Author Archives: Carson Robers

Review of New York State Clean Energy Proposals

To: Clients and Colleagues
From: John Dalton, President & Margaret Blagbrough, Consultant, Power Advisory LLC

On January 2, New York Governor Andrew Cuomo unveiled sweeping clean energy proposals touching every aspect of the renewable energy sector. The main purpose of these proposals is to allow the state to fight climate change and protect the environment, while also creating jobs in the renewable energy sector. The set of proposals, titled the 2018 Clean Energy Jobs and Climate Agenda, is in addition to ambitious clean energy goals already mandated in the state, including the mandate to generate 50 percent of the state’s electricity from renewable energy sources by 2030.

A major piece of this agenda focuses on energy storage. Governor Cuomo plans to add 1,500 megawatts of energy storage by 2020, the largest commitment of this type per capita by any state. In order to achieve this goal, the Governor is proposing a commitment of $200 million from the NY Green Bank for energy storage investments. Additionally, he is directing the New York State Energy and Research Development Authority (NYSERDA) to invest $60 million through storage pilots to reduce barriers for deploying energy storage. This will pave the way for utility procurements of energy storage in 2018. Additionally, energy storage will be incorporated into the criteria for future large scale renewable procurements.

The Governor is also calling for a procurement of at least 800 megawatts of offshore wind generation between two solicitations issued in 2018 and 2019. These will be the first procurements in a set of staggered procurements to reach the state target of 2.4 gigawatts of offshore wind by 2030, established last year. Governor Cuomo is directing NYSERDA to invest in job training in the offshore wind industry and to determine the most promising offshore wind port infrastructure investments. In October of 2017, New York State submitted an identified Area of Consideration for new wind lease areas to the Bureau of Ocean Energy Management (BOEM). New York requested that BOEM identify and lease at least four new wind energy areas, each accommodating at least 800 megawatts of offshore wind, within the Area of Consideration.

The Governor also addressed energy efficiency, calling on stakeholders to propose a far-reaching energy efficiency initiative by April 22, 2018, propose a 2025 energy efficiency target, and establish appliance efficiency standards. Other agenda items include: the development of a zero-cost solar program for 10,000 low-income residents; expanding the Regional Greenhouse Gas Initiative (RGGI) to other states and to broaden regulations to include smaller and less efficient peaking plants; and phase out all coal-fired power plants in New York by 2020.

Power Advisory would welcome the opportunity to assist clients in assessing opportunities in the New York renewable energy market.

A PDF version of this report is available here.

Review of Massachusetts Offshore Wind Energy RFP (83C) Proposals

To: Clients and Colleagues
From: John Dalton, President; Margaret Blagbrough, Consultant; Michael Ernst, Executive Advisor; Power Advisory LLC

On December 20, 2017, the Massachusetts investor-owned electric distribution companies (Distribution Companies) in coordination with the Massachusetts Department of Energy Resources (DOER) received three proposals for offshore wind energy generation projects, in response to the RFP they issued for 400 MW (and up to 800 MW) of wind energy under long-term contracts. This procurement is the first in a series of competitive solicitations under the state’s 2016 Act to Promote Energy Diversity mandate for 1,600 MW of offshore wind (OSW) by June 30, 2027. Winners of this first procurement will be announced on April 23, 2018. The bidders who submitted proposals are those that hold existing Bureau of Ocean Energy Management (BOEM) Massachusetts or Massachusetts/Rhode Island offshore leases: Deepwater Wind, Bay State Wind (Ørsted and Eversource Energy), and Vineyard Wind (Avangrid Renewables and Copenhagen Infrastructure Partners). The figure below shows the locations of each of the proponents’ lease areas.

Proposals are required for the target capacity of 400 MW, but additional proposals between 200 MW and 800 MW are allowed and were submitted. Any chosen proposal over 400 MW must be superior and provide significantly more economic benefits to Massachusetts ratepayers. Each proponent must include a proposal for a generator lead line to deliver offshore wind to the corresponding onshore ISO-New England (ISO-NE) Pool Transmission Facilities (PTF). Additionally, proponents must submit a proposal for an expandable transmission network providing nondiscriminatory access for all offshore wind facilities.

Proponents will be evaluated in three stages. In the first stage, proposals will be evaluated to see if they meet eligibility and threshold criteria. Proposals that meet the basic requirements of stage one will be evaluated based on the costs and benefits of the project in stage two. Quantitative evaluation criteria in this stage include direct costs and benefits and other costs and benefits to retail customers. Qualitative evaluation criteria will include: (1) the siting, permitting and project schedule; (2) reliability benefits; (3) benefits, costs, and contract risk; (4) environmental impacts from siting; and (5) economic benefits to the Commonwealth. In the third stage, the Evaluation Team will further evaluate proposals to ensure that they are the most cost-effective solutions for ratepayers and that they will provide reliable renewable energy for the long-term.

Confidential information including pricing has been redacted from the public versions of bids we have reviewed and summarized below.

Bay State Wind

Bay State Wind, the partnership between Ørsted and Eversource, proposed either a 400 MW or 800 MW wind farm 25 miles off of New Bedford, MA. The 400 MW project would be paired with a 30 MW/ 60 MWh battery storage facility, while the 800 MW project would be paired with a 55 MW/110 MWh battery storage facility. Ørsted, formerly DONG Energy, is the world’s largest offshore wind developer. Ørsted has constructed 3.8 GW of offshore wind capacity over the past 25 years and has another 5 GW under construction. Eversource is New England’s largest energy provider and is slated to develop and construct the project’s onshore transmission system.

