New York Ten Point Plan Contract Renegotiation

On October 6, 2023 the New York State Public Service Commission (PSC) turned down the request by renewable energy developers to renegotiate their contracts and there was a fleeting hope that New York State was coming to grips that there was a realization that the costs associated with the Climate Leadership & Community Protection Act (Climate Act) net zero transition could be prohibitive.  However, that hope was tempered on October 12, 2023 when Governor Hochul announced “the release of a new 10-Point Action Plan to expand and support the growing large-scale renewable energy industry in New York.”  On November 16, 2023, Hochul announced that the contracts for offshore wind and land-based renewable energy projects would be re-opened for adjustments on an expedited basis and any hope that affordability would actually be a consideration evaporated.  This post explains my concerns.

I have followed the Climate Act since it was first proposed, submitted comments on the Climate Act implementation plan, and have written over 350 articles about New York’s net-zero transition.  I have devoted a lot of time to the Climate Act because I believe the ambitions for a zero-emissions economy embodied in the Climate Act outstrip available renewable technology such that the net-zero transition will do more harm than good by increasing costs unacceptably, threatening electric system reliability, and causing significant unintended environmental impacts.  The opinions expressed in this post do not reflect the position of any of my previous employers or any other organization I have been associated with, these comments are mine alone.

Overview

The Climate Act established a New York “Net Zero” target (85% reduction and 15% offset of emissions) by 2050.  It includes an interim 2030 reduction target of a 40% reduction by 2030 and a requirement that all electricity generated be “zero-emissions” by 2040. The Climate Action Council (CAC) is responsible for preparing the Scoping Plan that outlines how to “achieve the State’s bold clean energy and climate agenda.”  In brief, that plan is to electrify everything possible using zero-emissions electricity. The Integration Analysis prepared by the New York State Energy Research and Development Authority (NYSERDA) and its consultants quantifies the impact of the electrification strategies.  That material was used to develop the Draft Scoping Plan.  After a year-long review, the Scoping Plan recommendations were finalized at the end of 2022.  In 2023 the Scoping Plan recommendations are supposed to be implemented through regulation, PSC orders, and legislation.  The comments described follow a recent decision by the PSC to deny petitions seeking to amend contracts with renewable energy projects. 

My major concern with this issue is the impact on consumer prices.  Consumer electric prices are too complicated to fully explain here but there are two things to keep in mind.  In New York electric bills are separated into two components: ““supply” and “delivery”.  When the renewable energy costs are increased it will affect the supply component of utility bills.  The New York Independent System Operator (NYSISO) explains that “Household electricity bills include supply, transmission, distribution, and other charges approved by New York State. ‘Supply’ charges in a typical retail electric consumer bill reflect procurement costs that vary by utility and are influenced by the wholesale cost of producing electricity.”  The wholesale price is made up of multiple components and electricity costs will be directly affected by the renegotiation of renewable energy contracts but note that this price varies by region.  According to the Potomac Economics 2022 State of the Market Report for the New York ISO Markets, the average wholesale all-in price in 2022 averaged ~$70/MWh in Western and Central New York, ~$55/MWh in Northern New York, ~$110/MWh in the Capital region, ~$105/MWh in the Lower Hudson Valley and New York City, and ~$125/MWh on Long Island.

Request for Renewable Energy Contract Renegotiation

In June 2023 a group of offshore wind developers and a state renewable energy trade association sought to renegotiate their contracts requesting billions of dollars in additional funding from consumers for four proposed offshore wind projects and 86 land-based renewable projects. The developers claimed that “unexpected and unforeseeable rise in inflation and supply chain costs and constraints associated with, among other things, the COVID-19 pandemic and the Russian invasion of Ukraine.”  They also stated that the increased costs have eroded internal rates of return and have therefore caused many in-development projects with NYSERDA awards to no longer be economically viable under existing contract pricing terms.

On October 12, 2023 the Public Service Commission (PSC) turned down the request to address the cost issues explaining that they “opted to preserve the robust competitive bidding process that provides critically needed renewable energy resources to New York in the fairest and most cost-effective manner that protects consumers.”  Times Union writer Rick Karlin summarized:

At issue was a request in June by ACE NY, as well as Empire Offshore Wind LLC, Beacon Wind LLC, and Sunrise Wind LLC, which are putting up the offshore wind tower farms.

All told, the request, which was in the form of a filing before the PSC, represented four offshore wind projects totaling 4.2 gigawatts of power, five land-based wind farms worth 7.5 gigawatts and 81 large solar arrays.

All of these projects are underway but not completed. They have already been selected and are under contract with the New York State Energy Research and Development Authority, or NYSERDA, to help New York transition to a clean power grid, as called for in the Climate Leadership and Community Protection Act, approved by the state Legislature and signed into law in 2019.

