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.