The project would use New Bedford as the construction area and the base of its operations and maintenance throughout the project’s lifetime. Brayton Point in Somerset, MA will be the grid connection location for the project and the home of the battery storage facility.  The project would result in the development of the first Jones Act compliant installation and transportation vessels.

In their proposal, the company stated that they are the furthest along in the ISO-NE interconnection queue process compared to the other two eligible bidders. Their completed Feasibility Study shows that either of the two projects can interconnect into Brayton Point without any system upgrades. The timeline of the project was not publicly released.

Bay State Wind asserts that the scale of its proposed projects will better allow Massachusetts to become “the hub of the offshore wind industry in Massachusetts” and that Ørsted’s “develop, build, own, and operate” model ensures that it is vested in the long-term success of its wind farms, compared to other developers.

Deepwater Wind

Deepwater Wind proposed either a 200 MW or 400 MW wind farm, called Revolution Wind, with a commercial operation date (COD) in 2023.  Deepwater Wind also appears to have submitted an expandable offer, the details of which were redacted.  It proposed an initial 144 MW phase of the project in response to Massachusetts’ 83D solicitation for 9.45 TWh of clean energy. The state will announce the winners of that RFP on January 25, 2018.

In contrast to Bay State Wind and Vineyard Wind, Deepwater Wind’s value proposition is focused on the economies offered by the gradual and sequenced development of the offshore wind industry from smaller to larger wind farms.  This strategy leverages off existing its existing OSW project and contract to develop another OSW project. Deepwater Wind built the 30 MW Block Island Wind Farm in 2015 and 2016 and has a contract with Long Island Power Authority to build the 90 MW South Fork Wind Farm foundations in 2021 and install the turbines in 2022.  Deepwater Wind proposes to build the Revolution Wind foundations in 2022 and install the turbines in 2023.  We believe that its redacted expandable proposal provides for subsequent phases of the Revolution Wind project to further develop the OSW supply chain.  Deepwater Wind asserts that its approach avoids a “boom-bust cycle.” Presumably, the pricing for the expandable offer reflects projected economies that will be realized from the development of the OSW supply chain.

The proposal includes an agreement with the Northfield Mountain Generating Station, a pumped-storage hydroelectric plant in Northfield, MA.  If the Distribution Companies select this Storage Feature, the facility would store energy generated by the wind farm during off-peak hours and deliver energy to electric utilities during on-peak hours.

Deepwater Wind also partnered with GridAmerica Holdings Inc. (a National Grid subsidiary) to develop the Project interconnection and an offshore transmission network. The network could support up to 1,600 MW of wind energy for Revolution Wind and future wind farms. Revolution Wind would connect to the Brayton Point substation in Somerset, MA (1,000 MW) and to Davisville substation in North Kingstown, RI (600 MW), and will be operated and maintained in New Bedford, MA. The project is set to begin construction in 2022 if approved, and commence operations in 2023. Deepwater Wind is the developer of the Block Island Wind Farm off the coast of Rhode Island, which is the United States’ first commercial offshore wind farm and another GridAmerica affiliate constructed the Block Island Transmission System for the interconnection into Rhode Island.

Vineyard Wind

Vineyard Wind, a joint venture of Avangrid Renewables and Copenhagen Infrastructure Partners, submitted proposals for either a 400 MW or 800 MW wind farm. For the 400 MW project, the generation would be bundled with Vineyard Connector 1, which is an 800 MW expandable transmission project. Vineyard Wind Connector 2 is an optional phase two of the expandable transmission project, which would have another 800 MW of capacity. For their 800 MW project, Vineyard Wind is bundling Vineyard Wind 1 and Vineyard Wind 2, each a combined generation and transmission project with individual capacities of 400 MW. An optional phase would be Vineyard Wind Connector 2, an expandable transmission project, which would have another 800 MW of capacity. The lines would interconnect to Barnstable, MA, and West Barnstable, MA.  Vineyard Wind would use Vineyard Haven, MA as its site for the operations and maintenance port during the life of the project.

The 400 MW project would have a COD of December 2021, which Vineyard Wind claims to be the earliest possible project in Massachusetts given its position as the “most mature and most advanced” large scale wind project as evidenced by its recent December 2017 applications for a federal Construction and Operations Plan with BOEM and with the state Energy Facilities Siting Board. The second 400 MW would be commissioned in 2022.  Vineyard Wind has a Community Benefits Agreement and letters of support from local fishermen and all six towns on Martha’s Vineyard plus Nantucket.

Vineyard Wind would establish a $15 million Massachusetts Offshore Wind Accelerator Program to support upgrade of local ports for staging, support set-up costs for supply chain companies, training local workers and investing in new technologies to protect marine species.  Vineyard Wind would also establish a self-sustaining Resiliency and Affordability Fund that invests in local energy storage facilities.

Avangrid, Inc. owns regulated utilities and renewable energy assets throughout the United States including Unitil, one of Massachusetts’ electric utilities. Avangrid Renewables, another one of Avangrid’s subsidiaries, recently won BOEM’s competitive lease auction for a wind lease area off the coast of North Carolina. Copenhagen Infrastructure Partners is a fund management company that has developed and invested in large offshore wind projects worldwide.

