UPDATED: Record-breaking lease auction prompts Eversource offshore wind review

The New York Bight lease sale in February 2022 was by far the highest-grossing offshore energy lease sale in the US to date, with sums bid far exceeding any oil and gas lease sale or previous offshore wind sale.

“Eversource remains committed to supporting offshore wind with advocacy, transmission investment solutions, and clean energy resource integration,”  Mr Nolan said.

“We have seen up close why Ørsted is unquestionably the world leader in engineering, building and operating offshore wind and have no doubt that the joint venture we launched five years ago will be a tremendous source of clean energy and economic development for the northeast.” 

Eversource expects to complete this review during 2022. If the recommended path forward following the strategic review is a sale of all or part of Eversource’s interest in the joint venture, Eversource expects potential proceeds from such transaction would likely be used to support its investment in strengthening, modernising and decarbonising its regulated energy and water delivery systems. 

In February 2022, Eversource identified more than US$18Bn of regulated investment it plans to make in its systems from 2022 through 2026.

Mr Nolan said, “We are reaffirming our target earnings per share growth in the upper half of 5-7% through 2026 solely from our regulated businesses. This growth rate could be enhanced by utilising proceeds from a sale of offshore wind assets to reduce financing needs and/or fund additional regulated investments to serve our 4.4M customers.”

The joint venture includes three contracted projects with a total capacity of approximately 1,758 MW, as well as up to 175,000 acres of offshore wind area not allocated to a specific project.

These projects include: South Fork Wind (130 MW); Revolution Wind (704 MW); and Sunrise Wind (924 MW). Open lease areas include up to 175,000 acres located 40 km off the Massachusetts south coast that is open for additional wind development.

Mr Nolan said Eversource solicited Ørsted’s input on the process and will continue to engage with the company as it moves forward.

Responding to the announcement by Eversource, Power Advisory president John Dalton told OWJ, “Offshore wind returns are being depressed, so Eversource’s utility business is comparatively more attractive. It’s a good opportunity to extract the value of undeveloped lease areas.”

Mr Dalton said, “The joint venture includes three projects with long-term PPAs, South Fork Windfarm, which is under contract to LIPA, which is under construction; Revolution Wind, which is under contract to utilities in Rhode Island and Connecticut, which is in advanced permitting; and Sunrise Wind, which is under contract to NYSERDA and in advanced permitting. In addition, they have an existing uncommitted lease area (OCS-A 0500) with about 187, 523 acres.

“Given recent pricing in the New York Bight Auction, a 50% interest in a lease area that has been matured and is ready to participate in forthcoming offshore wind RfPs for the award of PPAs in New England and New York will secure considerable value.

“If such a sale moves forward it will be interesting to see if it is for the entire ownership interest or whether projects with long-term PPAs are sold separately – or retained – from Eversource’s interest in OCS-A 0500.

“The risk profiles of each differ markedly, particularly in an economic environment where inflation has become a challenge, but contract prices are locked in. Conventional wisdom is that more mature projects are de-risked. This may be less true today. On the other hand, you have Ørsted’s contracting capability and the depth of its supply chain relationships and commitments.

“One wonders whether Ørsted has a right of first refusal, where a bona fide third-party offers to establish a price that it can elect to pay for Eversource’s interest.”

The Offshore Wind Journal Conference will be held 14 June 2022. Details and tickets can be found here