, together with supporting testimony, to explain why it should not be required to negotiate a contract.
In its July 18 press release, RIE not only announced it would not proceed to negotiate a PPA with the Revolution Wind 2 developers but also would provide a “comprehensive filing with the Rhode Island Public Utilities Commission” within 60 days setting forth its analysis for the bid’s failure to meet the ACES requirement “to reduce energy costs.” The company said it would also explain other factors that scored low in its “thorough, four-month evaluation of the bid.” The PUC will hear the testimony on November 6.
We now have had the opportunity to read the 172 pages of pre-filed testimony from RIE officials involved in evaluating the bid along with reviewing the 993 pages of exhibits, much of which are redacted. (More on that later.)
The following paragraph in the cover letter outlines RIE’s conclusion.
The Pricing Factor analysis concluded that all six bids resulted in substantial negative net benefits for customers, indicating a cost to customers over the life of the contract of more than $3 billion on a net present value basis (2023$). Even after modeling substantial sensitivities, the net benefits to customers of all six bids were still substantially negative, with estimated costs to customers at approximately -$1.78 billion over the life of the contract. The Company determined the Project was not commercially reasonable, as required by R.I. Gen. Laws §§ 39-31-6(a)(1)(vii)(A) and 39-31-10(c), nor was it consistent with the overall purpose of ACES. (Emphasis added.)
Offshore wind is envisioned to play a key role in meeting Rhode Island’s revised (2022) clean energy mandate. Rather than 100% of utility power being “offset by renewable production” by 2035, the timetable has been accelerated to 2033. This gives Rhode Island “the most aggressive renewable energy standard among any U.S. state” according to the governor’s office. While a laudable objective, electricity represents only about 25% of the state’s primary energy consumption. Moreover, as has been noted in Bureau of Ocean Energy Management documents, offshore wind has little impact on carbon emission reductions.
Additionally, the clean energy mandate law “requires utility companies to purchase renewable energy certificates representing a portion of the power they sell annually.” Thus, renewable power can be generated and used anywhere in the U.S., but the Rhode Island utility is credited with it as if it was generated and consumed in the state.
Under the state’s new mandate, rather than increasing renewable energy by 1.5% per year, there must be an additional 4% increase in 2023, 5% in 2024, 6% in 2025, 7% in 2026 and 2027, 7.5% in 2028, 8% in 2029, 8.5% in 2030, 9% in 2031, and 9.5% in 2032 to reach the 100% target by 2033 and thereafter. Thus, there is incredible pressure on utilities to sign up for renewable energy projects and purchase renewable energy credits (RECs).
What we learned from reading the testimony was how sloppily the Ørsted/Eversource bid was prepared. One area was the fishing industry. Commercial fishing interests have been outspoken in their concern over the number and location of offshore wind projects off the Rhode Island/Massachusetts coast. This area encompasses some of the most prolific fish breeding and feeding areas and where the commercial fishing industry harvests their catches. The commercial fishing industry is one of the most important industries in Rhode Island. Their concerns have been minimized or dismissed by regulators at both the federal and state levels in deference to satisfying the desires of offshore wind developers.
The following comes from the testimony of Bradford Labine, the Manager of Environmental and Safety for RIE.
17 V. Environmental and Fisheries Mitigation Plan Analysis
18 Q. Does the Bidder’s EFMP meet the Minimum Threshold requirements in the OSW
19 RFP?
20 A. No. The Bidder provided an EFMP but does not clearly include a detailed 21 characterization of the existing fisheries resources specific to the Project’s location or the
1 region. The Bidder did not sufficiently detail the adverse impacts to commercial and
2 recreational fishing specific to the proposed location of the Project. The submitted EFMP
3 did not provide a roadmap for the environmental and fisheries work to come. Also, the
4 Bidder did not agree to record vibrations in the sediment or to detect particle motion, as
5 required by the OSW RFP, and failed to cure this deficiency in response to the
6 Company’s clarifying questions to address the discrepancy.
7
8 Q. Do you have any concerns with the stakeholder and fisheries engagement plans in
9 the submitted EFMP?