Power Advisory would welcome the opportunity to assist clients in assessing opportunities in the US offshore wind market, especially the upcoming BOEM Massachusetts and NY lease sale auctions, submission of comments on the 83C RFP, and participation in subsequent solicitations.

A PDF version of the report is available here.

Alberta REP 1 Results – Summary and Commentary

December 14, 2017

To:       Power Advisory LLC Clients and Contacts

From:   Sarah Simmons, Jason Chee-Aloy, and Kris Aksomitis, Power Advisory LLC

Yesterday, the Alberta Electricity System Operator (AESO) announced the results and contract awards from their first Request for Proposals (RFP) under their new Renewable Electricity Program (REP), known as REP 1.  The results and contract awards are available on the AESO’s website: https://www.aeso.ca/market/renewable-electricity-program/rep-round-1-results/.

This announcement is a culmination of efforts that began in 2015 following the release of the Government of Alberta’s (GOA’s) Climate Leadership Plan (CLP), which called for the addition of 5,000 MW of new renewable generation capacity by 2030 as part of a plan to supply 30% of Alberta’s electricity needs from renewable energy.

By all accounts, REP 1 was expected to be a highly competitive procurement – and the results of yesterday’s announcement has delivered on that expectation.  Exceeding the REP 1 procurement target by nearly 200 MW, a total of just under 600 MW of wind generation was procured, with a weighted average contract price of just over $37/MWh:

  • Capital Power’s 202 MW Whitla;
  • EDP Renewable’s 248 MW Sharp Hills;
  • Enel Green Power’s 115 MW Riverview; and
  • Enel Green Power’s 31 MW Phase 2 of Castle Rock Ridge.

With contract prices ranging between $30.90/MWh to $43.30/MWh, the energy industry in Alberta, and across Canada, will take note and time to reflect on what these results mean going forward.  These prices are record setting for Canadian wind generation projects.

The following summary and commentary reflects on the outcomes of yesterday’s announcement by providing background on the competition and reflects on the next steps the AESO may consider for future rounds of the REP.

Contract Price

Originally the CLP called for a cap of $35/MWh for Renewable Energy Credits (RECs).  At the start of the consultation with industry regarding the design of the REP in 2016, the AESO had initially considered a simple, fixed-price contract approach for RECs.  In other words, the proposed a fixed-price REC would be paid on top of wholesale energy market revenues.   While the approach was considered to address the objective of maintaining the impact of market price signals and would be compatible with a price collar (i.e. the cap), the AESO ultimately adopted an Indexed-REC approach as outlined in their recommendation report to the GOA in May 2016.  Given the variability in predicting cash-flows from wholesale market revenues, an Indexed-REC was adopted to help ensure that the overall unit price for contracted renewable generation was as low as possible.  The Indexed-REC provides a predictable revenue stream, which unlocked wide-ranging industry participation by enabling broader debt-financing options.  This approach also provides protection to Alberta’s electricity customers, who would see a benefit if pool prices are greater than the contract price.

The resulting weighted average contract price of $37/MWh is indictive of the Indexed-REC price approach and the ability to put downward pressure on the costs for renewable energy projects. The decision to move to a ‘contract-for-difference’ approach not only achieved low prices by attracting relatively low-cost capital, but also reduced ratepayer exposure to higher future payments (i.e., the average contract price is lower than 2018 forward energy prices and in-line with expected wind realized prices).

Indeed, the contract prices achieved in REP 1 are notable from a national perspective.  The prices are significantly lower than the Ontario Independent Electricity System Operator’s (IESO’s) Large Renewable Procurement (LRP) in 2016 (299.5 MW of wind generation contracted at an average price of approximately $86/MWh) and Hydro Quebec Distribution RFP results from December 2014 (446.4 MW of wind generation contracted at an average price of approximately $76/MWh).  The Alberta result is more aligned with recent Power Purchase Agreement (PPA) prices in U.S. jurisdictions as illustrated the figure below from Berkley Lab.

Source:  Berkley Lab, Wind PPA Prices (https://emp.lbl.gov/wind-ppa-prices)

Successful Proponents

Two incumbents and one new entrant to Alberta’s electricity market were successful – each with an aggressive approach.

As one of Alberta’s largest electricity generators, with a fleet consisting primarily of fossil-fuel generation, Capital Power clearly made a push towards achieving their wind generation development goals for 2017.  Enel Green Power, relatively new to the Alberta market, expands upon their existing Castle Rock Ridge wind generation project which was completed in 2012, and moves forward with a new sizable project.

New to Alberta, EDP Renewables competed and won against a strong incumbency as well as other competitive would-be new entrants.

Both EDP Renewables and Enel Green Power are building upon recent successes in North American renewable generation procurements; EDP Renewables being successful in IESO’s LRP I RFP, and Enel Green Power setting a record-breaking low price of $17.70/MWh in Mexico’s most recent renewable energy auction.

What’s Next?

The GOA and the AESO will reflect on the results and success of REP 1 as they move forward with the design of future rounds.  With these Canadian record-setting contract prices, any proposed changes to REP will need to be weighed against the potential for putting upward pressure on future contract prices.  That said, the AESO has been clear that the Indexed-REC approach would be used for REP 1, leaving it open for discussion in future rounds.

