The Vineyard Wind Power Purchase Agreement: Insights for Estimating Costs of U.S. Offshore Wind Projects

Abstract

EDCs electric distribution companies EF escalation factor ITC investment tax credit LCOE levelized cost of energy LROE levelized revenue of energy MW megawatt MWh megawatt-hour NREL National Renewable Energy Laboratory OREC offshore renewable energy credit PPA power purchase agreement PV present value REC renewable energy credit UCAP unforced capacity WACC weighted average cost of capital v This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications. Executive Summary This report analyzes the power purchase agreements (PPAs) between Massachusetts electric distribution companies (EDCs) and Vineyard Wind LLC filed on July 31, 2018. The analysis is intended to derive insights for estimating cost of U.S. offshore wind systems and to inform broader cost modeling activities. The documented first-year price for delivery of offshore wind generation and renewable energy certificates under the Vineyard Wind/EDC PPA is $74/megawatt-hour (MWh) (2022$) for facility 1 (400 megawatts [MW]) and $65/MWh (2023$) for facility 2 (400 MW). This first-year PPA price, however, does not reflect the entire 20-year PPA price schedule or the complete set of expected revenue sources and tax benefits available to the Vineyard Wind LLC project. An extensive accounting of the PPA price schedule and expected revenue sources inclusive of those that are exogenous to the reported PPA is conducted in this study to estimate the project's levelized revenue of energy (LROE). This allows for a more equivalent comparison of the reported PPA pricing with bottom-up modeled (unsubsidized) levelized cost of energy (LCOE) estimates. The reader should note that this analysis solely reflects the opinions of the authors and was conducted independently of the ongoing evaluation by the Massachusetts Department of Energy Resources of the PPA between Vineyard Wind LLC and Massachusetts electric distribution companies as filed on July 31, 2018. The analysis and conclusions described herein do not reflect actual cost data, which are confidential to Vineyard Wind and its partners.The total calculated LROE from the Vineyard LLC/EDC PPA is estimated to be $98/MWh (2018$). This LROE estimate for the first commercial-scale offshore wind project in the United States appears to be within the range of LROE estimated for offshore wind projects recently tendered in Northern Europe with a start of commercial operation by the early 2020s. This suggests that the expected cost and risk premium for the initial set of U.S. offshore wind projects might be less pronounced than anticipated by many industry observers and analysts.A series of adjustments were made to convert the Vineyard Wind/EDC PPA price point to LROE. The adjustments to Vineyard Wind/EDC's price point account for investment tax credit benefits to the project and expected revenue sources outside of the PPA, such as revenue from the ISO-NE Forward Capacity Market. The report also explores several sensitivity cases and broadly discusses the Vineyard Wind price poi...

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