Alexander B. “Alex” Stein
Photo courtesy of Alexander Stein
In recent years, the U.S. renewable energy sector has been affected by dramatic unforeseen economic and supply chain developments affecting projects and their public-private partnerships with public buyers such as the Research Authority and New York State Energy Development.
The agency released a 10-point action plan in late 2023, responding to project setbacks caused by unprecedented inflation with a fourth request for a record pace for offshore wind and other measures to restore the portfolio of renewable energy projects contracted to achieve state goals. As they get back on track, four lessons emerge for public and utility buyers, as well as developers, in designing deals for capital-intensive projects with long development cycles.
First, a long period between the signing of a procurement contract when revenues are established and a final investment decision when costs are locked in increases the risk that a project will become uneconomic or that a buyer will “pay in excess” due to a valued risk premium.
NYSERDA seeks to shorten this with higher project maturity minimums for clean energy applications. It is also exploring other ways to address the offshore wind mismatch. Developers should think twice before bidding too much ahead of locked-in costs, and regulators should continually push to reduce permit timelines. The gap between dam signature and investment decision can sometimes be shortened, but offshore wind projects require establishing the location and nature of the dam before many development decisions can move forward, putting more pressure on the thoughtful risk allocation.
Second, procurement contract provisions with price and schedule adjustments can save public funds by reducing risk premiums in developer bids. These also pay dividends by avoiding canceled projects or renegotiated contracts if certain problems arise. Whether and how a contract facing cancellation is reviewed can be difficult for public buyers, setting a potential precedent for another developer to improve the terms of the project at public expense.
Renegotiation can also raise fairness issues, particularly in competitive tenders where it could be argued that a different party could have better managed the risks if it had won the contract. Without this, the only option is to terminate the contract, which serves neither the developer nor the public.
In each application, NYSERDA iterates and innovates risk allocation steps based on market conditions and stakeholder feedback, including energy and commodity price indices, adjustments based on interconnection costs, term extensions and changes in the law. Developers should continue to protect themselves by purchasing reasonably priced cost coverage and educating public buyers about specific risks beyond their control. Buyers can then incorporate the appropriate mechanisms into the contract before the next competitive bidding process begins.
Third, when projects are awarded competitively based on criteria other than price alone, public procurement rules can put them at risk if promoters change the project’s features from what was tendered and contracted . But they don’t always intuitively know how much flexibility there is to modify projects after bidding. This can cause delays if modified projects require new procurement, and there are no established rules that deal with this clearly and efficiently.
Buyers should seek market feedback on potential changes before launching a solicitation and design and communicate procurement rules to ensure competitive fairness while providing developers with manageable flexibility. NYSERDA has further refined applications in this way. Developers should carefully review the rules on post-bid project changes and seek clarification from the contractor before bidding.
Finally, a public infrastructure investment program is only as strong as its support from key stakeholders, including the companies that build projects and the communities that host and benefit from them. Buyers must seek their input quickly when a surprising turn of events can threaten a project. Following the unforeseen disruptions, NYSERDA, state partners, and stakeholders worked quickly to adapt agency programs to the 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 careful planning can increase project resilience, completion and long-term benefits. ■
Alexander B. “Alex” Stein, Deputy General Counsel of the New York State Research and Development Authority, can be reached at alexander.stein@nyserda.ny.gov
