The Billion-Dollar Debate Splitting New York’s Renewable Energy Industry
Renewable energy developers are pushing for expanded subsidies that could add $5 to monthly electric bills. | Illustration: New York Focus
It's been the fight of the summer in renewable energy world. Will states shell out more cash to solar and wind developers who won contracts before pandemic-related inflation slammed their projects? Trade groups for the developers argue that the subsidy hikes are the only way to keep planned renewables afloat and get them built in time to meet rapidly approaching climate deadlines.
Others aren’t so sure. In a recent filing to New York regulators, one commenter dismisses the renewable energy lobby’s premise as “demonstrably false” and says the requested hikes would impose “artificially high” costs on ordinary New Yorkers.
It’s a familiar argument, echoing those made by manufacturers that often spar with climate hawks over clean energy costs. Except this time, the opposition is coming from a developer itself — and a member of the very trade group it’s arguing against.
AES, a major energy company that owns utilities, power plants, and renewables around the world, is one of the biggest wind and solar companies operating in New York. It owns roughly a third of the state’s existing wind farms, and says it has more than two gigawatts’ worth of new wind, solar, and storage on the way. Like many of its competitors, it’s a member of the Alliance for Clean Energy (ACE) New York, which serves primarily as a trade group for renewable developers, though it also counts environmental advocates and others among its ranks.
In June, alongside two offshore wind developers, ACE filed a petition with state energy regulators seeking to increase the price of energy from dozens of onshore renewable projects awarded contracts between 2017 and 2021. Together they amount to roughly 80 percent of new onshore renewables the state has contracted to date, making up a major pillar of the state’s plans to transition off fossil fuels.
Each state contract guarantees that energy from the planned wind and solar farms will be bought at a certain price once they’re up and running. But ACE says the projects are no longer viable at the agreed-on prices. The group blames “skyrocketing, unpredictable” price spikes that have outpaced economy-wide inflation, with supply-chain shocks hitting steel and cement, wind turbine blades and high-voltage transformers; interest rates making it more expensive to finance projects; and surging global demand for renewables. Rather than renegotiating projects one by one, it wants to apply a single “adjustment” formula to all 86 projects, which would increase the final prices by anywhere from 43 to 73 percent.
That would add billions more dollars to New Yorkers’ electric bills. ACE’s consultants themselves estimate the total costs at $5.8 billion over 20 years. The projected increases from offshore wind are far steeper still; the group Multiple Intervenors, which represents major corporate energy users, estimates them at $18 billion across four projects. And transmission developers are trying to get in on the action too, including the companies behind Clean Path — which will bring power from new upstate wind and solar to New York City — and the Champlain Hudson Power Express, which will bring in Canadian hydropower.
The state energy authority NYSERDA estimates that meeting ACE’s demands alone would add about $1.60 to the average New Yorker’s bill every month. Add in the offshore wind hikes, and electric customers could be looking at close to $5 more per month, on top of the commitments the state has already made.
“The numbers are daunting, and we are certainly concerned about the cost,” said Anne Reynolds, ACE’s executive director. But until the state implements new climate funding, it has little choice but to fund its legally binding renewable energy targets through utility bills. “The salient question is, is this proposed solution more cost effective than the alternative solutions? That’s what [regulators] need to examine,” Reynolds said.
ACE, of course, maintains that it is. Environmental advocates and two major labor unions have taken its side, despite some hesitation over the details.
AES, the developer, is skeptical. It’s siding with New York’s utility companies and major energy users, and against its peers, asking the New York Public Service Commission (PSC) to reject the trade group’s requested inflation adjustment and let contracted projects sink or swim. Those that sink, it argues, can simply be put out to bid again. AES contends that this wouldn’t stop New York from reaching its target of 70 percent renewable energy by 2030, because the projects that fail may never have been viable in the first place, and could be replaced by more promising ones in time to meet the goal.
The company has a potential business interest at stake: If projects are canceled and NYSERDA puts them back out to bid, AES would get a shot at them. And although it’s squarely in the minority, it’s not the only ACE member objecting to the inflation petitions. Rise Light and Power, which is seeking to turn its massive Queens power plant into a renewable energy hub, is pushing back on the full gamut of petitions. Its interest in the matter is also clear: Rise lost the bid for the major contract that went to Clean Path New York and is also seeking a stake in the highly selective offshore wind buildout. It’s eager for another shot at both. (AES declined to comment for this story, citing the sensitivity of the pending petitions. Rise did not make someone available for an interview.)
The push for higher payouts has also drawn skepticism from proponents of public power, who spent years arguing that reliance on private developers and their profit margins put New York’s energy transition on a shaky footing. Now, the same developers who swore last year that they had more than enough projects in the pipeline to meet the state’s climate targets are warning that those targets will be in jeopardy if they don’t get the higher prices they’re asking for.
