Offshore Wind Regulators in Rhode Island are faced with a 'Hobson's choice'

Offshore wind regulators in Rhode Island are faced with a 'Hobson's choice,' according to a state official.

It appears that developers have the upper hand in renegotiating contract conditions. A top Regulator in Rhode Island is concerned about how offshore wind developers are attempting to renegotiate the financial terms of their projects, saying policymakers face a "virtual Hobson's choice" between protecting ratepayers' interests and promoting the generation of electricity considered critical in the fight against climate change.

Ronald Gerwatowski, chair of the Rhode Island Public Utilities Commission and the state's Energy Facilities Siting Board, made his remarks on Monday at the conclusion of a two-and-a-half-hour hearing on SouthCoast Wind, a project that secured a power purchase agreement in Massachusetts that the developer is now seeking to terminate in order to rebid the project at much higher prices in a procurement scheduled for next year. The project is being considered by Rhode Island officials because it plans to construct a transmission line from the wind farm to Massachusetts via Rhode Island.

Gerwatowski stated that his remarks were not addressed at SouthCoast Wind, but at all wind farms that are currently struggling to finance their projects due to increased interest rates, inflation, supply chain problems, and the war in Ukraine. He does not deny that wind farm operators are having issues, but he believes their drive for more money undermines a procurement system established to guarantee a fair price for ratepayers while providing developers with the financial certainty they need to complete their projects.

"This system works, but only when competition is real and contracts are honored," Gerwatowski explained. "It would not be in the public interest for lopsided negotiating and pricing leverage to reside in the hands of a small number of developers holding exclusive rights to build offshore wind projects in the only ocean area where large-scale projects can be built practically."

In Massachusetts, SouthCoast Wind and Commonwealth Wind are seeking to pay a penalty in order to cancel power purchase agreements inked last year and rebid them in a future procurement. In New York, two major wind farm developers have asked state authorities to amend the contracts they previously signed. Some wind farm developers have estimated that prices may need to rise by 20 to 30 percent or more in order for the projects to be financed.

According to Gerwatowski, regulators are in a difficult position: granting new contracts will compel customers to pay considerably higher rates, while rejecting new contracts will leave politicians without the green power needed to accomplish climate change goals.

Gerwatowski pressed SouthCoast Wind officials during the Rhode Island hearing about the change of their views on the power purchase agreements, which were signed last year and approved by the Massachusetts Department of Public Utilities at the end of the year. SouthCoast gave inconsistent signals about whether it would honor the existing contracts until last week, when the developer indicated it would seek to terminate them and rebid them in an upcoming procurement next year.

SouthCoast CEO Francis Slingsby said the delay reflected the company's readiness to investigate all options before abandoning the project. He stated that the corporation considered adjusting contract terms to inflation, obtaining higher rates through contract modifications, and obtaining federal tax rebates. "We wanted to do everything we could to keep the contracts," he stated.

Only after the Healey administration posted a copy of its next procurement document did Southcoast change course and chose to cancel its existing contract. According to Slingsby, the draft procurement language established the prospect of SouthCoast paying a fine, canceling its existing contract, and rebidding the project in a bidding procedure next year. Commonwealth Wind began looking into this idea months ago.

SouthCoast Wind officials refused to inform Gerwatowski how much they would have to pay to terminate their existing contracts, but a Massachusetts state lawmaker last week said he understands SouthCoast will pay $60 million and Commonwealth Wind would pay $48 million.

The proposed procurement stated that wind farm developers would be judged in part on whether they followed through on previous procurements, but Slingsby did not believe that provision would be detrimental to SouthCoast because other wind farm developers are currently encountering the same issues.

"We would argue that this is not something unique to SouthCoast Wind," Slingsby said of the contract renegotiation drive. "Almost every development is seeing that their project economics are underwater."

SouthCoast Wind is not viable under the existing contract conditions, but Slingsby insists the project is viable and should proceed with amended terms in next year's procurement. "The projects have a chance of succeeding. Furthermore, they are very necessary," Slingsby stated. "We believe we have the momentum to complete this project."

Gerwatowski asked Slingsby to rate his level of confidence in getting a new contract next year on a scale of 0 to 10, with 0 being no confidence and 10 being absolute confidence.

Slingsby believes SouthCoast Wind's odds are a 6 or 7.