As more renewable generation is procured, the AESO will need to consider broader system impacts.  The REP 1 wind generation projects will be built with no new transmission requirements.  The AESO had previously stated that the existing as-built transmission system can accommodate approximately 2,600 MW of new renewable generation.  However, all the REP 1 projects are located in southern Alberta; incremental generation proposed in this region may give rise to congestion issues in future rounds.  Inevitably, the AESO will likely need to consider new transmission investments to achieve the 5,000 MW renewable generation target.

As the industry analyzes the results and contract awards from REP 1, we should anticipate that the AESO may move quickly to launch the next procurement rounds.  For this reason, Power Advisory encourages interested proponents to use this time to prepare by considering the needs or interests for proposed changes to the REP procurement process.  For example, should the REP consider mechanisms to promote regional diversity?  A benchmarked-approach to provide benefit to solar resources?  How might future rounds consider Aboriginal support?  These questions should be considered in context of the success of this first round to deliver low contract prices.

A PDF version of this analysis is available here.

Integration of Variable Output Renewable Energy Sources – The Importance of Essential Reliability Services

Power Advisory prepared a report (available here) on the importance of Essential Reliability Services (ERS) in the integration of variable output renewable energy resources for Natural Resources Canada with direction and input provided by Canada’s Federal Provincial Territorial Electricity Working Group. The paper was presented by NRCan in August 2017 at the Energy and Mines Minister’s Conference in New Brunswick.

BOEM Massachusetts Offshore Wind Lease Opportunity Review

John Dalton, President & Michael Ernst, Executive Advisor, Power Advisory LLC

The Bureau of Ocean Energy Management (BOEM) has indicated that it will be conducting auctions for two additional lease areas for the Massachusetts Wind Energy Area (WEA) in 2018.  The auction of the two lease areas, an aggregate of 388,569 acres (248,015 and 140,554 acres, respectively) with a maximum development potential of 4,717 MW, is in response to unsolicited lease applications from Statoil Wind US LLC and PNE Wind USA Inc. from December 2016 (See Figure 1 below). These Norwegian and German affiliated developers have announced plans for multiple +400MW projects, but since both expressed interest in the same lease area BOEM must hold a lease auction in which all qualified parties may participate.   Lease Areas OCS-A 0502 and 0503 make up the remaining Massachusetts WEA.

Figure 1: MA and RI Offshore Wind Project Areas

Source: BOEM

The interest in these two additional lease areas is expected to be strong given that lease holders will be able to participate in subsequent rounds of the Massachusetts offshore wind RFPs for 20-year power contracts issued to allow the Commonwealth to realize its legislated objective of 1,600 MW of offshore wind by 2027.[1]  The total area to be leased is over four times the size of the New York lease area. This memo reviews the anticipated form of auction to be employed by BOEM and opportunities for interested parties to begin to prepare to participate successfully in such a process.

Auction Format

BOEM has typically employed a multiple-factor auction format, under which BOEM considers a combination of monetary and nonmonetary factors.  Non-monetary factors are considered by a panel which determines whether the bidder has earned non-monetary credits and the percentage that the credit may be worth.  The previous Auction for North and South Rhode Island and Massachusetts lease areas provided for a credit of up to 25% of a monetary bid for a Power Purchase Agreement or Joint Development Agreement.

The auction is based on ascending bidding, i.e., ascending clock auction, over multiple rounds.  To enhance competition BOEM shares information with bidders on the number of bidders for each Lease Area for each round.  At the start of each round BOEM specifies an asking price for each Lease Area.  A bidder must submit a bid for the full asking price for at least one lease area to participate in the next round of the auction.  A bidder may submit an intra-round bid, which is greater than the last round’s price, but less than the current round.  In essence, the bidder may elect to bid less than the BOEM asking price as a final exit bid.  When there are multiple lease areas activity rules are employed that allow bidders to switch lease areas that they bid on, but require minimum levels of participation.  A bid deposit must cover each bid, and will be deducted from the winning bid price or refunded if the bid is not successful. Bid deposits have been $450,000 for the most recent BOEM lease auctions.[2]

To participate in the auction, the bidder must first be qualified by BOEM and become an eligible bidder.  Qualification requirements focus on legal, technical and financial capability as specified in 30 CFR 585.106 and 585.107.[3]  Eligible bidders must complete a Bidders Financial Form, which provides details of accounts from which funds will be provided and to where refunds will be directed and individuals authorized to bid and submit bid deposits generally two weeks prior to the date of the auction.  At this time, bidders would also provide a non-Monetary package if they were applying for a credit for community benefits based on an executed agreement with a qualified community organization or municipality.

