The Maine Public Utilities Commission has tabled its consideration of a term sheet submitted by Statoil North America proposing a Power Purchase Agreement ("PPA") to sell electricity produced by Statoil's proposed "Hywind Maine" deepwater offshore wind pilot project. Statoil proposed the project in response to the Commission's call for proposals following Maine's passage of the 2010 Ocean Energy Act, which established official state production goals of 300 megawatts ("MWs") of offshore wind by 2020 and 5,000 MWs of offshore wind by 2030. As no proposals for offshore wind projects other than Hywind Maine have been considered by the Commission, the state does not appear to be on track to meet those goals.
Statoil proposed in its term sheet a pilot project of four
floating deepwater wind turbines that would generate just 12 MW of
total capacity. The proposal was for a 20-year contract with
Maine's three investor-owned utilities (Central Maine Power
Company, Bangor Hydro Electric Company, and Maine Public Service
Company). Statoil proposed two pricing options ($290/MW-hour or
$320/MW-hour) based on alternative price escalation provisions.
Statoil committed to spending at least 40 percent of the
project's capital and operational expenses in Maine, employing
approximately 150 Maine residents, and seeking out local
suppliers.
If the term sheet is approved, the Commission would direct Statoil
to enter into a PPA with one or more of the Maine utilities. Upon
consideration of Statoil's proposal, however, two of the
Commission's three Commissioners were unwilling to approve the
term sheet as written because it did not sufficiently illustrate a
long-term benefit to Maine consumers relative to its cost.
Consequently, they suggested that Statoil modify the term sheet to
incorporate more explanation of benefits to Maine residents. The
Commission did not reject the term sheet but instead tabled the matter pending further
discussions between its staff and Statoil regarding modifications
to Statoil's proposal.
Without the ability to enter into a PPA, Statoil may have
difficulty securing the financing necessary for the Hywind Maine
project to move forward, as the cash inflows for offshore wind
farms come from contracts for the sale of energy,
capacity, and
Renewable Energy Credits generated by the farms. In the absence
of a long-term PPA to guarantee those sales, investors may lack
confidence in the project, particularly given the developing nature
of the construction, technology, and length of the approval process
surrounding offshore wind. The prospect that existing federal tax
credits for offshore wind projects will not be renewed after 2012
makes PPAs all the more crucial for purposes of obtaining project
financing.
Even where a PPA is approved for some of a project's output,
financing is not guaranteed. Proposals for other offshore wind
projects have been hampered by a lack of financing attributed to
PPA shortfalls. Energy Management, Inc. has submitted multiple PPAs
to the Massachusetts Department of Public Utilities for "Cape
Wind," EMI's proposed offshore wind project off the coast
of Cape Cod.
EMI initially proposed two PPAs, each for half of Cape
Wind's total output: the first with National Grid and the
second with an unknown future buyer, proposed in advance to
facilitate Cape Wind's subscription of all of its output. In
November 2010, the Department approved only the National Grid PPA,
leaving Cape Wind with 50 percent of its future capacity
unsubscribed.
In March 2012, EMI sought approval for a second PPA for 27.5
percent of Cape Wind's capacity, which would bring the total
under contract to 77.5 percent. In testimony before the Department regarding this
second PPA, Cape Wind's representative asserted that
"despite the PPA with National Grid for half of the
Project's output, financiers want to see long-term commitments
for an even greater percentage." According to EMI, approval of
the second PPA would be sufficient to enable Cape Wind to secure
financing.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.