Renewable developers, pinched by inflation, to ask for increased subsidies

Jun 07, 2023

New York

The ask from the developers throws into question the state's pipeline of renewable energy projects.

Employees of NY State Solar, a residential and commercial photovoltaic systems company, install an array of solar panels on a roof, Aug. 11, 2022, in the Long Island hamlet of Massapequa, N.Y. | John Minchillo/AP Photo

By Marie J. French

06/05/2023 05:00 AM EDT

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ALBANY, N.Y. — Developers of new renewable energy projects in New York are poised to request bigger payouts for already-contracted projects the state is counting on to hit its climate targets.

A formal petition to the state's utility regulator, the Public Service Commission, is expected in the coming days from the Alliance for Clean Energy New York, which represents the industry, two officials familiar with the plan told POLITICO and were granted anonymity to discuss the case.

The request is expected to cite recent inflation and other challenges for projects that have already received contracts from NYSERDA and ask for an "inflation adjustment" — increased payments — for onshore renewables.

The ask from the developers throws into question the state's pipeline of renewable energy projects, which state officials have pointed to as evidence that New York is on track to reach 70 percent renewable energy by 2030.

"Although I can't confirm exactly what our strategy is going to be, it's true that inflation is affecting all renewable energy projects in New York and everywhere else, and our focus is to get projects to construction so there's an even cadence of construction jobs and moving towards the goals," said Anne Reynolds, executive director of the industry group.

"Our biggest concern is that if there is a significant lull in project construction, not only won't renewable energy projects be getting built, but also a big slug of projects later on will cause a lot of logistical problems and be difficult to manage and be more expensive."

The 70 percent mandate was set in the state's climate law passed in 2019, and the state began awarding contracts for new large-scale solar and wind developments even before that. But projects have faced significant hurdles in getting built including permitting and connections to the power grid.

A petition to the PSC for a price adjustment would set off a fraught debate over the state's renewable energy goals and costs to consumers.

Renewable developers say they are facing rising costs for the materials and services they rely on and are getting squeezed by higher interest rates as they go to finance projects.

Steel and transformer costs have increased more than 60 percent since 2018, according to federal data. Various reports have shown that the costs of solar and wind projects have risen recently, primarily driven by inflation and high input prices.

Higher interest rates also make it more difficult for developers to finance projects, increasing the return they need to generate to make a profit.

Efforts to expand renewable energy projects in New York face growing costs, raising concerns from the developers and an expected request for more state subsidies.|Drew Angerer/Getty Images

State policymakers are aware of the risks posed by inflation to New York's goals.

"Inflation remains stubbornly high. Inflation associated with clean energy is particularly troublesome," said John O’Leary, Gov. Kathy Hochul's deputy secretary for energy and environment at a City & State electrification conference earlier this week.

O’Leary cited the federal Inflation Reduction Act and Bipartisan Infrastructure Law as "tailwinds" against those concerns. But while those measures secured long-term certainty for tax credits for renewable energy and some bonuses for domestic content and other considerations, the industry still has concerns about rising costs.

The industry foreshadowed its concerns in a mid-December letter, exclusively reported by POLITICO, requesting an inflation adjustment from NYSERDA. The authority has not acted on that request, and going to the PSC would escalate the issue. It also signals developers may not move forward with contracted projects without some level of relief.

Offshore wind projects in the Northeast have also been facing inflationary pressures and pushing for revised contracts with bigger payouts. Tory Mazzola, a spokesperson for Orsted, which has a contract with NYSERDA for a 924 MW offshore wind project off Long Island, said discussions about macroeconomic factors continue.

"Sunrise Wind has been particularly impacted because it was agreed in 2019 right before high inflation, rising interest rates and increased supply chain costs took shape," he said. "We will continue to look for initiatives and approaches to help address these challenges as we continue building an American offshore wind industry and enabling investment and job creation across the State of New York."

The move will likely invigorate supporters of a measure to allow the New York Power Authority to finance and build large-scale renewables, who raised concerns about the private sector's ability to meet the state's climate targets. That proposal was included in the state budget deal passed earlier this year.

"There's no way New York State and the Public Service Commission should give greater incentives to private developers," said Aaron Eisenberg, a spokesperson for Public Power NY, the coalition that pushed for NYPA's role in renewables. "It is laughable that they would even ask. Now that the New York Power Authority can and will build renewable energy, private developers can no longer hold us hostage."

Utilities seeking the ability to build new renewables financed by ratepayers might also be galvanized by the industry's request.

Under the NYSERDA contracts, developers get "renewable energy credits" for the energy they generate. They earn other revenue from the electricity market. NYSERDA requires utilities and other load-serving entities to buy the credits generated, passing costs along to customers.

Renewable developers have already been insulated from risks that energy prices will drop, with changes to the original contract structure switching from a fixed price to an indexed price linked to the energy markets. Consumers are also protected to some degree because the subsidy declines if energy prices are higher than anticipated.

NYSERDA was directed by the PSC to begin awarding competitive contracts for new renewables in 2016 under the Clean Energy Standard, which had a goal of 50 percent renewable by 2030. The authority has since made awards for 120 renewable and transmission projects to support the even higher goal set in law.

But only about a dozen of those are currently operational. Despite that, the state has consistently said New York's existing and contracted projects are enough to hit 66 percent renewable by 2030.

Developers coming back to request higher prices than they were awarded over the past several years throws into question the viability of those projects.

NYSERDA spokesperson Kate Muller said the authority would review any petition filed with the PSC related to its work. The authority noted it has provided some flexibility to developers regarding security they’re required to post under contract terms.

"Due to the contractual nature of NYSERDA's relationship with the developers, NYSERDA has been in regular communication about the economic pressures they, and their supply chain partners, are facing considering inflation, commodity prices, financing costs and supply chain constraints," she said.

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