Last offshore wind attempt tanked. Will this one work?

Source: Benjamin Storrow, E&E News reporter • Posted: Tuesday, May 29, 2018

As the old saying goes, if at first you don’t succeed, then try, try again. That has been especially true with offshore wind in Massachusetts.

After the state haggled for more than a decade over Cape Wind — a controversial development once planned for Nantucket Sound that was canceled last year — Gov. Charlie Baker (R) announced this week that Massachusetts has selected an 800-megawatt project in the waters 14 miles off the coast of Martha’s Vineyard. In a coordinated statement, Rhode Island Gov. Gina Raimondo (D) reported that her state has begun negotiations for a 400-MW development in its waters.

The announcements are notable on several fronts. While Europe has brought ever-increasing amounts of offshore wind online in recent years, America has installed a paltry 30 MW off Block Island in Rhode Island. If Massachusetts fully realizes the ambitions of its wind program, it will boast 1,600 MW of offshore wind capacity, enough to power a third of the homes in the state.

The turbines could inject new life into Massachusetts’ struggling ports (Climatewire, June 19, 2017). Development of 1,600 MW of offshore wind would support up to 9,850 jobs and $2.1 billion in investment over a decade, according to a study by the Massachusetts Clean Energy Center, a state agency.

They are also central to the commonwealth’s climate goals. Massachusetts has committed to slashing carbon emissions by 80 percent of 1990 levels by midcentury. While there are no longer any coal-fired power plants in the state, the Pilgrim Nuclear Power Station in Plymouth is slated to close in 2019, eliminating a major source of non-carbon power. Natural gas has increasingly picked up the slack in recent years, while solar and onshore wind are constrained to some degree by the state’s dense population.

“It’s hard to imagine anything else doing quite as well,” said Ken Kimmell, president of the Union of Concerned Scientists, the Boston-based environmental group. “It does for us what onshore wind energy does in all these Great Plains states and what solar is doing in California, Arizona and New Mexico. This is the big play for this part of the country. This is a carbon-free electric grid and huge boost in the regional economy.”

There is reason to think this latest round of projects will succeed where Cape Wind failed. A law enacted by Massachusetts in 2016 requires the state’s distribution utilities to use large amounts of offshore wind. And while the projects selected Tuesday still must complete their respective permitting processes, they are aided by the fact that both secured leases that went through years of state and federal study and scrutiny.

Opposition remains.

Fishermen and lobstermen have raised concerns about what the turbines will mean for their industry, and some residents have expressed worry about the environmental impact of the transmission cables that are to be strung across the seafloor, linking the turbines to the mainland.

Still, the objections are relatively muted compared with the outright hostility faced by Cape Wind. Indeed, siting concerns don’t figure to be the greatest hurdle facing today’s wind projects.

That would be cost. Massachusetts officials did not reveal the cost of the project proposed by Vineyard Wind LLC, a partnership of the Danish developer Copenhagen Infrastructure Partners and Avangrid Inc. The proposal will now be submitted to the Massachusetts Department of Public Utilities, which will ultimately determine whether to approve Vineyard Wind’s proposal.

Many observers said they expect the project to come in well below the 24-cent-per-kilowatt-hour cost of Cape Wind’s power, but above the price of fossil fuel resources available today. That in and of itself wouldn’t be enough to sink the development.

Regulators will also consider how the proposal meets Massachusetts’ environmental goals as well as the state’s economic development priorities, said Paul Hibbard, a former Department of Public Utilities chairman who now works as a consultant at the Analysis Group.

‘The $10,000 question’

But what price regulators are willing to accept above and beyond what consumers would otherwise pay for energy remains “the $10,000 question,” Hibbard said.

Another significant question is how the wind projects will be integrated into New England’s wholesale electric market. The Massachusetts law calling for 1,600 MW of offshore wind effectively bypassed the market by guaranteeing developers a long-term contract for their power.

That raises two primary concerns. First, it potentially erodes revenues for fossil fuel plants needed to maintain the reliability of the region’s electricity grid.

Dan Dolan, president of the New England Power Generators Association, likens this to a return to old-fashioned utility ratemaking, when power companies operated as regulated monopolies instead of the competitive markets where companies operate today. The wind projects, he notes, are not the only long-term contract on offer from Massachusetts. The state has extended a similar offer to Canadian hydropower firms.

“You have to look at these procurements collectively,” Dolan said. “And what that means is we’re quickly approaching a point in time where the majority of electricity demand is going to be met by this type of long-term contract. That serves as a virtual reintegration of the competitive marketplace. Consumers are going to be backstopping these new projects, rather than developers putting their balance sheets at risk.”

That hints at the second concern, which again centers around cost. The local grid operator, ISO New England, will continue to run the capacity auctions where power plant owners compete to serve as guaranteed providers of electricity. That means consumers will effectively be paying twice for power: once through the grid operator’s capacity auction, and then again through the long-term contracts provided by the state.

ISO New England has a plan for addressing this problem. Essentially, it would conduct two auctions: a traditional capacity auction followed by a second round of bidding where fossil plants willing to retire could be bought out by new renewable operators like Vineyard Wind. The Federal Energy Regulatory Commission recently approved the plan, though many remain skeptical about how it will ultimately function.

“I think the region is in a precarious place right now because of the inherent difficulty in meeting what are essentially the state’s two major public policy goals,” Hibbard said. “One is a competitive market meant to minimize costs and risk for ratepayers. The other, which continues to grow, is the need to address climate change. These procurements are important to that. But the level of the procurements is getting large enough that it is absolutely interfering with wholesale markets in fundamental ways.”

Massachusetts and its neighboring states recognize that dynamic, Hibbard said. And if this week’s announcements demonstrate anything, he said, it’s that they are willing to proceed with offshore wind anyway. The economic and environmental importance of offshore wind is simply too great for the state to give up on, he added.