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Laboratory (NREL) at www.nrel.gov/publications.

Contract No. DE-AC36-08GO28308

Technical Report

NREL/TP-5000-72981

February 2019

The Vineyard Wind Power Purchase 

Agreement: Insights for Estimating 

Costs of U.S. Offshore Wind Projects

Philipp Beiter, Paul Spitsen, Walter Musial, and Eric Lantz

National Renewable Energy Laboratory
NREL is a national laboratory of the U.S. Department of Energy

Office of Energy Efficiency & Renewable Energy

Operated by the Alliance for Sustainable Energy, LLC

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Laboratory (NREL) at www.nrel.gov/publications.

Contract No. DE-AC36-08GO28308

National Renewable Energy Laboratory

15013 Denver West Parkway

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303-275-3000 • www.nrel.gov

Technical Report

NREL/TP-5000-72981

February 2019

The Vineyard Wind Power Purchase 

Agreement: Insights for Estimating 

Costs of U.S. Offshore Wind Projects

Philipp Beiter, Paul Spitsen, Walter Musial, and Eric Lantz

National Renewable Energy Laboratory

Suggested Citation

Beiter, Philipp, Paul Spitsen, Walter Musial, and Eric Lantz. 2019. The Vineyard Wind 

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

Golden, CO: National Renewable Energy Laboratory. NREL/TP-5000-72981.

https://www.nrel.gov/docs/fy19osti/72981.pdf.
NOTICE

This work was authored by the National Renewable Energy Laboratory, operated by Alliance for Sustainable 

Energy, LLC, for the U.S. Department of Energy (DOE) under Contract No. DE-AC36-08GO28308. Funding 

provided by the U.S. Department of Energy Office of Energy Efficiency and Renewable Energy Wind Energy 

Technologies Office. The views expressed herein do not necessarily represent the views of the DOE or the U.S. 

Government.

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Cover Photos by Dennis Schroeder: (clockwise, left to right) NREL 51934, NREL 45897, NREL 42160, NREL 45891, NREL 48097, 

NREL 46526.

NREL prints on paper that contains recycled content.
iii

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Acknowledgments

We thank the following individuals for their thoughtful reviews, comments, and suggestions: 

David Feldman, Paul Schwabe (National Renewable Energy Laboratory [NREL]), and Lena 

Kitzing (Technical University of Denmark). The authors would like to extend thanks to Dan 

Beals, Alana Duerr, Patrick Gilman, Gary Norton, and Rich Tusing from the U.S. Department of

Energy Wind Energy Technologies Office for supporting and reviewing this research. Any 

remaining errors or omissions are the sole responsibility of the authors. Editing was provided by 

Sheri Anstedt (NREL).
iv

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List of Acronyms and Abbreviations

AEP annual energy production

CapEx capital expenditures

DOE U.S. Department of Energy

DOER Massachusetts Department of Energy Resources

EDCs electric distribution companies

EF escalation factor

ITC investment tax credit

LCOE levelized cost of energy

LROE levelized revenue of energy

MW megawatt

MWh megawatt-hour

NREL National Renewable Energy Laboratory

OREC offshore renewable energy credit

PPA power purchase agreement

PV present value

REC renewable energy credit

UCAP unforced capacity

WACC weighted average cost of capital
v

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Executive Summary

This report analyzes the power purchase agreements (PPAs) between Massachusetts electric 

distribution companies (EDCs) and Vineyard Wind LLC filed on July 31, 2018. The analysis is 

intended to derive insights for estimating cost of U.S. offshore wind systems and to inform 

broader cost modeling activities. The documented first-year price for delivery of offshore wind 

generation and renewable energy certificates under the Vineyard Wind/EDC PPA is 

$74/megawatt-hour (MWh) (2022$) for facility 1 (400 megawatts [MW]) and $65/MWh (2023$) 

for facility 2 (400 MW). This first-year PPA price, however, does not reflect the entire 20-year 

PPA price schedule or the complete set of expected revenue sources and tax benefits available to 

the Vineyard Wind LLC project. An extensive accounting of the PPA price schedule and 

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 reported PPA pricing with bottom-up modeled (unsubsidized) 

levelized cost of energy (LCOE) estimates. The reader should note that this analysis solely 

reflects the opinions of the authors and was conducted independently of the ongoing evaluation 

by the Massachusetts Department of Energy Resources of the PPA between Vineyard Wind LLC 

and Massachusetts electric distribution companies as filed on July 31, 2018. The analysis and 

conclusions described herein do not reflect actual cost data, which are confidential to Vineyard 

Wind and its partners. 