Evaluating Participation in the Massachusetts WEA Lease Auction

In assessing whether to participate in the BOEM auction, prospective bidders will want to assess the opportunity offered by these two lease areas to ensure that they offer a reasonable prospect of competing successfully with the three existing leaseholders.   Specifically, these two lease areas will require a greater transmission investment.   However, the four Massachusetts WEAs were delineated to provide roughly equivalent water depths, and thus similar costs for foundations for the initial several hundred megawatts of capacity.  Offsetting the greater required transmission investment are greater wind speeds in WEAs 0502 and 0503.   Interestingly, the average wind speed in Lease Area 0502 is the highest of the four WEAs according to analysis performed by NREL.  More importantly, the lowest depths in Lease Areas 0502 and 0503 are associated with higher wind speeds. This suggests that these lease areas could have lower foundation costs and higher overall output levels. This combination could allow them to compete effectively with other leaseholders in the Massachusetts RFP even with higher transmission costs.  Figure 2 reviews the water depths of these lease areas and Figure 3 reviews the wind speeds of these different lease areas, relative to the cost of participating in the auction and the Power Advisory estimates.

Figure 2: Massachusetts Offshore Wind Speeds

Source: NREL

Figure 3: Massachusetts Offshore Water Depths

Source: NREL

BOEM has issued an Environmental Assessment of the entire Massachusetts WEA and issued a Finding of No Significant Impact.[4] Lease Areas 0502 and 0503 are also located over 20 miles from Nantucket and Martha’s Vineyard reducing visibility of the turbines from shore which has been a significant obstacle to earlier proposed offshore wind farms such as Cape Wind off of Massachusetts.

To assess the potential economic value of the higher output offered by Lease Areas 0502 and 0503, we used the increased annual energy output estimated by NREL for each WEA for a 500 MW OSW project configuration and projected the incremental value of the WEA assuming a 20-year PPA term and a PPA price of $110/MWh.  The incremental value was considerably below the estimated incremental cost of transmission interconnection.  This suggests that additional cost savings from lower water depths would be required.

In sum, based on this high-level analysis Lease Areas 0502 and 0503 warrant more detailed analysis.  On October 4, 2017, the Director of the Office of Renewable Energy Programs for BOEM announced plans to issue the Proposed Sale Notice for these lease areas by the end of 2017 with the auction during the summer of 2018.

Power Advisory would welcome the opportunity to assist clients in assessing opportunities in the US offshore wind market, especially the upcoming BOEM Massachusetts and NY lease sale auctions, submission of comments on the 83C RFP, and participation in subsequent solicitations.

[1] See Power Advisory’s May 12, 2017 memo that reviewed past BOEM WEA leases.

[2] The most recent BOEM lease auction was for New York in December 2016. See  https://www.boem.gov/NY-FSN/.

[3] Power Advisory has assisted clients with complying with these requirements.

[4] The EA and FONSI are located here: https://www.boem.gov/Revised-MA-EA-2014/.

A PDF version of the report is available here.

Power Advisory Announces Additions to the Consulting Staffs in Our Toronto and Calgary Offices

TORONTO, ONTARIO (October 2, 2017) – Power Advisory LLC is pleased to announce valuable additions to the consulting staffs in our Toronto and Calgary offices with the additions of Sarah Simmons, Neil Freeman, and Christine Runge.

Sarah Simmons, Manager of Generation and Emerging Sectors, has nearly 10 years of experience in the electricity sector and has worked with large-scale and distributed generators, electricity distributors and transmitters, industrial load customers, and emerging technology providers.

Prior to joining Power Advisory LLC, Sarah was a member of the Energy and Environment Practice at Sussex Strategy Group where she provided expert advice related to policy, power system planning, carbon pricing, emerging technologies, permitting and approvals, procurement of generation and transmission, and contract negotiations.  Sarah was also Government Affairs Manager for SunEdison Canada helping to navigate policy, planning, and procurement of solar generation across Canada where she was responsible for regulatory affairs, government relations, market protection and expansion.  Sarah started her career at the Ontario Power Authority (OPA) where she was instrumental in the development and launch of the Feed-in Tariff Program.  In 2012, Sarah was recognized by the Canadian Solar Industries Association as a leader by receiving a GameChanger award for her contribution as Chair of the Ontario Solar Photovoltaic Caucus.

Neil Freeman, a Power Advisory Executive Advisor, has extensive business development, management, and policy experience in the electric sector.  Over his career, he has also worked in senior roles in business development and corporate relations at Horizon Utilities, power system planning at the OPA (now Independent Electricity System Operator), business development at Hydro One Networks, and strategic planning and wires strategy at Ontario Hydro.  In 2016, Neil was named the Canadian Electricity Association’s first ever Individual Sustainability Leadership award recipient.

Christine Runge, Senior Consultant, joined Power Advisory LLC after working for the Alberta Utilities Commission (AUC) in the distribution rates department where she was involved in all aspects of the regulatory process.  Christine analyzed the financial performance of utilities during the first generation of Performance Based Regulation (PBR) to help assess the effectiveness of PBR plans, and took responsibility for the capital aspect of the second generation of PBR that resulted in the innovative K-bar mechanism.  Christine was also heavily involved in policy evaluation of the development of Alberta’s Capacity Market transition including delivery of a cost allocation and rate design model to assess cost impacts to electricity customers.  Prior to the AUC, Christine worked for the Alberta Electric System Operator in the competitive process department where she was involved in designing the competitive procurement process for the Fort McMurray West transmission project.

For further information on the entire Power Advisory LLC team, please visit http://www.poweradvisoryllc.com/power-advisory-staff/.