10 A. Yes. Although the Bidder has a robust stakeholder engagement plan and fisheries
11 stakeholder engagement plan, Bidder has not provided sufficient evidence that its
12 outreach adequately penetrated the local communities and environmental groups to gauge
13 their level of support. Additionally, the Bidder did not provide a strategy to address
14 dissent from stakeholders.
15
16 Q. Does the Bidder’s EFMP introduce risk into the Project?
17 A. Yes. Given the lack of certain elements in the Bidder’s EFMP, as described above, the
18 lack of a detailed EFMP and firm stakeholder engagement and support introduces the
19 potential for opposition from those fisheries and environmental groups in the future,
20 which could endanger the Project or delay its schedule.
Is it possible that RIE is more friendly to the commercial fishing industry than Ørsted/Eversource? From the comments above, we believe so. We also found it interesting that the developers refused to record vibrations in the sediment, which relates directly to the issue of underwater noise from offshore wind construction activities and its potential to harm or destroy the hearing of marine mammals and cause them (particularly whales) to swim into shipping lanes where they are struck and killed by vessels.
Further to the deficiencies of the bid, Mr. Levine cited problems with Revolution Wind 2’s siting and permitting plan.
13 Q. As a result of the siting and permitting evaluation, did the Project demonstrate a
14 “credible project operation date” as required under ACES?
15 A. No. Section 39-31-6(a)(1)(vii)(A) of ACES requires that contracts approved under
16 ACES must be commercially reasonable. The definition of “commercially reasonable”
17 includes, among other things, having a credible project operation date, as determined by
18 the PUC.
19
20 The Bidder has not submitted a detailed and credible plan for the successful siting and
21 permitting of the Project. The ambiguity in landfall location and onshore substation
1 location, and the related impacts on route selection, environmental assessments, and
2 permitting all contribute to the finding that the Bidder’s Proposal may not support a
3 credible project operation date since there are numerous unknown variables that increase
4 the risk of whether the Project can be built, thus impacting Project viability.
5
6 For siting requirements, the Bidder has not demonstrated a reasonable likelihood of
7 access to onshore site control rights on a timely basis, due to the ambiguity in site
8 selection [….REDACTED…] For permitting
9 requirements, the Bidder has not shown that it has engaged the local communities and
10 environmental groups, and that they have been engaged or show support for the Project.
11 In addition, the Bidder has not provided sufficient detail on the potential landfall and
12 onshore substation sites and the impact on the permitting process.
13
14 As a result of these uncertainties, the Company was unable to determine that the Bidder
15 has demonstrated a credible project operation date.
Elsewhere in the testimony, there was a discussion about transmission line overloading that the Bidder failed to address, and which could interfere with the delivery of power. The testimony of James Rouland, Director Regulatory Policy & Energy Procurement for PPL Services Corporation, the owner of Rhode Island Energy, expanded on the problems of the bid. Rouland is responsible for managing the Renewable Energy Growth Program, Long-term Clean Energy Program, and related renewable energy contracts for both Rhode Island Energy and its other parent company utilities. Mr. Rouland is very experienced in renewable energy contracts.
7 Q. Please elaborate regarding the provisions of ACES that the Proposal failed to meet.
8 A. As detailed in the testimony above, the Quantitative Evaluation found that even when
9 negative revenues from negative LMPs are paid for by the Bidder in the Net Results
10 calculation, and with additional transmission system upgrades above and beyond what the
11 Bidder originally proposed, the net benefit to customers using the Sensitivity Case was
12 estimated to be approximately -$1.78 billion over the life of the contract. The Company
13 determined that moving forward with contract negotiations for a project that would add
14 an additional, approximately $1.78 billion cost to customers would not be commercially
15 reasonable, nor would it [be] consistent with the overall purpose of ACES, which is, in part, to
16 provide cost-effective, strategic investments in energy resources and infrastructure and
17 enhance economic competitiveness by reducing energy costs. See R.I. Gen. Laws
18 39-31-2. Based on the quantitative evaluation, none of the six bids discussed above
19 met this purpose.
