The Massachusetts Department of Public Utilities has approved long-term contracts for 800MW of offshore wind between Vineyard Wind and the state’s regulated electric distribution companies. The companies jointly conducted negotiations with Vineyard Wind resulting in a total of six Power Purchase Agreements (PPAs). The department found that the two-stage Vineyard Wind project would provide the greatest overall value to Massachusetts customers by delivering approximately 800 MW of offshore wind capacity per year while providing substantial ratepayer benefits. In addition, it noted that Vineyard Wind has committed to contribute $15 million to a fund that will invest in projects designed to promote the use of battery storage in low-income communities and support the goal to further the development of energy storage systems across the state. It also found that the contracts will ultimately spur economic development along the coast, ensure a resilient energy future for Massachusetts, and secure progress toward greenhouse gas reduction requirements.
The combined price for energy and associated Renewable Energy Credits (RECs) begins at $74 per megawatt hour for Phase 1 and $65 per MWh for Phase 2 and increases by 2.5% for each year of the contract term. The 20-year average nominal cost of the two PPAs is $89 per MWh. Vineyard Wind’s bid was selected for contract negotiation in May 2018 based on criteria established under a Request for Proposals (RFP). The Project features two separate 400 MW phases, both located on the Outlet Continental Shelf in the Bureau of Ocean Energy Management Lease area. The companies have agreed to purchase 100% of the energy and RECs generated and delivered by the Project over a 20-year term.
The department said that the companies had shown that the aggregate cost for energy and RECs under the PPAs are less than the forecasted market prices for energy and RECs by $1.289 billon (nominal) over the life of the contracts. The purchase also includes an “annual remuneration” factor of up to 2.75% of the annual payment under the contract to compensate the electric distribution company for “accepting the financial obligation of the long-term contract.” According to the companies, even when accounting for the remuneration payment, estimated net benefits remain positive at $1.132 billion over the term of the contract. The department agreed with the companies that establishing a remuneration rate below 2.75% could send a negative signal to the financial markets and credit rating agencies regarding regulatory consistency in the review of long-term renewable energy contracts.
The department noted that while the remuneration payment will adequately protect the companies’ financial and business interests, ratepayers will also be protected under a price recovery mechanism proposed by the companies. Under that mechanism the companies will sell the renewable energy procured under the PPAs through the ISO-NE wholesale market and to credit or charge the difference between the wholesale market revenues and the contract costs to each company’s distribution customers. In addition, they will use the RECs procured pursuant to the PPAs to satisfy the renewable resource procurement standard and clean energy standard (CES) requirements associated with their basic service offerings. If RPS or CES obligations for Class I RECs fall below the aggregate level of Class I RECs already under contract, the companies will sell excess RECs into the market and credit all distribution customers the difference between the PPA price and the sales price. Re NSTAR Electric Co., dba Eversource Energy, D.P.U. 18-76 et al., Apr. 12, 2019 (Mass.D.P.U.).