Power Advisory LLC is a leading North American management consulting firm that specializes in electricity market analysis, business strategy, power procurement, policy development, regulatory and litigation support, contract negotiations, market design, power system and integrated resource planning, project development, project due diligence and feasibility assessment.  Our consulting support offers clients strategic and tactical insights that provide competitive advantages based on an understanding of fundamental economic drivers as shaped by policies, market structures, market design, regulatory frameworks, and market behavior.  Our consulting services are provided by seasoned electricity sector professionals, offering a wide breadth and significant depth of industry knowledge.

 

U.S. Offshore Wind Current Progress and Cost Drivers

Though the offshore wind (OSW) industry in the United States has lagged behind Europe, given the   commitment by policymakers to support the development of the industry and allow the realization of economies achieved in Europe, future prospects for the industry appear bright. The purpose of this report is to summarize the short history of offshore wind in the United States, outline the current state of the industry, and then consider the cost drivers that will shape the industry in the future.

Figure 1: US Offshore Wind Value Proposition[1]

Industry History

One of the groundbreaking, albeit controversial landmarks in the U.S. offshore wind industry was the Cape Wind Project. Cape Wind submitted an application in 2001 to the US Army Corps of Engineers (USACE) to construct a met tower. Though the USACE gave Cape Wind permission to build a met tower, the Energy Policy Act of 2005 shifted Federal authority to the Department of the Interior, which slowed the project’s progress. For the next decade, Cape Wind faced numerous obstacles, including determinations that the planned site in the Nantucket Sound qualified as traditional cultural, historic and archaeological property. Cape Wind’s power purchase agreements provided a price of $187/MWh, escalating at 3.5% per annum for 15 years.  In January 2015, National Grid and Northeast Utilities notified Cape Wind that they were terminating their power purchase agreements (PPAs) given the project hadn’t achieved its financing and construction initiation milestones in the PPAs. Cape Wind was planned to total 468 MW, with these two PPAs covering about 75% of its capacity.

Avoiding many of the regulatory hurdles of its predecessor, but requiring legislative changes to the regulatory standard for approval of its PPA, Block Island Wind Farm (BIWF) began construction in 2015, and became the US’s first operational offshore wind farm in December 2016. It is located 3 miles off of Block Island, in Rhode Island state waters. The project includes 5 turbines, capable of producing 30 MW. BIWF signed a 20-year PPA with National Grid for its full output, set at $244/MWh for the first year of commercial operation with an annual escalation of 3.5 %. One factor contributing to the project’s support is that it connects Block Island to the New England grid, allowing it to avoid high cost diesel generation that the island otherwise relied upon.

Current Developments

Leases for OSW have been issued in Massachusetts, Delaware, Maryland, Virginia, New Jersey, North Carolina, and New York by the Bureau of Ocean Energy Management (BOEM).[2]These states are leaders in promoting the development of an OSW industry, with the greatest activity in Massachusetts, New York, and Maryland.  Activities in each are reviewed below.

Figure 2: US Atlantic Offshore Wind Projects and Lease Areas[3]

*National Grid area represents electric cable from Block Island Wind Farm

The Massachusetts investor-owned electric distribution companies issued a Request for Proposals (RFP), seeking long-term contracts for 400 MW and up to 800 MW of OSW generation. Proposals are due December 20, 2017. This RFP is open to the three-existing wind energy area leaseholders: Deepwater Wind; Bay State Wind LLC (Dong Energy and Eversource); and, Vineyard Wind (Copenhagen Infrastructure Partners and Avangrid Renewables). This will be the first procurement in response to the state’s legislated goal to reach 1,600 MW of OSW development by 2027.

Because more than one party expressed interest in securing leases for the two remaining Massachusetts lease areas within the Massachusetts Wind Energy Area (WEAs), BOEM will hold a lease sale auction in late 2017 or early 2018. BOEM has yet to announce the specific auction date. These lease areas are adjacent to those that are expected to bid in the first Massachusetts RFP, though they are further from shore and have the greatest average water depths. The two lease areas to be auctioned are 248,015 acres and 140,554 acres, which can support a maximum of approximately 4,717 MW of OSW generation. Winners of these leases will be eligible to bid into the second auction for long term contracts in Massachusetts.

BOEM has also issued two leases off New Jersey, whose legislature has authorized the sale of 1100 MW of OSW to be purchased by the state’s electric distribution companies through Offshore Renewable Energy Credits (ORECs).  The NJ Board of Public Utilities has been developing the rules for these Ocean Renewable Energy Credits for several years.

Off the coast of Maryland and Delaware, two projects have recently been awarded ORECs in response to the state’s 2013 RFP for offshore wind. US Wind LLC has outlined a proposed 62 turbine, 248 MW wind farm, to be connected to the Indian River Substation in Delaware and operational in 2020. Skipjack Offshore Wind, a subsidiary of Deepwater Wind, has proposed a 15 turbine, 120 MW wind farm to be connected to the Ocean City, Maryland substation and operational in 2022. Maryland has issued unbundled ORECs to US Wind LLC and Deepwater Wind Skipjack. US Wind bid a first year OREC price of $201.57/MWh or a levelized price of $177.64/MWh (2012$) and Skipjack an OREC price of $166.0/MWh or a levelized price of $134.36/MWh (2012$).  A 1% price escalator will be applied to these first-year prices for the next 20 years of each project’s operation.[4]  In addition to the revenues from these ORECs, the projects will realize production tax credits and energy and capacity market revenues.  These energy and capacity market revenues are likely to represent a value of about $50/MWh.

