RI plans to buy more offshore wind power to help meet goal of 100% renewable energy

Source: By Alex Kuffner. The Providence Journal • Posted: Sunday, March 20, 2022

PROVIDENCE — Gov. Dan McKee is moving ahead with a plan to ramp up Rhode Island’s supply of power from offshore wind farms that would be developed off the coast of Southern New England.

Legislation introduced in the General Assembly at the request of the McKee administration would require that a request for proposals be issued this summer for another 600 megawatts of offshore wind energy.

The plan comes despite uncertainty over the sale of National Grid’s electric and natural gas operations in Rhode Island. The transaction with Pennsylvania-based PPL Corp. is on hold pending court appeals from the attorneys general in Rhode Island and Massachusetts. Any new contracts for offshore wind would have to be signed by whichever company owns the utility business.

Rhode Island is already home to the first offshore wind farm in the nation — a 30-megawatt demonstration project near Block Island that went online five years ago — and National Grid has signed a contract to buy another 400 megawatts of capacity from the Revolution Wind project that is awaiting federal permission to begin construction in Rhode Island Sound.

If the new procurement goes forward as planned, it would mean that more than 80% of Rhode Island’s electricity would be renewable, putting the state within reach of a proposed target of getting all of its power from wind, solar and other non-fossil fuel sources by the end of this decade.

Offshore wind is key to making that goal, as well as to a more ambitious objective of reaching net-zero greenhouse gas emissions across all sectors of the economy, including heating and transportation, by 2050. In small and densely populated Rhode Island, there are no other in-state renewable energy options that would be able to deliver the same amount of power.

How the increase in offshore wind supplies could affect rates is unclear, but, judging by recent contracts in Rhode Island and other Northeastern states, it could potentially save consumers money in the long run.

Even though Rhode Islanders are paying hundreds of millions of dollars in above-market costs for the Block Island Wind Farm, the Revolution project, by displacing oil-burning power plants and other more expensive generators, is expected to yield net savings of $90 million — or about 50 cents a month for the typical ratepayer. And contracts for larger projects in Massachusetts have come in with even lower prices than the Revolution agreement.

Plan for more offshore wind first announced in 2020

It was McKee’s predecessor in the governor’s office, Gina Raimondo, who put forward the 100% target a year and a half ago, describing it as the most aggressive renewables initiative in the nation. Not long before Raimondo left Rhode Island to become U.S. secretary of commerce, she announced the plan for the 600-megawatt RFP (request for proposals).

But between McKee’s transition from the lieutenant governor’s office, the COVID crisis and the proposed sale between National Grid and PPL, the procurement stalled.

The delay didn’t sit well with some in the environmental community who believe the state needs to act with more urgency to move away from fossil fuels and ensure that the state can comply with the emissions-reduction mandates put in place with the enactment last year of the Act on Climate.

“We have been dismayed that we haven’t heard anything,” Kai Salem, policy coordinator at the Green Energy Consumers Alliance, said at a meeting last fall of the state Executive Climate Change Coordinating Council that was attended by McKee. “We understand there’s been a lot of upheaval … but we have to get that RFP out as soon as possible because we know that offshore wind is crucial in achieving our goals.”

State energy commissioner Nicholas Ucci, vice chair of the climate council, said the administration was aware of the frustration and that “the governor wanted to push this forward.”

“These procurements, let alone the obligation of taking on a contract of this size, is significant for a utility, whether you’re National Grid or PPL or anyone else,” Ucci said. “These are massive commitments on utilities’ parts, and that created some challenges.”

The legislation requires the procurement process to start by Aug. 15. Any contracts negotiated as a result would go before the state Public Utilities Commission for approval.

National Grid says it’s still reviewing the legislation and has yet to take a position. But in general, the company “is committed to helping Rhode Island and the region meet its clean energy goals and we believe off-shore wind is an integral path to help meet those aspirations,” spokesman Ted Kresse said.

PPL says it’s supportive of the procurement included in the legislation.

“PPL looks forward to completing any offshore wind and other renewable energy initiatives that transition from National Grid or arise in the future,” spokesman Mark Miller said.

Should the utility be compensated for offshore wind contracts?

One point of contention in discussions surrounding the procurement was whether National Grid — or, if the sale goes through, PPL — would be compensated for signing any new offshore wind contracts.

The legislation proposes awarding the utility an incentive equal to 2% of the total value of the contract. Over time, the payments would total tens of millions of dollars, all coming from ratepayers.

It’s the practice in Massachusetts, where utilities get a 2.75% incentive. But it’s not the standard in Rhode Island.

National Grid was awarded a 2.75% bonus payment for the Block Island Wind Farm in 2009 to help secure its support for the state law that paved the way for the project. The company isn’t allowed to mark up the price of power from other sources, but it was given permission to do so for certain long-term renewable energy contracts. For the Block Island project, payments to the company are expected to total more than $19 million over the 20-year contract.

The rationale for the bonus in regard to offshore wind was that National Grid was taking on additional risk by committing to an energy source that was new to the United States at the time. That level of risk could cause a downgrade of the company’s ratings from agencies like Moody’s and lead to an increase in borrowing costs.

But the Revolution contract was awarded under a different state statute that made no mention of bonus payments. And by the time that contract came before the Public Utilities Commission in 2019, there was some evidence about whether National Grid’s fears about the risks associated with offshore wind contracts had panned out.

So when National Grid asked for an incentive that would have totaled $88 million over the contract term, the commission ordered proof to justify the request.

After reviewing the evidence, the commission determined that no payments were justified, citing testimony that Orsted, the Danish company planning the project with utility Eversource, will bear the development risk and that ratepayers will assume any cost risk. Then-PUC chair Margaret Curran described National Grid’s testimony in support of remuneration as “not credible.”

In their written decision, she and the other commissioners said utilities can be mandated to purchase energy and that no incentive is required.

“The PUC sets rates based on law, economics, and evidence,” they said. “It does not hand out a ‘gratuity’ or tip a utility because of its cooperation in signing a contract that poses no risk to the utility to advance state policy.”

The commission made a similar ruling when it later approved a contract National Grid signed to deliver power to Rhode Island from a Connecticut solar farm.

Nevertheless, National Grid maintains its position that an incentive is merited, in part because of the long lead time in getting offshore wind farms in the water.

Ucci agrees, saying that some level of remuneration is reasonable. But, he said, the legislation, which is an amendment to the statute under which the Revolution contract was awarded, does have a sunset provision. It cuts off utility incentives for contracts approved in 2027 and beyond. Payments can also be reduced if the utility’s returns in any given year are higher than allowed.

The 2% figure is not set in stone, said Rep. Arthur Handy, who introduced the bill in the House. He said there may be room to lower the incentive as the bill works its way through the legislative process.