The fight has exposed serious growing pains for renewables just as New York’s energy transition should be ramping into high gear. And it has seen some developers airing their gripes with the state’s approach in ways that they rarely do in public.
Developers agree on some of the core obstacles to the state’s renewable energy buildout: delays in permitting and interconnection, and a shortage of contractors needed for sophisticated projects. But AES also raises another question: Is there a flaw in the way the state’s contracts are handed out in the first place?
Unlike most other states, New York relies heavily on government contracts to build renewables: The state issues annual solicitations for wind and solar projects, and guarantees the winners that the energy they produce will be bought at a set price. Like most public bodies in New York, NYSERDA is practically required to pick whichever developer offers the lowest price. (Pricing accounts for 70 percent of the authority’s contracting decisions, while “project viability” accounts for only a small fraction.)
AES contends that this incentivizes developers to put in artificially low bids, before doing the due diligence to confirm that their project is actually viable at the amount they’ve promised. Once they do more of the legwork and find out, for example, that it’s going to cost more than they expected to connect to the grid, the project stalls.
Adding to this concern, New York’s renewable contracts require relatively small security deposits, meaning that developers don’t face much of a penalty if they back out of a project. AES points out that Arizona requires deposits roughly four times higher, and the state’s major utilities note that Massachusetts significantly stepped up the required deposit in its latest offshore wind solicitation.
NYSERDA has said it is reconsidering its requirements for future solicitations, and that — if the PSC approves any price hikes for already contracted projects — it might be fair to ask those developers for bigger security deposits in exchange.
Reynolds is skeptical that asking developers for more money will solve any problems. Hiking security deposits would only add to project costs, she said. And she dismissed the idea that developers have an incentive to underbid, noting that they only get paid if projects actually get built.
Reynolds also scoffed at the idea that ditching planned projects and asking developers to rebid for the same slots could speed things up. It typically takes six or seven years to go from bid to construction, she said. “To think that, oh, all these 86 projects could get canceled and start again, and it wouldn’t cause delay — it’s just malarkey.”
AES estimates that 12 of the 40 large-scale projects in the group could go ahead without any hike in subsidies. But it’s hard for outside observers to judge just how necessary the subsidies are to keep the projects afloat, because the ACE developers have not submitted any project-level financial information for public review. That has frustrated parties like New York City, which has slammed ACE’s calls for a blanket price hike and is asking the PSC to approve only “targeted relief” to developers who can prove they’ve made a good-faith effort to build their projects.
“Neither the extraordinary circumstances surrounding the covid pandemic nor the compelling interest in achieving the [state’s climate goals] justify reopening the … contracts to enrich the developers and their investors,” the city wrote.
ACE maintains that a project-by-project review would be too onerous given the urgency of the state’s climate mandate, but Reynolds said some members have privately submitted individual data to the PSC. The only other party with such cards in hand is NYSERDA, which has access to the latest round of bids. Josh Berman, an attorney at the Sierra Club, says this should give it pretty good insight into what prices are needed to sustain a project today.
The authority has said that “a price adjustment of some degree … could be warranted” and laid out a number of possible paths forward. It has also warned of a “significant risk” that re-procuring projects could be pricier than stepping up subsidies for existing ones — backing up ACE’s core argument. But it has declined to recommend any one approach in particular.
The industry is putting pressure on the state to make up its mind. PSC’s next meeting is in mid-October, and ACE wants to see a decision then. Whether it does so then or later this fall, the commission once again finds itself holding the wheel as New York hits a crossroads for the renewable energy transition.
Will it attach conditions to any price hikes? And if so, which? (ACE has already conceded that it is willing to accept stricter deadlines and labor standards, for example.)
Will it reject the petitions altogether, perhaps with the expectation that the newly empowered New York Power Authority could take over projects that private developers drop?
Even a significant subsidy hike wouldn’t guarantee that all the projects get built. The risks are particularly acute for offshore wind, which is pivotal to New York’s climate plans and is facing unique supply chain hurdles. As turbines get bigger, for example, the consulting firm Wood Mackenzie notes that the world is running out of ships big enough to carry them; it expects two-thirds of current ships to be obsolete by 2030. Surmounting the looming obstacles will require a surge in investment starting now, the firm says. But some developers are already backing down: In the United Kingdom, the most recent offshore wind auction drew no bids because the prices on offer were too low.
It’s been enough to sour the mood of even some of the industry’s biggest boosters.
“Have you read any good news about renewable energy in the last few months?” Reynolds asked.