Figure 3 summarizes US OSW PPA pricing to date by project vintage. Recent European PPA prices are also reported for reference.

Figure 3: US Offshore Wind PPA Pricing[5]

* Cape Wind PPAs terminated do to a failure to achieve financing and construction milestones.

**Average adjusted strike price and average capacity for 2023-2025 projects in the Netherlands, Denmark and Germany from NREL 2017.

Already, there is some evidence of PPA price reductions in the US market.  However, trends are masked by varying competitiveness of RFP processes; in particular, the Maryland process where it appears that US Wind was able to capitalize on its position as the sole leaseholder in Maryland. Future reductions will be driven by the factors discussed in the next section.

Cost-Driver Analysis: 4 Main Drivers

  1. Site Evaluation and Characterization

While potential sites for offshore wind in the US share some characteristics with those of the more mature European market, there are major differences. Sites in the US lack critical data about geological, oceanographic, and meteorological conditions, which increases the initial development risks of OSW projects, and therefore the costs to finance them. With the development of additional projects and collection and verification of data the uncertainty associated with these variables and the impacts on project costs and performance would fall.

  1. Technological Advancement

Continuing research and development to produce larger, more cost-effective equipment (including wind turbine generators, which benefit from European experience, and foundations) will be necessary to further decrease costs. This applies to adapting and advancing existing technologies from Europe, developing new technologies, and creating new installation techniques.

Currently, 75% of the world’s deployed offshore wind resources use monopile fixed-bottom structures, which may not be feasible for water depths of greater than 60 meters. As more than 58% of the US’s technical resource capacity is located at water depths greater than 60 meters, many new projects will use lattice steel foundations installed at the Block Island Wind Farm and pioneered by the oil and gas industries and floating foundation technology anchored to the seabed with tension anchor chains. Floating foundation technology is just being constructed in Europe. Norwegian energy giant Statoil is scheduled to connect the first floating wind farm in late 2017 with their 30 MW Hywind farm[6], with 237 MW expected to be fully installed globally by 2020[7]. Currently, floating offshore wind accounts for 7% of the known global pipeline[8], making future developments in this area likely.

Higher capacity turbines offer significant reductions in OSW LCOEs. The Block Island Wind Farm utilized 6 MW WTGs, compared to current turbines produced in Europe that can produce upwards of 9 MW and 10 and 12 MW turbines in design. Capacity factors will also rise with larger rotor diameters and improved accessibility to turbines for maintenance, as this will decrease their downtime. Improved accessibility is an especially important consideration on the Pacific Coast, where ocean conditions are generally rougher than those on the Atlantic Coast.[9]

Technological developments will enable the integration of turbine and substructures to create a single system that will enable design optimization that will drive further cost reductions. Installation cost would also fall as more specialized vessels suited for installation are deployed in the US. Such vessels currently exist in Europe, but are not available in the US due to limited market that hasn’t justified the construction of such vessels. As turbines and rotors become larger, these vessels become more important.

As for operating expenses, cost reductions will occur with improvements in turbine reliability and monitoring technology that will allow operators to identify problems in real-time, keeping resources operating longer and at higher availabilities.

  1. Supply Chain Development

Not surprisingly, there are significant gaps in the current US OSW supply chain that prevent the realization of cost savings being achieved in Europe. Currently, the US supply chain is not well inventoried, and lacks necessary workforce, port facilities, and vessels needed to support a robust and efficient industry.

Geographic concentration of the supply chain would further reduce OSW costs, as proximity decreases transportation costs and fosters better communication between supply chain members. This “clustering” strategy also allows for more robust project management and top-to-bottom collaboration on wind energy projects[10].

Almost all of the OSW components, including rotors and turbines, are currently manufactured in Europe. Specialized equipment for installing offshore wind turbines, like installation vessels, are also often only available from European firms, resulting in high costs. Desired investments in the supply chain that will realize these cost savings will occur, if there is a visible, stable development pipeline.

4. Market Visibility

Market visibility is a commitment to the steady procurement of a pipeline of OSW projects over a defined period of time. Greater market visibility would reduce costs for OSW for two main reasons. First, more entrants will be attracted to the market, increasing competition and lowering their bargaining power. Second, as projects get relatively less risky, investors with a lower hurdle rate may be drawn to invest when they had not previously. A visible pipeline of projects can reduce capital, maintenance, and insurance costs and is critical to ensuring that these costs are minimized.  Construction of turbine manufacturing facilities on European coastlines have reduced the levelized cost of OSW below $100/MWh. The lack of certainty around the US PTC and how this frustrated the development of US onshore wind energy supply chain is a relevant warning. Per the 2015 extension of the PTC it is to be phased on it steps by 2020, so that the value in 2017 is 80% of the initial $0.023/kWh value, 60% in 2018 and 40% in 2019. Also, by generating repeated investments from equity investors with knowledge of the renewable energy sector, WACC could be lowered, reducing the cost of equity and debt.

Conclusion

Though the U.S. OSW market has taken longer to develop than its European counterpart, its future prospects are promising.  The comparatively high OSW costs in the U.S. reflect the immaturity of the industry; however, by adopting best practices from Europe and committing long-term to OSW development, the U.S. can drive costs down significantly. Coupled with future technological innovation, the U.S. OSW industry is well-positioned to represent a cost-effective source of clean energy.

