LIPA Reveals Rate Costs For South Fork Wind Farm

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The Long Island Power Authority this week released the details of its power purchase agreement for the planned South Fork Wind Farm, saying that the pricing structure has now become “stale” and no longer needs to be kept secret — as it had been until this week.
Thomas Falcone, LIPA’s chief executive officer, said in a conference call on Monday that the authority had been protecting the pricing structure so as not to skew the bidding process for other wind farm projects being pursued by New York State.

But with the SFWF pricing now two years old, and the state announcing last week that it has inked agreements with two wind farm developers for new contracts to produce more than 10 times the power of the SFWF, Long Island’s sole electrical provider said it can reveal the pricing structure it agreed to.

The contract for the 130 megawatts of power that the South Fork Wind Farm is expected to produce when it comes online has a total average cost of 14 cents per kilowatt hour when “discounted” to align with the comparable costs of other projects that don’t account for transmission and other ancillary costs.

When adjusted, the cost of the SFWF project is still well above the comparable price of power from several much larger planned projects — as would be expected, Mr. Falcone said — but slightly below the costs associated with the Skipjack Wind Farm. That is a similar-sized project off New Jersey, which was also first proposed by Deepwater Wind and now owned by Ørsted.

It is far below the 38 cents per kilowatt of the Block Island Wind Farm, the only offshore wind farm currently in operation in the United States.

The average cost for electricity in the United States is about 12 cents per kilowatt hour, according to the U.S. Energy Information Administration.

Last week, the New York State Energy Research and Development Authority announced that the state had signed contracts for two new wind farms, each with more than 100 turbines, that will start at a levelized price of 8 cents and 8.7 cents per kilowatt hour.
One of the projects, Sunrise Wind, will be built by Ørsted in the same area of ocean as the South Fork Wind Farm, about 30 nautical miles southeast of Montauk. The other, Empire Wind, will be built south of Jones Beach by Norwegian energy company Equinor.

The power purchase agreement for the South Fork Wind Farm is technically two separate contracts: one for the original 90 megawatts that Deepwater Wind had said the wind farm’s 15 turbines would produce when it first signed the deal with LIPA in 2017, and the other for the additional 40 megawatts the company revealed last year it can now be expected to produce, thanks to the availability of larger turbines.

The initial contract would start at 16 cents per kilowatt hour and the second contract at 8.6 cents per kilowatt. Both contracts have 2 percent annual rate increases built into them.
The New York State comptroller’s office has said the contract will ultimately pass along about $1.6 billion in costs to Long Island electricity customers.

The utility says that the electric bill impact for the average LIPA customer will be between $1.39 and $1.57 per month.

LIPA had been the target of fierce criticism and legal challenges for its concealment of the agreement’s pricing structure from public officials and critics of offshore wind in general, some of whom had said that concealing the contract’s details was intended to obscure high costs of renewable energy projects that were being advanced by political insiders for financial gain.

But Mr. Falcone said the utility was simply following prudent procedures since LIPA and New York State were both actively exploring additional contracts and did not want bidders to know what pricing had already been agreed to. He said that the full details of the contract had been fully vetted and cleared by the New York State comptroller’s office.

“If you were buying a car and you called three dealers and said you wanted to buy a Chevy Malibu, you wouldn’t want the three dealers to know the prices each quoted you,” he said.
“We’re regularly in the market for clean energy, and we’re regularly doing [requests for proposals], so just because we don’t select something in one round doesn’t mean we won’t see the same project in the next RFP — and you wouldn’t want the bidders to know what you did select [in the first round] for the next round.”

State Assemblyman Fred W. Thiele Jr., who had frequently called for LIPA to disclose the details of its agreement to its customers, said that he is glad the price has now been disclosed. But he said the delay was unnecessary and only served to sow distrust about renewable energy projects.

“There was absolutely no reason why LIPA could not have released this information regarding pricing at the time these contracts were executed over the past two years,” Mr. Thiele said on Tuesday. “Unfortunately, this lack of transparency has done substantial damage to gaining public trust for the extremely laudable goal of renewable energy.”

Mr. Falcone on Monday also defended the utility’s choice of the South Fork Wind Farm as a financially sound one for its ratepayers. He said that the project was chosen from more than 20 bids in response to a request for proposals to deliver more power to the South Fork, where load demand is projected to grow well beyond current capacity over the next decade.

The choice of the wind farm, which will deliver power directly into the South Fork grid, he said, allowed the utility to put off a more than $500 million extension of underground high-voltage transmission lines from west of the canal to East Hampton Town. While the additional transmission infrastructure is still forecast to be necessary, Mr. Falcone said, even delaying the need to embark on that costly project carries significant financial savings.

The LIPA chief also said the utility is far from done with its search for power from offshore wind farms. He said he expects the utility will be in the market for at least another 800 megawatts of power from wind farms, and possibly much more, in the coming decade. He said that only about 90 megawatts of the 1,700 megawatts of power that will be produced by the Sunrise and Empire wind farms is slated to be earmarked for LIPA customers.

Because of Long Island’s geographical limitations, offshore wind is the region’s only choice for large-scale renewable energy resources, he said.

As the scale of offshore wind development soars with each new project planned, the costs of the power from those projects will drop, Mr. Falcone said, and LIPA customers will see increasingly more cost-efficient power from renewables — to the point that by the 2030s, economic forecasts show offshore wind power in the U.S. will be cheaper than current “thermal” sources run off fossil fuels.

“We are thrilled that there is now a new source of downstate clean energy,” Mr. Falcone said. “We have a lot more to buy.

“What a great thing that New York State and our neighbors have made such a big commitment,” he added, noting that there are already contracts for 5,000 megawatts of offshore wind power and pledges by states along the East Coast for more than 20,000 megawatts. “It’s a significant savings for Long Island.”