The total calculated 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 the expected cost and risk premium for the initial set of U.S. offshore wind projects 

might be less pronounced than anticipated by many industry observers and analysts.

A series of adjustments were made to convert the Vineyard Wind/EDC PPA price point to 

LROE. The adjustments to Vineyard Wind/EDC’s price point account for investment tax credit 

benefits to the project and expected revenue sources outside of the PPA, such as revenue from 

the ISO-NE Forward Capacity Market. The report also explores several sensitivity cases and 

broadly discusses the Vineyard Wind price point in context of other offshore wind cost analyses. 

The assumptions made in this report about the PPA contract pricing should be further validated 

as more information about the Vineyard Wind project becomes available. The calculations in this 

report also reflect a first-order deterministic scenario that does not capture the inherent 

uncertainty of many of the parameters considered (e.g., future revenue from wholesale and 

capacity markets).
vi

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Table of Contents

Acknowledgments ..................................................................................................................................... iii

1 Introduction........................................................................................................................................... 1

2 Analysis of the Vineyard Wind PPA and Estimated Levelized Revenue of Energy....................... 3

3 Sensitivity Analysis.............................................................................................................................. 9

4 Discussion and Conclusions ............................................................................................................ 11

References................................................................................................................................................. 14

Appendix A ................................................................................................................................................ 17

A-1. Levelized Cost of Energy and Levelized Revenue of Energy Equations.................................... 17

Levelized Cost of Energy (LCOE).............................................................................................. 17

Levelized Revenue of Energy (LROE) ....................................................................................... 17

Annual Energy Production (AEP)............................................................................................... 17

A-2. Financing Assumptions................................................................................................................ 18

Appendix B ................................................................................................................................................ 19

B-1. Vineyard Wind/Electric Distribution Companies Power Purchase Agreement Price Schedule... 19
vii

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List of Figures

Figure 1. Sensitivity analysis of LROE to variations in ITC, capacity payment, WACC, AEP 

degradation, and 5-year merchant revenue. ..................................................................... 10

Figure 2. Adjusted prices from European offshore wind auctions including the Vineyard Wind 

project. .................................................................................................................................. 12

List of Tables

Table 1. Vineyard Wind LLC/EDC PPA Contract Terms and Project Information ................................ 3

Table 2. Analysis Steps to Calculate LROE from the Vineyard Wind Power Purchase Agreement... 7

Table 3. ITC Phase-Down Rate Schedule ................................................................................................. 8

Table A-1. Financing Assumptions for Weighted Average Cost of Capital under consideration of 

the ITC election..................................................................................................................... 18

Table A-2. PPA Price Schedule................................................................................................................ 19
1

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1 Introduction

The pace of offshore wind capacity procurement in the United States accelerated during 2017-

2018 with four projects being awarded offshore wind renewable energy certificates (US Wind 

Maryland project, Deepwater Wind1 Skipjack project) or a power purchase agreement (PPA)

(Deepwater Wind South Fork project) (Beiter et al. 2018b). In Massachusetts, electric 

distribution companies (EDCs) entered into PPAs2 for offshore wind generation and renewable 

energy certificates with Vineyard Wind LLC (hereafter referred to as “Vineyard Wind/EDC 

PPA”) for a total capacity of 800 megawatts (MW) on July 31, 2018. This report provides a firstorder assessment of this long-term contract to contextualize the Vineyard Wind/EDC PPA 

pricing point, interpret it in terms of levelized revenue of energy (LROE), and generate insights 

and validation for bottom-up cost modeling, including ongoing analysis efforts at the National 

Renewable Energy Laboratory (NREL).

