Alexander B. Stein. deputy general counsel             New York State Research and Development Authority, 
Photo courtesy NYSERDA

In recent years, the U.S. renewable energy sector has been hit by unforeseen and dramatic economic and supply chain developments affecting projects and their public-private partnerships with public offtakers like the New York State Energy Research and Development Authority.

The agency released in late 2023 a 10-point action plan—responding to project setbacks caused by unprecedented inflation, with a record-paced fourth solicitation for offshore wind and other measures to reset the pipeline of contracted renewable energy projects to meet state goals. 

As they get back on track, four lessons emerge for public and utility offtakers, as well as for developers, in designing agreements for capital intensive projects with long development cycle

Looking at Risk

First, a long period between signing an offtake contract when revenue is set and a final investment decision when costs are locked in boosts risk that a project becomes uneconomic or an offtaker “overpays” due to a priced-in risk premium.

NYSERDA seeks to shorten this with higher project maturity minimums for clean energy solicitations. It also is exploring other ways to address the mismatch for offshore wind. Developers should think before bidding too far in advance of locked-in costs, and regulators must continually push for shorter permit timelines. 

The gap between offtake signing and investment decision can sometimes be shortened, but offshore wind projects require setting offtake location and nature before many development decisions can advance—with more  pressure on thoughtful risk allocation.

Second, provisions in offtake contracts with pricing and schedule adjustments can save public funds by reducing risk premiums in developer bids. These also pay dividends by avoiding cancelled projects or renegotiated contracts if certain issues arise. Whether and how to revise a contract facing cancellation can be tough for public offtakers—setting a potential precedent for another developer to improve project terms at public expense.

Renegotiation can also raise fairness issues, particularly in competitive bidding where it could be argued that a different party might have better managed risks had it won the contract. 

Without that, the only option is ending the contract, which serves neither the developer nor the public.

In each solicitation, NYSERDA iterates and innovates risk allocation steps based on market conditions and stakeholder feedback, including energy and commodity price indexes, interconnection cost-based adjustments, deadline extensions and changes in law. 

Developers should continue to protect themselves by buying reasonably priced cost hedges and educating public offtakers on specific risks beyond their control. Offtakers can then build appropriate mechanisms into the contract before the next competitive bid process starts.

Project Changes: Handle With Care

Third, when projects are competitively awarded based on criteria other than just price, public procurement rules can put them at risk if developers change project characteristics from what was bid and contracted for. But they don’t always intuitively know how much flexibility there is to alter projects after bid submissions. This can cause delay if changed projects need new procurements, and no set rules address this clearly and efficiently.

Offtakers should seek market feedback on potential changes before launching a solicitation and design and communicate procurement rules to ensure competitive fairness while also providing developers with manageable flexibility. NYSERDA has itself further refined solicitations in this way. Developers should carefully review rules on post-bid project changes and seek clarifications from the procuring offtaker before bidding.

Last, a public infrastructure investment program is only as strong as its support from key stakeholders, including firms that build projects and communities that host them and gain benefits.

Offtakers must seek their input quickly when a surprising turn of events may threaten a project. After the unforeseen disruptions, NYSERDA, state partners and stakeholders collaborated quickly to adapt agency programs to new realities. Developers should add perspective on how partnerships can be designed to both serve the public interest and enable project success.

No procurement can predict all impacts, but thoughtful planning can boost project resilience, completion and benefit for the long term.