PROVIDENCE – The CEO of SouthCoast Wind Energy LLC was grilled for more than two hours on Monday and repeatedly asked why the company should be allowed to renege on its power contracts during a contentious hearing in Warwick before the Rhode Island Public Utilities Commission.
SouthCoast, formerly known as Mayflower Wind, wants to scrap its agreements to sell 1,200 megawatts of power to Massachusetts.
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CEO Francis Slingsby maintained that the energy contracts – which the company signed with utility companies in 2019 and had agreed to honor as recently as May – now need to be terminated due to “unforeseen economic challenges.”
Slingsby needed to “show cause” and make his case in Warwick because the proposed power lines from the wind farm turbines will snake along the ocean floor in Rhode Island waters, into the Sakonnet River and up to a Portsmouth transmission facility.
RIPUC Chair Ronald Gerwatowski viewed Slingsby’s argument with withering suspicion, asking if the current contract would cause SouthCoast and its partners to fall into bankruptcy.
Slingsby responded that under the current terms, “many shareholders aren’t able to achieve the returns that make this investment attractive.”
Gerwatowski drilled down.
“Would that create a financial loss or a reduction in profit?” he asked.
“It would certainly result in a much lower return,” Slingsby responded. “It’s a situation where the return on the investment is not satisfactory.”
Investors in offshore wind expect a 7% to 9% return, Slingsby said.
The entire global offshore wind industry, Slingsby said, is being rocked by costs that are between 20% and 30% higher than forecast. The price of steel, copper and rare earth metals alone have contributed 10% of that increase. Inflation and skyrocketing interest rates have made financing difficult and much more expensive.
In addition, there is a global rush to build a green energy infrastructure before global warming has progressed too far. The Biden administration has set a goal of generating 30 gigawatts of green energy by 2030.
That has made obtaining key components difficult, Slingsby said.
Asked if those problems could not have been foreseen, Slingsby responded: “The landscape changed significantly.”
SouthCoast isn’t the only regional wind farm developer to plead financial woes. Avangrid Renewables, also building off the Massachusetts coast, backed out of the Commonwealth Wind project last year.
Eversource Energy LLC, which had formed a joint venture with Orsted A/S of Denmark to build the massive Revolution 1 and Revolution 2 projects off the coast of Rhode Island, announced it was divesting itself this summer of its investment in the turbine infrastructure.
Slingsby said the SouthCoast project needs both federal tax incentives and new contracts with the utility companies that would allow “indexing,” that is the ability to pass the inflated costs of expensive infrastructure to future electricity consumers in Massachusetts.
Given the economic turmoil impacting the industry, Slingsby said the “prudent path for SouthCoast is to terminate and pay the penalty.” He said SouthCoast would put in another bid to revive the project and gave the company a 60% to 70% chance of winning.
The decision to terminate, Slingsby said, came after SouthCoast hired a third-party consultant, the Wood Group, to examine the economics of offshore wind projects such as the Clean Energy Resource in light of real-world current economics.
The Wood Group returned with a report that said the offshore wind industry was “not in a mature or healthy state.”
Gerwatowski, visibly frustrated by the end of the hearing, asked Slingsby for clarification.
Was the SouthCoast Wind a viable development project but still “not yet economically and financially viable?” Gerwatowski asked. “Is that a fair way to say it?”
Slingsby’s response: “I think that’s fair.”
Sam Wood is a PBN staff writer. Contact him at Wood@PBN.com.