The first-year PPA price for delivery of offshore wind generation and renewable energy 

certificates for the Vineyard Wind LLC project is $74/megawatt-hours (MWh) ($2022)3 for 

facility 1 (400 MW) and $65/MWh ($2023) for facility 2 (400 MW). The PPA (and first-year

PPA price), however, does not reflect the entire 20-year price schedule or the complete set of 

expected revenue sources and tax benefits available to the Vineyard Wind LLC project. An 

extensive accounting of the 20-year price schedule and expected revenue sources and tax 

benefits inclusive of those that are exogenous to the PPA is conducted in this study to estimate 

the project’s LROE. This metric allows for a more accurate comparison with (unsubsidized) 

bottom-up levelized cost of energy (LCOE) estimates than comparing with the PPA price alone.

The reader should note that this analysis solely reflects the opinions of the authors and was 

conducted independently of the ongoing evaluation by the Massachusetts Department of Energy 

Resources (DOER) of the PPA between Vineyard Wind LLC and Massachusetts electric 

distribution companies as filed on July 31, 2018. As such, the analysis and conclusions described 

herein do not in any way reflect actual cost data, which are confidential to Vineyard Wind LLC 

and its partners. 

The long-term contractual agreement between Vineyard Wind LLC and Massachusetts EDCs 

was made against the backdrop of declining pricing in recent European offshore wind tenders 

and past offshore wind awards that were made in the United States. The first PPA in the United 

States was signed in 2010 for the 30-MW Block Island Wind Farm between Deepwater Wind 

and National Grid. The contract duration is 20 years, with a starting price of $244/MWh and a 

3.5% annual escalation factor. Subsequent commercial projects include the 90-MW South Fork 

project (reported PPA price of $160/MWh with the Long Island Power Authority), the 120-MW 

Skipjack project (Maryland offshore renewable energy credit [OREC] of $132/MWh), and the 

 

1 Deepwater Wind was acquired by Ørsted on October 8, 2018.

2 Separate (but identical in its content) PPAs for facility 1 and facility 2 were filed for approval by the Massachusetts 

Department of Public Utilities pursuant to Section 83C of an Act Relative to Green Communities between Vineyard 

Wind LLC and NSTAR Electricity Company (d/b/a Eversource Energy), Massachusetts Electric Company and 

Nantucket Electric Company (d/b/a National Grid), and Fitchburg Gas and Electric Light Company (d/b/a Unitil)

(D.P.U. docket number 18-76/18-77/18-78). 3 All dollars are reported in $2018, unless indicated otherwise.
2

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248-MW US Wind project (Maryland OREC of $132/MWh).4 European tender strike prices for 

large-scale commercial projects commencing commercial operation in the early- to mid-2020s 

fall between $76/MWh and $88/MWh, after adding export-system transmission costs and 

adjusting for the same contract length. LCOE estimates for projects in the northeastern United 

States commencing operations in the same period ranged from approximately $120/MWh to 

$160/MWh (see e.g., Beiter et al. 2017; Kempton, McClellan, and Ozkan 2016; Harries 2018;

NREL 2018). 

Section 2 provides context for the PPA between Vineyard Wind LLC and Massachusetts EDCs 

and estimates the project’s LROE. Section 3 presents a limited set of sensitivities. Section 4 

provides conclusions and discusses the Vineyard Wind project price point in the context of 

offshore wind cost reduction estimates.

