- Avangrid, a major offshore wind company, is poised to pay a considerable fine to get out of its power purchase agreements (PPAs) with utility companies pursuant to its Park City project off the Massachusetts coast.
- The PPA termination is the latest sign of trouble for the offshore wind industry, which has been struggling as inflation, supply chain disruptions and spiking interest rates slice into projected profit margins in the wake of the Inflation Reduction Act’s passage.
- “One year ago, Avangrid was the first offshore wind developer in the United States to make public the unprecedented economic headwinds facing the industry including record inflation, supply chain disruptions and sharp interest rate hikes, the aggregate impact of which rendered the Park City Wind project unfinanceable under its existing contracts,” Avangrid said in a Monday statement.
A major offshore wind company requested to cancel contracts with two utility companies in the Northeast on Monday after macroeconomic factors have eaten into the East Coast project’s profitability, UtilityDrive reported.
Offshore wind developer Avangrid filed a request to terminate power purchase agreements (PPAs) with Eversource Energy and United Illuminating for its Park City Wind project, which was set for construction off of the Massachusetts coast, according to UtilityDive. Avangrid cited inflation, supply chain backups and higher interest rates as the driving motivations for their termination requests, and the company could stand to pay fines totaling approximately $16 million if the Connecticut Public Utilities Regulatory Authority (PURA) approves the requests.
“One year ago, Avangrid was the first offshore wind developer in the United States to make public the unprecedented economic headwinds facing the industry including record inflation, supply chain disruptions and sharp interest rate hikes, the aggregate impact of which rendered the Park City Wind project unfinanceable under its existing contracts,” the company said in a Monday statement. “After exploring all potential solutions to the financial challenges facing the project, and engaging in good-faith and productive discussions with Connecticut state officials regarding these challenges, it is clear the best path forward for Park City Wind is in the termination of the Power Purchase Agreements and a rebid of the project.” (RELATED: Biden Admin’s Offshore Wind Leases Flop In The Gulf Of Mexico)
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Avangrid similarly paid $48 million in fines to get out of PPAs it had signed pursuant to a deal to sell offshore wind-generated power in Massachusetts in July, CommonWealth reported at the time. A spokesperson for the company referred the Daily Caller News Foundation to a press release commending Democratic Govs. Ned Lamont of Connecticut, Maura Healey of Massachusetts and Daniel McKee of Rhode Island for reaching an agreement to have their states jointly procure offshore wind-generated energy. It is unclear how exactly this joint procurement agreement will apply to the Park City development, specifically, but it is generally designed to bring down costs of offshore wind development, according to E&E News.
“The Park City Wind developer asked Eversource to terminate the offshore wind contract because the developer cannot secure financing,” an Eversource spokesperson told the DCNF. “We complied with that request by entering into a Termination Agreement which is now filed for PURA approval.”
This week’s PPA termination is the latest sign of trouble for the offshore wind industry, which has been struggling as inflation, supply chain disruptions and spiking interest rates have crunched projected profit margins since the passage of the Inflation Reduction Act (IRA). On Friday, Massachusetts regulators approved a PPA termination request from Shell New Energies and Ocean Winds North America relating to their joint venture wind project between Martha’s Vineyard and Nantucket, Massachusetts, according to UtilityDive.
The IRA, President Joe Biden’s signature climate bill, featured substantial tax credits and manufacturing subsidies to drive offshore wind investment from the private sector, and companies have invested more than $7 billion in offshore wind projects since the IRA became law, according to the White House. The administration is aiming to have offshore wind provide enough energy to provide electricity for 10 million American homes by 2030 in support of its wider goals to decarbonize the American power sector by 2035 and the overall U.S. economy by 2050.
Orsted, another major offshore wind developer with stakes in several East Coast projects, is willing to abandon its work if more competitive arrangements cannot be reached in time, CEO Mads Nipper told Bloomberg News in September. In August, a number of green energy companies and advocacy groups petitioned the New York Public Service Commission to renegotiate contracts with state utilities as rising costs could threaten the viability of numerous projects.
“The most fundamental issue is that what the administration is trying to do is artificially get the wind industry going when it is not ready yet,” Kevin Dayaratna, senior research fellow for the Heritage Foundation, previously told the DCNF regarding the general state of the offshore wind industry. “When you try to do that, things cost more and keep getting even more expensive.”
The White House, CPURA and the office of Democratic Connecticut Gov. Ned Lamont all did not respond immediately to requests for comment. United Illuminating, a subsidiary of the same company as Avangrid, referred the DCNF to an Avangrid spokesperson when reached for comment.
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