20
1 In addition, for the PUC to make a finding of commercial reasonableness, it must also
2 find that the Project has a credible project operation date. See R.I. Gen. Laws § 39-31-3.
3 As discussed earlier in this testimony, the Company’s qualitative evaluation determined
4 that the Project does not have a credible project operation date because of the lack of
5 credibility identified within the Bidder’s interconnection and transmission plan, as well as
6 in their siting and permitting plan, which does not support that the Project can be built as
7 proposed. Regarding the interconnection and transmission plan, the Bidder did not have
8 any completed ISO-NE interconnection studies, and the Third-Party Feasibility Analysis
9 did not approximate the ISO-NE interconnection process or demonstrate that the
10 interconnection / transmission facilities can be built and operated as proposed. In
11 addition, in reviewing the Third-Party Feasibility Analysis, the Company identified
12 multiple transmission line overloads that were not properly addressed and other
13 transmission line overloads that were not identified by the Bidder. The ambiguity in
14 landfall location and onshore substation location, and the related impacts on route
15 selection, environmental assessments, and permitting contribute to the lack of a credible
16 operation date, increased Project risk, and made it impossible for the Company to
17 determine if there were any additional issues or considerations that could otherwise
18 impact the viability of this Project.
These excerpts from the various testimonies show the concerns RIE officials had about the risks of entering into a contract for Revolution Wind 2. We were surprised to learn that Ørsted/Eversource submitted six contracts with different prices and terms. However, we have no idea what the prices were. We doubt any of that will be revealed during the upcoming PUC hearing. We were also surprised to learn that Revolution Wind 2 had withdrawn from the ISO-NE transmission queue on September 8, something that came out in the testimony. Even if the PUC ordered RIE to negotiate a contract, given the developers’ state of its planning and now having the transmission line at the end of the ISO-NE interconnect queue means the project could be years away from operation. That is a problem for RIE since it is faced with meeting Rhode Island’s clean energy mandate.
After reading the pre-filed testimony, we wondered about the seriousness of this bid. That was a surprise. An important question, and a very troubling one, is whether this bid is representative of the quality of all the other offshore wind contracts. Do the developers believe they have so much power and political support from state and federal regulators that the details of the projects do not matter? Probably because they believe any issue will be resolved in their favor and any additional costs can be passed on to ratepayers.
We continue pointing out that the offshore wind business is different from the other offshore energy businesses – oil & gas, and fishing. That is because of state clean energy mandates. Winners of offshore wind leases are immediately granted monopoly power in their negotiations with local utilities. The utilities must buy the offshore wind energy, so it seems price is the only issue to be negotiated. The utility knows that state utility regulators, as well as federal regulators, will cater to developer wants and needs because of the state clean energy mandates. They also can count on the regulators bowing to those mandates in approving PPAs. Last week we saw New York State regulators turn down the outsized rate hikes requested by renewable and offshore wind developers. Last year, Massachusetts regulators failed to yield to offshore wind developer Avangrid’s request to suspend its review of the company’s PPAs while it tried to negotiate higher prices. Avangrid only terminated its contracts after the politicians (governor) agreed that it could bid in the 2024 solicitation even after having terminated a contract. Connecticut regulators recently followed Massachusetts.
Rhode Island legislators probably did not realize the ACES act would create hurdles offshore wind projects might not overcome. They appear to have bought into the industry rhetoric that offshore wind would only get cheaper, something that is no longer true. Because we cannot see the details of the evaluations of the proposed six contracts, we have no way of knowing how they compared to prior contracts (many of which have been terminated) and the recently rejected price hikes asked of New York regulators.
We remain troubled by the testimony about the deficiencies in the Ørsted/Eversource bid and whether this is representative of the industry. The best the RIE evaluators could muster was a contract with a cost to ratepayers of $1.78 billion over its life. If this is the best option, not only is the offshore wind industry in trouble but so are ratepayers.
(We examine the proposed contract impact on Rhode Island ratepayers in Part 2.)