 

4 Note that any of these projects may capitalize on the federal investment tax credit if they can commence physical 

work of a significant nature on the facility or by incurring at least 5% of the total cost of the facility under the 

timeline prescribed by the ITC (see Section 2 for further discussion).
3

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2 Analysis of the Vineyard Wind PPA and Estimated 

Levelized Revenue of Energy

As required by Chapter 188 of the Acts of 2016 “Section 83C Offshore Wind Generation,” the 

DOER issued a competitive solicitation for offshore wind generation on June 29, 2017 (DOER 

2017). Vineyard Wind LLC was selected by DOER to enter into negotiations with Massachusetts 

EDCs for a long-term generation contract on May 23, 2018. On July 31, 2018, Vineyard Wind 

LLC and the Massachusetts EDCs submitted a 20-year PPA for 800 MW of offshore wind 

generation and renewable energy certificates to the Massachusetts Department of Public Utilities 

for review and approval. The Vineyard Wind/EDC PPA establishes a contract for procurement of 

electricity from two 400-MW facilities that enter commercial operation in 2022 (facility 1) and 

2023 (facility 2), respectively, at a specified pricing schedule (Massachusetts Department of 

Public Utilities 2018a, 2018b). 

Key parameters of the Vineyard Wind/EDC PPA, including the first-year PPA price, and project 

filings from Vineyard Wind’s Draft Environmental Impact Assessment (Vineyard Wind 2018a), 

construction operation plan (Vineyard Wind 2018b), and the independent evaluator report 

(Peregrine Energy 2018) are shown in Table 1. 

Table 1. Vineyard Wind LLC/EDC PPA Contract Terms and Project Information

Vineyard Wind LLC/EDC PPA Contract Terms5

PPA 1 PPA 2 Notes Source

Capacity (MW) 400 400 N/A a, b

Commercial operation 

date

January 15, 

2022

January 15, 

2023

N/A a, b

Delivered product Energy and RECs N/A a, b

First-year PPA price 

($nominal/MWh)

74 $2022/MWh 65 $2023/MWh N/A a, b

PPA duration (years) 20 N/A a, b

Escalation factor (%) 2.5 N/A a, b

Vineyard Wind LLC Project Filings

Wind speed (meters 

per second) 9.3 Simple average of the entire Vineyard Wind lease area c

Net capacity factor 

(%) 45

Average capacity factor reported by 

Vineyard Winds; assumed to be net 

capacity factor (not clear from Peregrine 

Energy [2018])

d

Average water depth 

(meters [m]) 42

The construction and operation plan

indicates water depths in the northern half 

of the lease area range from 35 m to 49 m;

42 m is the simple average 

d

Substructure type Monopiles

Vineyard Wind has indicated that it prefers 

to use monopiles but could deploy jackets 

for up to 400 MW of capacity depending on 

seafloor conditions

d

 

5 These terms are derived from the PPA contract between NSTAR ELECTRIC COMPANY d/b/a EVERSOURCE 

ENERGY and Vineyard Wind LLC; similar contract terms apply to the other EDC parties that have separate 

contracts with Vineyard Wind LLC. 
4

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Vineyard Wind LLC Project Filings

Turbine rating (MW) 8 Turbine rating will range between 8 MW and

10 MW6 d

Export cable length 

(kilometers) [km] 69.2

Generator lead line proposal selected by 

Buyer (Vineyard Wind LLC procures all 

cables from turbine to point of 

interconnection); point of cable landfall: 

New Hampshire Ave

e

Onshore cable length 

(km) 9.65

Generator lead line proposal selected by 

Buyer (Vineyard Wind LLC procures all 

cables from turbine to point of 

interconnection); interconnection point: 

Barnstable

e

Operation and 

maintenance port 

distance (km)

60 Operation and maintenance port: Vineyard 

Haven d

Installation port 

distance (km) 92 Installation port: New Bedford Commerce Terminal d

Investment tax credit

(ITC) (%) 18 18

Assumes safe harbor provision through 

expense of 5% of the overall project cost by 

the end of 2018; according to National Grid, 

Vineyard Wind LLC “intends to qualify all 

800 MW for the 18% ITC [...] by treat[ing] 

all 800 MW as a single project.” (Peregrine 

Energy 2018)

f

Note: “Buyer” refers to Massachusetts EDCs; “seller” refers to Vineyard Wind LLC.

a Massachusetts Department of Public Utilities (2018a)

b Massachusetts Department of Public Utilities (2018b)

c Musial et al. (2017)

d Vineyard Wind (2018b)

e Vineyard Wind (2018a)

f Peregrine Energy (2018).