Power Advisory would welcome the opportunity to assist clients in assessing opportunities in the US offshore wind market, especially the upcoming BOEM Massachusetts and NY lease sale auctions, submission of comments on the 83C RFP, and participation in subsequent solicitations.

A PDF version of this report is available here.

[1] US Department of Energy and Department of the Interior, National Offshore Wind Strategy, 2016

[2] Norton Rose Fulbright, US Offshore Wind, 2017

[3] BOEM 2016

[4] US Department of Energy: Offshore Wind Technologies Market Report, 2016

[5] Power Advisory analysis of various public orders and studies. Size of marker represents the relative nameplate capacity

[6] Statoil: Hywind Scotland

[7] Bloomberg: Race to Build Offshore Wind Farms That Float on Sea Gathers Pace, 2017

[8] NREL: Offshore Wind Energy Resource Assessment for the United States, 2016

[9] US Department of Energy and Department of the Interior, National Offshore Wind Strategy, 2016

[10] Clean Energy Pipeline, Offshore Wind Project Cost Outlook, 2014

European Offshore Wind Cost Reductions & Implications For North America

The cumulative capacity of global offshore wind (OSW) has grown at a dramatic rate in recent years, increasing by 25-40% annually since 2011. Due to increasing industry maturity and the development of a specialized supply chain to support the industry, realization of economies of scale, and other factors, the levelized cost of energy from OSW has decreased significantly, which is an encouraging sign for development of this industry in North America.

This report illustrates how European OSW projects have realized dramatic cost reductions, and how the emerging US OSW industry can benefit from this experience. The European OSW industry started over twenty years ago, and currently has over 12,000 MW in commercial operation, while the US only installed its first 30 MW project late last year. With an installed fleet of 3,589 OSW turbines and larger turbines being offered by OSW turbine manufacturers, European projects are offering prices, before consideration of transmission costs, that are competitive with forecast wholesale market prices, promising a market that is sustainable and not dependent on government policy support.

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Massachusetts 83C RFP For Long-Term Offshore Wind Energy Contracts Issued

John Dalton, President & Carson Robers, Consultant, Power Advisory LLC

With approval from the Department of Public Utilities earlier in the week through D.P.U Order 17-103, the Massachusetts electric distribution companies issued a Request for Proposals for Long-Term Contracts for Offshore Wind Energy Projects on June 29, 2017. This kicks off the first in a series of competitive solicitations under Section 83C of Chapter 169 of the Acts of 2008 for 1.6 GW of offshore wind (OSW) capacity by June 2027.

Three existing Bureau of Ocean Energy Management (BOEM) Massachusetts lease holders – Deepwater Wind, Bay State Wind LLC (DONG Energy and Eversource), and Vineyard Wind (Copenhagen Infrastructure Partners and Avangrid Renewables) – meet the definition of an eligible bidder and are expected to submit proposals by the December 20, 2017 deadline. Proposals are required for the target capacity of 400 MW, with both a project specific generator lead line and expandable transmission option. Additional proposals between 200 MW and 800 MW may also be submitted, but proposals with project capacities greater than 400 MW must be determined to be superior to other proposals, as well as to likely offer significantly more economic net benefits to Massachusetts ratepayers than procuring this capacity through subsequent solicitations.
TIMING OF SOLICITATION Although the DPU also reviewed the method for solicitation and execution, the timetable was the only component of the RFP where changes were directed. A one-month reduction in the evaluation period by and three-month reduction in the selection and contract negotiation periods by was directed by the DPU. This change reflects commenters (including Bay State Wind) and DPU contentions that acceleration will maximize ratepayer and environmental benefits.

The scheduled phaseout of the 2.3 ¢/kWh Production Tax Credit (PTC) primarily motivated this timing decision. Each year from now through 2019 the PTC is reduced by 20%, so that the amount for projects initiating construction in 2017 is 80%, 2018 60% and 2019 40% of the full amount, after which it is no longer available. Completing the solicitation in the middle of Q3 instead of Q4 2018 increases the chances that the successful proponent(s) will qualify for the PTC. Find the revised schedule below.

Overall the accelerated schedule is expected to result in lower development costs and increased project viability, with projects online sooner and offering more benefits than under the initially proposed RFP. The effect of the four-month schedule advancement is largely a greater likelihood of the successful proponent being able to capture the PTC available in 2018, but the change supports the development of US offshore wind industry. To realize cost reductions that have been achieved in Europe’s OSW industry, the supportive policy environment offered by policymakers and regulators in states like Massachusetts are essential.

Power Advisory would welcome the opportunit y to assist clie nts in assessing opportunities in the nascent US offsh ore wind market, especially the upcoming BOEM Massachusetts WEA lease sale auctions , participation in subsequent 83C solicitations, and submitting comments on this RFP.

A PDF version of this commentary is available here. 

NYSERDA Tier 1 REC RFP Review

New York State Energy Research and Development Authority (NYSERDA) issued a Request for Proposals to purchase approximately 1.5 million Tier 1 (Tier 1 is equivalent to Class I as the term is used in New England) Renewable Energy Credits (RECs), about 430 MW at a 40% capacity factor.

RFP Schedule: Key Dates

Read Power Advisory’s full review of the NYSERDA RFP here.