• Developer response to the PSC decision suggested that “a number of planned projects will now be canceled, and their developers will try to rebid for a higher price at a later date — which will lead to delays in ushering in an era of green energy in New York”. Karlin also quotes Fred Zalcman, director of the New York Offshore Wind Alliance: “Today’s PSC decision denying relief to the portfolio of contracted offshore wind projects puts these projects in serious jeopardy.”

In my opinion, New York ratepayers dodged a bullet when these requests were turned down.  The Supplemental Comments of Multiple Intervenors and the Municipal Electric Utilities Association of New York State on the developer request for renegotiation found that “Using the changes in strike price presented in NYSERDA’s comments together with public information available in the OSW Petitioners’ respective OREC Agreements, it now appears that the OSW Petitioners collectively are requesting an additional $37.7 billion of customer funding above and beyond the value of their existing contracts (and excluding the relief requested in the petitions filed by ACENY, Clean Path NY, and CHPE)”. I excerpted estimates from Table 1. Estimated Cost Impact of Offshore Wind Petitions below.

Table 1. Estimated Cost Impact of Offshore Wind Petitions Excerpt

	Original	Adjusted	Total
	Strike Price	Strike Price	Incremental
	($/MWh)	($/MWh)	Cost ($)
Empire Wind 1	$118.38	$159.64	$6,195,189,000
Empire Wind 2	$107.50	$177.84	$13,382,065,422
Beacon Wind	$118.00	$190.82	$14,461,855,386
Sunrise Wind	$110.37	$139.99	$3,600,148,090

Note that the PSC decision to reject the requests was based on concerns related to the competitive bidding process and not the expected $37.7 billion increase in costs described here.

October Announcement

On October 24, 2023, Governor Hochul announced the results of NYSERDA’s third competitive renewable energy solicitation:

The conditional awards include three offshore wind and 22 land-based renewable energy projects totaling 6.4 gigawatts of clean energy, enough to power 2.6 million New York homes and deliver approximately 12 percent of New York’s electricity needs once completed. When coupled with two marquee offshore wind blade and nacelle manufacturing facilities, this portfolio of newly announced projects is expected to create approximately 8,300 family-sustaining jobs and spur $20 billion in economic development investments statewide, including developer-committed investments to support disadvantaged communities.  

For the offshore wind resources, NYSERDA provisionally awarded three projects totaling 4,032 MW, enough to power 2 million homes: Attentive Energy One (developed by Total Energies, Rise Light & Power, and Corio Generation), Community Offshore Wind (developed by RWE Offshore Renewables and National Grid Ventures), and Excelsior Wind (developed by Vineyard Offshore).  I found the following description of the expected bill impacts:

All three projects are anticipated to enter commercial operation by 2030. The average bill impact for customers over the life of the projects will be approximately 2.73 percent, or about $2.93 per month. The weighted average strike price of the awarded offshore wind projects over the life of the contracts is $96.72 per megawatt hour in 2023 (real) dollars, which equates to a nominal weighted average strike price of $145.07 per megawatt hour. The strike prices comprising the weighted average cited above are subject to certain adjustments in accordance with the terms of the awarded contracts, including, in some cases, adjustments based on certain price indices, interconnection costs and/or receipt of qualifying federal support.

Ten Point Plan

Within a week of the PSC decision to reject contract renegotiation, the Hochul Administration responded with a 10-Point Renewable Energy Action Plan to “expand the renewable energy industry and support high-quality jobs clean jobs in New York State”.  It included two actions directly related to the potential that these renewable projects could get cancelled.  The first action said that the New York State Research & Development Authority (NYSERDA) will “address the directives issued in the October 2023 Public Service Commission (PSC) Order and will assess the impacts on its large-scale renewables contracted portfolio in an expedited manner.”  The second action announced that:

NYSERDA will launch an accelerated renewable energy procurement process for both offshore and onshore renewable energy projects, aiming to backfill any contracted projects which are terminated. The process will be guided by core principles, including prioritizing competition, simplifying bid requirements, incorporating inflation indexing, applying critical labor protections, and collaborating with industry to optimize the accelerated procurement timing, all while coordinating with ongoing transmission planning initiatives.

Consistent with the ten point plan announcement, on November 16, 2023 Governor Kathy Hochul announced that “expedited offshore wind and land-based renewable energy solicitations as part of New York’s 10-Point Action Plan to bolster its growing large-scale renewable industry.”   The new requests for proposals will be released on November 30, 2023, with bids due in January 2024. The new solicitation will be open to all bidders, including those with existing contracts. This would allow the companies to re-offer their planned projects at higher prices and exit their old contracts. In my opinion, I believe every developer will go back out seeking a contract that increases their payouts so we may not have dodged the bullet.