In this analysis, Vineyard Wind LLC’s estimated LROE is used as a proxy metric for the 

project’s levelized cost of energy LCOE (see Appendix A for general equations) because cost 

data from the company are not publicly available. In previous offshore wind cost analyses

conducted by NREL (e.g., Beiter et al. 2017, 2016; Musial et al. 2016), LCOE was estimated 

without consideration for tax incentives such as the investment tax credit (ITC) or the production 

tax credit (PTC) but inclusive of benefits from accelerated depreciation (e.g., the Modified 

Accelerated Cost Recovery System [MACRS]). The LROE represents an estimate of the 

discounted revenue of a project during its lifetime, presented in levelized ($/MWh) terms.7 In a 

perfectly competitive electricity market, the LROE can be expected to approximate the LCOE 

because the sum of project revenues (i.e., the LROE) needs to meet total project expenditures 

 

6 Note that on November 27, 2018, Vineyard Wind LLC named MHI Vestas as the preferred turbine supplier with 

the intent to procure the V164-9.5 MW turbine (MHI Vestas 2018). 7 The LCOE also can be thought of in revenue terms. The LCOE is the revenue required per unit of energy to cover 

all expenditures and to meet a rate of return on investment. Conversely, LROE captures the revenue available per 

unit of energy (e.g., under a contract regime and market structure). In this analysis, LROE also includes the value 

from tax benefits (such as the ITC, for example) for comparison with unsubsidized LCOE.
5

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(i.e., the LCOE) (both inclusive of a rate of return) over the lifetime of the project.8 To enable 

direct comparison with (unsubsidized) LCOE estimates, an extensive first-order accounting of 

revenue sources and financial adjustments was conducted. Beyond the compensation for 

provision of energy and renewable energy certificates (RECs) as documented in the 

Massachusetts Department of Public Utilities (2018a and 2018b), the project is expected to 

generate value and revenue from tax benefits and the ISO-NE Forward-Capacity market. These 

value and revenue sources are exogenous to the documented PPA price. The value from 

accelerated depreciation (e.g., under the MACRS schedule) is not considered for estimating the 

LROE in this analysis because it is commonly already accounted for in the LCOE (Beiter et al. 

2016; Musial et al. 2016). 

To estimate LROE for the Vineyard Wind LLC project, the following steps were implemented in 

a simplified cash-flow model9 (Table 2):

• Step 0 (“First-year PPA price”) represents the negotiated Vineyard Wind LLC/EDC firstyear PPA price for facility 1 (400 MW) and facility 2 (400 MW) from the PPA price 

schedule (Massachusetts Department of Public Utilities 2018a, 2018b).

• Step 1 (“Revenue from electricity and REC sales”) calculates the present value (PV) (in 

2021 and 2022) of the products delivered under the PPA, electricity, and RECs using the 

PPA price schedule (Appendix B) and a simplified cash-flow model representation with a 

discount rate of 7%, equal to the estimated weighted average cost of capital (WACC) (see 

Appendix A-2 for “mid” case WACC assumptions): 

PPPP oooo PPPPPP rrrrrrrrrrrrrr � $

MMMMh

� = �∑ (EEEEEEEEEEEEEEEEEEEEEE PP tt + RR RR pp tt) × AA

(1+ )tt

TT=20 =1 � ×

1

∑ AAAAAA

(1+WW WWWW)tt

TT=20 tt=1

where

EEEE EEEE EEEEEEEEEE PP : AA AA PPPPPP pp ss h

RR RR PP : AA AA PPPPPP pp ss h

WACC (nominal) = 7.0%

AA pp = 8,760h × 45% × 400 MMMM (see Table 1)

This step yields a starting LROE of $89/MWh ($2021) for facility 1 and $79/MWh ($2022) 

for facility 2.

