Iberdrola asks to renegotiate its star contract of 4,000 million in Massachusetts

Commonwealth Wind is one of the major projects that Iberdrola is developing in the United States through Avangrid, its subsidiary in the North American country.

At the end of last year, the company was awarded long-term agreements (PPAs) to commercialize the future energy produced by the largest offshore wind farm in New England to date, with 1,232 megawatts and an investment of 4,000 million dollars (a figure slightly higher in euros, at the current exchange rate).

Now, however, he is asking to renegotiate the contracts because he warns that the project is not economically viable under the agreed conditions.

Avangrid, through the company itself Commonwealth Wind LLC, has so far filed a motion with the Massachusetts Department of Public Utilities (DPU) requesting a one-month suspension of the review procedures for these power purchase contracts with the electricity distribution companies to be able to rethink a project with which it claims to remain "committed".

“A one-month suspension of these proceedings would allow the parties to consider the highly relevant developments that have occurred” since the signing of the contracts, which finally occurred in April.

“In particular, this suspension would allow the parties to examine the effect of unprecedented increases in commodity prices, interest rate hikes and supply shortages on the overall viability of the Commonwealth offshore wind generation project. Wind”, he adds, “including if it is still economical and if it can be financed under current conditions”.

The suspension would allow the parties, Avangrid alleges, to take into consideration how to "restore the viability of the project", including savings measures, potential tax incentives under the recently approved Inflation Reduction law, an increase in the prices of contracts and project efficiency improvements.

"An immediate suspension is crucial because, under the current PPAs, the project is no longer viable and could not go ahead," he says emphatically.

The company has already been talking to the other parties involved before registering the motion.

Rising global commodity prices, in part due to the war in Ukraine, sharp and sudden interest rate hikes, prolonged supply chain constraints, and persistent inflation have significantly increased the cost of planned for the construction of the project, explains the company.

"Consequently, the project is no longer viable and will not be able to go ahead if the PPAs are not modified."

Iberdrola intends to incorporate partners into this project, as it has done with the 800-megawatt Vineyard Wind 1 offshore wind farm, in which Copenhagen Infrastructure Partners (CIP) has a 50% stake, but that is not possible with a project non-viable.

Commonwealth Wind assures in its motion that it "remains fully committed to the project and to supplying competitive renewable energy to the people and businesses of Massachusetts."

In fact, he affirms that it is “more important than ever”, given the need to diversify the sources of electricity generation and the key role of the project in meeting the State's ambitious climate and clean energy objectives.

The company believes that the project is ready to enter commercial service in 2028 and be fully operational a few years later.

Avangrid hopes to demonstrate during that month of suspension, if granted, that a "modest increase" in rates can allow the project to be profitable and efficient.

In parallel, the company has been exploring all options to improve the project's efficiency and mitigate changing economic conditions, he says.

The brief also makes explicit reference several times to Joe Biden's flagship project, the Inflation Reduction Act (IRA), which "includes provisions that may affect and change the availability of tax credits to Commonwealth Wind in connection with the project" and whose effect has hardly been studied so far in the file.

“Although the benefits of the IRA for the project are not fully known at this time and are not anticipated to make the project economic if there are no other changes to the PPAs, Commonwealth Wind believes there may be potential opportunities to share the benefits. associated with the IRA and with taxpayers, and would be willing to explore those opportunities with interested parties,” she explains.

As Iberdrola argued when it was awarded the contracts, the 1,232-megawatt project will create the equivalent of 11,000 full-time jobs over the life of the project and will generate enough power to supply 750,000 homes.

Commonwealth Wind includes two innovative initiatives that transform aging coal-fired power plants into clean energy hubs.

The first submarine cable factory in Massachusetts, operated by Prysmian, will be installed in Brayton Point (Somerset), and a new terminal for offshore wind projects will be built in Salem Harbor, which will serve the Park City Wind projects (a wind farm of 800 megawatts in Connecticut) and Commonwealth Wind itself.

The contracts affected the purchase of energy from Iberdrola's offshore wind farm, Commonwealth Wind, and also Mayflower Wind, promoted by the Anglo-Dutch oil company Shell and by Ocean Winds, an alliance between the Portuguese electricity company EDP Renovables and the French company Engie.

Mayflower Wind does not oppose the motion, Avangrid said.

The electricity distribution companies that signed the long-term contracts are subsidiaries in the area of ​​the Eversource, National Grid and Unitil groups.

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