United Kingdom Offshore Wind

In the United Kingdom there is annual auction for companies hoping to build big offshore windfarms which awards contracts to generate renewable electricity for 15 years at a set price.  The starting price for this year’s auction was set at £44 per MWh ($54.81 per MWh) but no one submitted bids.  According to the Guardian:

The companies had warned ministers repeatedly that the auction price was set too low for offshore windfarms to take part after costs in the sector soared by about 40% because of inflation across their supply chains.

The UK Government recently increased the strike price for the next auction to £73 per MWh ($90.93), up 66%.  Energy Security Secretary Claire Coutinho said: 

The UK is home to the world’s five largest offshore wind farms projects.  Today we have started the process of our latest Contracts for Difference auction for renewables, opening in March next year.  We recognise that there have been global challenges in this sector and our new annual auction allows us to reflect this.  This is a vital part of our plan to have enough homegrown clean energy, bringing bills down for families and strengthening our energy independence.

I think there are two points to consider from this The first is that there is no assurance that the 67% increase is enough to get developers to bid. The second is that New York developers are under the same pressures so the projected offshore wind cost decreases included in the Climate Action Plan are unlikely.

Discussion

I recognize that the Climate Act mandates the net-zero transition, but I do not believe that means that the transition is unconditional.  I am very disappointed that the Hochul Administration has not made the expected net-zero transition costs transparent and established affordability thresholds.  In the absence of that guidance, the PSC should define their expectations for rates that are just and reasonable.  The PSC Order Denying Petitions Seeking to Amend Contracts with Renewable Energy Projects suggested that there are affordability conditions that must be considered.  On page 39 of this order, it states:

We recognize that PSL §66-p(2) adds the pursuit of the 70 by 2030 and Zero Emissions by 2040 Targets to the Commission’s obligations but do not read the provisions of the more recent statute as superseding the Commission’s longstanding mandate to ensure that rates are just and reasonable. There is no indication in the statutory language or history that the legislature intended such a result, which could have the undesirable effect of driving ratepayer costs so high as to put the entire program at risk. To the contrary, the legislature provided the Commission with significant discretion under PSL §66-p(2) regarding how to establish the program to implement the 70 by 2030 and Zero Emissions by 2040 Targets by authorizing the Commission to “address impacts of the program on safe and adequate electric service in the state under reasonably foreseeable conditions,” as well as to “modify the obligations of jurisdictional load serving entities and/or the targets” based on consideration of such factors.

In addition, I believe that another provision of New York Public Service Law  § 66-p. “Establishment of a renewable energy program” includes safety valve conditions.  Section §66-p (4) states “The commission may temporarily suspend or modify the obligations under such program provided that the commission, after conducting a hearing as provided in section twenty of this chapter, makes a finding that the program impedes the provision of safe and adequate electric service; the program is likely to impair existing obligations and agreements; and/or that there is a significant increase in arrears or service disconnections that the commission determines is related to the program”.  The reference to a significant increase in arrears or service disconnections clearly is an implied affordability requirement.

Conclusion

The most recent information on the cost of offshore wind raises legitimate cost concerns.  Offshore wind is expected to provide 9% of the generating capacity and 14% of the electric energy produced by 2030 but at what cost?  The average bill impact for the recently announced offshore wind projects is $2.93 per month.  I project that when the original four offshore wind projects get new contracts it will add another $3.60 to consumer bills.  The $6.53 for the offshore wind resources needed for the net-zero transition does not include the costs for the onshore wind resources, solar energy resources, the energy storage resources, and the dispatchable emissions-free resources that make up the supply component of future electric bills.  It also does not include the delivery component costs of future electric bills that will be needed to pay for the transmission and distribution electric system upgrades.  The Propel NY transmission line recently approved to get 3,000 MW of offshore wind into the New York grid is expected to cost $3.28 billion.  That is just the start of those costs. In addition, consumers will be expected to pay to electrify their home heating, cooking, and hot water systems and purchase electric vehicles. 

Governor Hochul recently said. “We remain committed in powering our state with affordable, zero-emission and reliable electricity.”  Her Administration has yet to document the expected costs of the net-zero transition to consumers or detail the total expected costs.  In order for New Yorkers to test her commitment for affordable electricity, I think it is well past time that the numbers are provided so that we can decide whether the costs are in fact affordable ourselves.  I have no doubt that her idea of “affordable” and mine are not the same.

My fleeting hope that the Hochul Administration had realized that the costs of the net-zero transition are going to be unsustainable when the PSC refused to renegotiate renewable energy contracts has been dashed.  Last week’s announcement that the contracts would be re-opened so that the contact costs can be revised guarantees that the costs will be increased substantially.