• Step 2 (“Value of the ITC”) accounts for the project’s reported intent to utilize the 18% 

federal ITC.10 This ITC rate could be leveraged by the project if it commences “physical 

 

8 Note that the negotiated price schedule in the Vineyard Wind PPA provides revenue certainty to the project, which 

has become less common among recently tendered offshore wind projects in Europe, which increasingly face higher 

merchant price risk (Beiter et al. 2018). 

9 For simplification purposes, end-of-year cash flows were assumed in this study (versus e.g., mid-year cash flows). 10 Election of the ITC requires a reduction of the eligible (depreciable) cost basis for the MACRS equal to 50% of 

the value of the tax credit (Schwabe et al. 2017). Given the broader monetization uncertainties analyzed in this 

report, the impact from a reduction in the MACRS cost basis was not considered. 

(1)
6

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work of a significant nature” on the facility or by incurring at least 5% of the total cost of the 

facility before January 1, 2019 (Deloitte 2017). The value of the ITC for the Vineyard Wind 

LLC/EDC PPA at t=0 is calculated by:

IIII � $

MMMMh

� =0 = II rr × CC ×

∑ AAAAAA

(1+WW WWWW)tt

TT=20 tt=1

where

IIII = 18% (see Table 1)

ee = $3,500/kk

= 400 MMMM

= 8,760h × 45% × 400 MMMM (see Table 1)

= 7%

The capital expenditures (CapEx) of $3,500/kilowatt (kW) was sourced from Bloomberg 

New Energy Finance (2018) for the prevailing average CapEx for offshore wind projects in 

Europe.11 A nominal WACC of 7% was assumed as the discount rate, which reflects current 

offshore wind financing conditions and a debt-to-equity ratio that is amendable to leveraging 

tax incentives (i.e., the ITC) (Appendix A-2, Table A-1). The incremental value of the ITC 

was estimated to be approximately $15/MWh.

• Step 3 (“Revenue from the sale of capacity”) adds potential project revenue from 

participation of the Vineyard Wind LLC project in ISO-New England’s Forward Capacity 

Market. The sale of capacity rights for the project’s own account without revenue crediting to 

Massachusetts EDCs is permitted under the PPA (Massachusetts Department of Public 

Utilities 2018a, 2018b) (i.e., revenue is exogenous to the PPA price schedule). Revenue from 

the sale of capacity was estimated by:

PPPP oooo rrrrrrrrrrrrrr � $

MMMMh

� = ∑ pp mm mm tt × (1+EEEE)tt × UU ×

(1+ )tt

TT=20 =1

where 

pp pp = $5/kk − h = $60,000/MMMM −

EE EE EE EEEE (EEEE) = 2.5% (consistent with Vineyard Wind/EDC PPA escalation factor)

= 7%

UU (UU ) = 38%

= 400 MMMM

The capacity payment over the 20-year project life was determined by estimating the simple 

capacity price average from ISO-New England’s 2010/2011 to 2020/2021 Forward Capacity 

Market. To account for the facility’s credited firm capacity delivery, an unforced capacity 

(UCAP) percentage of 38% was assumed. This UCAP value for offshore wind is derived 

from New York Independent System Operator (2018). An escalation factor (EF) of 2.5% is 

assumed, consistent with the EF for the PPA revenue from the sale of electricity and RECs. 

 

11 Note that for land-based wind projects, approximately 95% of the project installed costs are generally eligible as 

“cost basis” for the ITC (Bolinger 2014). Given the broader monetization uncertainties (e.g., with the assumed 

CapEx value), it is assumed that 100% of the project installed cost (i.e., $3,500/kW) is eligible for the ITC.

(2)

(3)
7

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The incremental revenue from the sale of capacity was estimated with approximately 

$7/MWh.

• Step 4 (“Deflation to $2018”) converts the estimated LROE of $112/MWh ($2022) (facility 

1) and $101/MWh ($2023) (facility 2) to 2018 nominal dollars, yielding $104/MWh ($2018) 

for facility 1 and $91/MWh ($2018) for facility 2. A deflation factor of 2.5% is assumed for 

this conversion, consistent with the reported escalation factor of 2.5% in the Vineyard 

Wind/EDC PPA pricing schedule.

