Dive Brief:

Massachusetts electric utilities on Tuesday filed long-term contracts with state regulators to purchase 800 MW of offshore wind energy at $65/MWh, about half the price of the most recent offshore wind contracts signed in the U.S.

The group of utilities would pay the U.S.-record price for the energy and renewable energy credits (RECs) generated by the wind plant off Martha's Vineyard, while the project's owners will retain any capacity market payments. The most recent wind contract signed by a U.S. utility was in Maryland with a contract price of $132/MWh.​

Utilities including Eversource, Unitil, National Grid and NSTAR said buying renewable energy and RECs on the open market would likely cost $79/MWh, so the Martha's Vineyard project will save customers about $14/MWh. The state Department of Energy Resources also filed with regulators , endorsing the project and requesting its approval.

Dive Insight:

The U.S. has ample offshore wind capacity — 2,000 GW, by The Brattle Group's estimate — but until recently, high costs and the lack of robust policy support have kept the industry grounded.

The first U.S. offshore wind farm was commissioned in 2016, a 30 MW project off Rhode Island with a PPA price of $244/MWh. Maryland regulators approved two projects in May — a 248 MW U.S. Wind project expected to come online in 2020 and a 120 MW Deepwater Wind project expected to come online in 2022.

The Martha's Vineyard project, to be built by Avangrid and Copenhagen Infrastructure Partners, shows how quickly prices for the resource may drop as projects get larger. A 2016 Massachusetts law requires utilities to purchase 1,600 MW of offshore wind capacity in the next decade, so the 800 MW project will be, at most, half the capacity bought by Bay State utilities in the coming years.

If approved, utilities would pay $74/MWh for the first phase of the project and $65/MWh for the second phase, amounting to a levelized cost of $65/MWh in 2017 dollars, according to their filings.

The capacity market value of the plant may be between $5/MWh and $10/MWh, said Hannes Pfeifenberger, principal at The Brattle Group, bringing the total cost of the plant to about $80/MWh to $85/MWh in the first phase and $70/MWh to $75/MWh in the second phase.

The Martha's Vineyard price outpaced Brattle's recent predictions for offshore wind in the state, Pfeifenberger said in an email. The analysis firm estimated this project would likely cost between $90/MWh and $110/MWh.

The Massachusetts project is still more expensive than the most recent offshore wind contract signed in Germany, which hit $55/MWh, but that project did not include the cost of an offshore transmission connection, which is part of the Martha’s Vineyard project.

Offshore wind has attracted criticism for its cost even in renewable energy circles, with NextEra Energy CEO Jim Robo calling it a "terrible energy policy" in an earnings call this year.

The Martha's Vineyard PPA could help change that perception. The PPA cost is higher than the average price for onshore wind — which analysis firm Lazard pegs between $40/MWh and $60/MWh — but it is within the firm's range for natural gas plants, which it says cost between $48/MWh and $78/MWh.

Correction: An earlier version of this post incorrectly stated that the Martha's Vineyard project is to be developed by Deepwater Wind.