To pre-empt that problem, offshore wind developers have used power purchasing agreements, or PPAs. These agreements, typically struck with electric utilities or big companies, allow them to lock in rates and promise reliable returns to investors. Offshore wind developers who have brokered PPAs over the last several years are now looking to renegotiate them amidst rising costs of both supplies and financing. Project developers are having more trouble winning over investors as interest rates rise, i.e. as policymakers make it more expensive to borrow money. They also face rising supply chain costs, itself partially a reverberation of those rising interest rates.
Two years ago, the cost per megawatt hour of power generated from offshore wind in the U.S. was estimated at $77. Today, it’s $114. Many wind developers have looked to renegotiate PPAs signed when costs were lower—and walked away if they’re turned down. This summer, for instance, Commonwealth Wind developer Avangrid—a wind-focused subsidiary of the Spanish power company Iberdrola—agreed to pay $48 million to back out of its PPA with National Grid, Eversource and Unitil, in the hopes of securing more lucrative agreements down the road. There have been a spate of other contract cancellations since then. Last month, the New York Public Service Commission—the state’s utility regulator—rejected petitions from Ørsted, Equinor and BP to raise rates so high as to cost retail and residential customers an estimated $30 billion.
Developers have also looked to juice additional funds from federal tax credits, striving to earn more than the 30 percent baseline rebate offered by the Inflation Reduction Act. Orsted announced last week that it was moving forward with its Revolution Wind development, serving Connecticut and Rhode Island, on the expectation that it will earn a 40 percent “energy community” tax credit.