You wouldn’t think that cheaper-than-expected renewable power would be a problem. But due to a quirk in a 2016 state law, that’s exactly the quandary now facing state officials — and it calls for an update to the law to keep the expansion of clean energy in Massachusetts on track.
Back then, the Legislature authorized long-term procurements of offshore wind, an effort to both jump-start a local energy industry in Southeastern Massachusetts and reduce the state’s greenhouse gas emissions. But they were mindful that any electricity deal lasting 20 years creates risk for ratepayers: If the costs of rival clean technologies plunge over that time, the state’s residents would still be on the hook for the costlier wind deals.
The Legislature’s solution in 2016 was the bluntest of regulatory instruments: a price cap. Under the law, the price of each successive offshore wind project would have to be cheaper than the previous one.
What nobody anticipated was just how low the prices bid by the first winning developer, Vineyard Wind, would be — from $79 to $89 a megawatt hour. While that price tag is still higher than conventional wholesale electricity, it’s within spitting distance of the cost of imported Canadian hydropower, the state’s other major clean-energy option. Vineyard Wind’s price is now the offshore wind benchmark, and other developers warn that it’s so low it may be impossible to match. “Factors outside the direct control of developers . . . will make it difficult if not impossible for developers to better the winning bid price in the first Massachusetts auction,” the utilities Orsted and Eversource asserted in comments sent to the state.
Removing the cap completely, though, would mean no protection for ratepayers, who already pay some of the nation’s highest electricity prices. A better option would be to keep a cap, but raise it just enough to account for one of the factors that has made it harder for developers to match the Vineyard Wind price — a reduction in federal subsidies for renewables.
The federal renewable electricity production tax credit rewarded companies for every kilowatt-hour of renewable electricity they generated. It’s already winding down, and will disappear completely at the end of 2019. The availability of those credits was a huge financial boost that Vineyard Wind enjoyed — and developers that follow them won’t. It’s fair for the price cap going forward to reflect that disadvantage.
Looking further into the future, the Baker administration has proposed a way to eliminate the need for a cap and rely on market forces to secure the best price for clean energy instead. A recent report by the Department of Energy Resources recommends opening future procurements to all technologies, not just offshore wind. Offshore wind got preferential treatment in the 2016 law because of the potential economic-development benefits but, with only a handful of offshore wind companies, that severely limited competition. A wide open bid would bring in far more bidders and make future procurements much more competitive.
Other zero-carbon suppliers could include solar, onshore wind, hydropower, nuclear power, or fossil fuel plants that capture their emissions. Realistically, though, more hydropower from Canada would be the most likely rival to offshore wind.
The Legislature’s preferential treatment of offshore wind compared with other clean power options was based on the hope that it would also create jobs and economic growth in Southeastern Massachusetts instead of sending energy dollars to producers out of state. So far, officials in the region have been disappointed in Vineyard Wind’s economic impact. But the whole state will benefit if homes and businesses pay as little as possible to reduce the state’s greenhouse gas emissions.