New York’s new offshore wind solicitation shows state procurements are improving: attorneys
New York’s new offshore wind solicitation shows state procurements are improving: attorneys | Utility Dive
The latest offshore wind solicitation from New York, announced Thursday, includes “novel” developer-friendly provisions like an expedited bid process and relaxed policy on termination fees, said two attorneys with K&L Gates.
“If you bid into this round and you have an existing contract, if you're awarded, your original contract terminates, you get the new contract, and there's no additional charge to you — no penalty put on it,” said Theodore Paradise, a partner at the firm who practices energy, infrastructure and resources law.
Conversely, if the existing developer on a lease is outbid, the capacity is simply re-awarded, Paradise said. He said this is “as positive as you could expect for developers,” who have paid up to around $50 million in cancelation fees when exiting contracts in the U.S.
Other states may take a cue from the precedent set by New York in this solicitation, said Felisa Sanchez, of counsel with K&L Gates’ maritime and finance groups.
“The climates in New Jersey, Massachusetts, and New York are all very different, but I do think it sets a precedent, and will set an expectation for the industry,” Sanchez said. “We've seen this through all the bid cycles — each one refines the prior one, they learn from the prior experiences, and you see that put into each award cycle.”
Paradise said that the process laid out by New York is “very expedited” and completely in line with the state’s vow to “move quickly.”
The New York State Energy Research and Development Authority had announced that bids in this solicitation are due Jan. 25, and it expects to award projects in February, then execute contracts in the second quarter of 2024.
Before the state’s fourth solicitation was announced, Executive Director of the Alliance for Clean Energy New York Anne Reynolds said that the group was waiting to see if the New York delivered on its promised expedited timeline for this submission process, and that the keeping of that promise would be an “excellent sign” that the state remains committed to offshore wind in spite of recent financial turmoil in the industry.
Several developers have sought to exit or rebid power purchase agreements as development costs surge due to inflation, rising interest rates, and other factors. Danish developer Ørsted announced last month the cancelation of its two largest U.S. projects, Ocean Wind 1 and 2 in New Jersey, which Gov. Phil Murphy, D, called “outrageous.”
However, Murphy last week directed the New Jersey Board of Public Utilities to launch the state’s fourth solicitation as well, which Paradise said he takes as a good sign.
“I think they’ve come off the initial view, and said, ‘We're all in’,” he said. “They see that, ‘Okay, this is economic issues, we get it — New York's pressing ahead, New England's pressing ahead.’”
Paradise said that Massachusetts, which had seen the “first developer signals” regarding the economic instability of existing contracts for projects in development, initially had a “pugilistic” back-and-forth between state agencies and developers in the press, but have since seen that the problem is a wider economic one.
“It's not that people don't want to build these projects,” he said. “And it's not that somebody's out there trying to walk back commitments they made and get a better deal. Things have really changed.”
This led to states including Massachusetts to allow developers to rebid contracts, but Paradise said he thinks the waiving of termination fees was an unprecedented option that occurred to New York after states had “more time and context” to examine the situation.
This trial-by-fire has led to other innovations, including a landmark multi-state procurement agreement between Massachusetts, Rhode Island, and Connecticut.
“We see [the three states] taking this as a do-over and saying, ‘Well, the first time we did it individually, but if we do this together, we can get bigger projects and spread the costs over more megawatts, reducing the cost for everybody,’” Paradise said. “So everybody's, I think, learning as they go.”
Related Knowledge Center: Offshore wind energy
Over the next decade, U.S. offshore wind power is expected to grow from a single 30-megawatt wind farm off Rhode Island to more than 2,000 MW of capacity along the Atlantic Seaboard. There are contracts for wind power off the coasts of Massachusetts, Connecticut, New York, Maryland, New Jersey, Rhode Island, and Virginia.
The National Renewable Energy Laboratory has estimated the United States has over 4,000 gigawatts (GW) of offshore wind potential, enough to power the country four times over.
The growth in part being spurred by state solicitations, including in New York, where then-Gov. Andrew Cuomo (D) set a commitment of 9,000 MW of offshore wind by 2035, and in Connecticut, where in June 2021, Gov. Ned Lamont (D) signed legislation authorizing the construction of 2,000 MW of offshore wind by 2030.
The offshore development is also being driven by an investment tax credit set to end in December 2019 and is equal to 12 percent of expenditures. U.S. Sens. Susan Collins (R-Maine) and Tom Carper (D-Del.) have introduced a bill to extend the tax credit for up to eight years.
The Interior Department has held eight competitive lease sales that resulted in 15 offshore wind leases over 1.7 million acres that has the potential for 21 GW of capacity. In February 2022, the Bureau of Ocean Energy Management completed a bidding process that realized $4.37 billion for 488,000 acres across six lease areas in federal waters off New York and New Jersey.
Projects have also been proposed off the Southeast coast, off California and Hawaii, and for the Great Lakes.