'Extraordinary conditions' | Second US offshore wind pioneer seeks deal rejig as inflation bites
ANALYSIS | Shell and Ocean Winds-owned Mayflower joins Avangrid in plea for power purchase agreement rethink, as sector grapples with soaring costs and interest rates
Just one year ago US developer Mayflower Wind was so confident over the economics of its first 804MW offshore wind project that it felt able to promise regulators in Massachusetts a 10% rebate on federal tax credits that would save state consumers $500m over 20 years.
“Mayflower Wind agrees with Commonwealth Wind that a one-month suspension [of the PPA agreement process between developers and state utilities] is needed to address the impact of current extraordinary global economic conditions,” Mayflower said in a petition to the Massachusetts Department of Public Utilities (DPU).
“Under the current PPAs, the resource may no longer be economic and financeable,” Mayflower Wind said.
The petition for PPA renegotiation is limited to Mayflower’s second 400MW project and does not reference the 804MW round two project awarded in 2019. The developer declined to comment on whether the rebate on the earlier project is still viable, or whether it would seek similar PPA renegotiations there too.
Upward pressure on PPAs
The economic issues facing Mayflower are seen across the renewables sector, with energy financial analytics firm LevelTen Energy saying average wind and solar corporate PPAs reached a new high of $45.93/MWh in the third quarter of this year.
Renewable energy industry group the American Clean Power Association (ACP) said in its third quarter 2022 market report: “The corporate wind national PPA price index experienced the most significant increase, up 11% from last quarter and 37% from the third quarter of 2021 to now sit at $49.66/MWh.”
“Whether this signals a trend in higher PPAs is more uncertain. Outside of the US, we are still seeing quite strong downwards pressure on offtake agreements,” he said.
So far, other than Mayflower and Avangrid, no other developer has made a formal move towards contract renegotiations, but several are likely candidates.
Orsted has nearly 5GW of capacity under contract in the US but was noncommittal during its third quarter investor presentation Thursday on whether it was prepared to seek PPA renegotiations for any of its US offshore wind projects.
US Wind has a PPA contract with the state of Maryland at $75.20/MWh for the 1.2GW Momentum Wind project awarded last December, below Mayflower’s offtake contract, but has not made any statement in regard to contract renegotiation.
The US inflation rate remains at a four-decade high of 8.2%, while the Federal Reserve raised its interest rate to 4%, its sixth consecutive rate hike, and the industry’s struggles look set to continue.
“Industry stakeholders have expressed that high prices are likely to endure in the near-term, meaning that projects securing finance in the next few years will be subject to higher costs,” said BNEF’s Jean-Michel.
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