The Vineyard Wind Power Purchase Agreement: Insights for Estimating Costs of U.S. Offshore Wind Projects

This report analyzes the power purchase agreements (PPAs) between Massachusetts electric distribution utilities (EDC) and Vineyard Wind LLC filed on July 31, 2018, and derives insights for estimating cost of U.S. offshore wind systems and broader cost modeling activities. The documented price for delivery of offshore wind generation and renewable energy certificates under the Vineyard Wind/electric distribution utilities PPA is 74 $/megawatt-hour (MWh) (2022$) for facility 1 (400 MW) and 65 $/MWh (2023$) for facility 2 (400 MW). However, this PPA price does not comprise the complete set of expected revenue sources and tax benefits available to the Vineyard Wind LLC project. A comprehensive accounting of expected revenue sources inclusive of those that are exogenous to the reported PPA is conducted in this study to estimate the project's levelized revenue of energy (LROE). This allows for a more equivalent comparison of the PPA pricing with bottom-up modeled (unsubsidized) levelized cost of energy (LCOE) estimates. LROE from the Vineyard LLC/EDC PPA is estimated to be 98$/MWh (2018$). This LROE estimate for the first commercial-scale offshore wind project in the United States appears to be within the range of LROE estimated for offshore wind projects recently tendered in Northern Europe with a start of commercial operation by the early 2020s. This suggests that a cost and risk premium for the initial set of U.S. offshore wind projects may be less pronounced than anticipated by many industry observers and analysts.