• Step 5 (“Calculating the average between facility 1 and 2”) calculates the LROE average

between facility 1 (400 MW) and facility 2 (400 MW) for simplification purposes, adjusting 

the LROE by ± $6/MWh for these two facilities. 

In sum, these analysis steps yield a net adjustment of approximately +24 $/MWh (facility 1) and 

+ $33/MWh (facility 2) compared to the first-year PPA price, producing an LROE of $98/MWh

($2018) for the combined facilities (800 MW) of the Vineyard Wind LLC project.

Table 2. Analysis Steps to Calculate LROE from the Vineyard Wind Power Purchase Agreement 

Step Description Estimate Method Source

0 First-year PPA price ($nominal/MWh) 74 $2022/MWh for facility 1

65 $2023/MWh for facility 2 Reported a, b

1 Revenue from electricity and REC 

sales ($nominal/MWh)

89 $2021/MWh for facility 1

79 $2022/MWh for facility 2

Present value 

of future cash 

flow

a, b

2 Value of ITC ($nominal/MWh) 105 $2021/MWh for facility 1

94 $2022/MWh for facility 2

Value of ITC 

in t=0

a, b

3 Revenue from sale of capacity 

($nominal/MWh)

112 $2021/MWh for facility 1

101 $2022/MWh for facility 2

Present value 

of future cash 

flow

a, b

4 Deflation to $2018 ($2018/MWh) 104 $/MWh for facility 1

92 $/MWh for facility 2 Discounting N/A

5 Average between facility 1 and 2

($/MWh) $98/MWh Averaging N/A

a Massachusetts Department of Public Utilities (2018a)

b Massachusetts Department of Public Utilities (2018b)
8

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Table 3. ITC Phase-Down Rate Schedule 

Construction Start Before Applicable ITC Rate

1/1/2017 30%

1/1/2018 24%

1/1/2019 18%

1/1/2020 12%

On or after 1/1/2020 0%

Source: Re-printed from Deloitte (2017)
9

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3 Sensitivity Analysis

The LROE estimated in Section 2 is the result of a deterministic, single-scenario assessment. 

Some parameters applied in this study are very uncertain and require further validation. To 

understand how variation in individual parameters influences the estimated LROE while holding 

all other parameters constant, Figure 1 depicts the results of a limited set of sensitivity cases. A 

sensitivity case was performed for the valuation of the ITC, which varies by ± $2/MWh if CapEx 

is changed by ± $500/kW from the baseline of $3,500/kW. Project CapEx seems particularly 

prone to some modeling uncertainty as detailed project information on the export system cable 

configuration is not yet available. The impact of changing the sales revenue from the ISO-New 

England from $5/kW-month (simple average of 2010/11-2020/21 clearing prices) to $3/kWmonth (25th percentile of 2010/11-2020/21 clearing prices) and $6/kW-month (75th percentile of 

2010/11-2020/21 clearing prices), is approximately -$2/MWh and $2/MWh, respectively. The 

impact from a change of the baseline WACC (which serves as the discount rate in this analysis) 

of 7.0% was estimated to be -$0.03/MWh (6.7% WACC) and +$0.8/MWh (8.5% WACC).12 An 

annual degradation factor of -0.5% (lower performance than expected) and +0.5% (higher 

performance than expected) was considered for the AEP as part of this sensitivity study with an 

effect of approximately $0.5/MWh. Lastly, the potential revenue from the sale of energy after the 

expiration of the Vineyard Wind/EDC PPA (after 20 years of operation) but before the 

termination of the federal lease (after 25 years of operation [BOEM 2015]) was considered. This 

opportunity for merchant revenue (after expiration of the PPA) for a 5-year duration (project 

years 20-25) was considered under a low (75%) and high (125%) wholesale electricity price 

sensitivity in comparison to the price schedule trajectory for years 1-20 established in the PPA. 

The impact is ± $0.6/MWh compared to the baseline of $98/MWh. Although there is some 

uncertainty whether revenue after expiration of the initial PPA enters the project owner’s 

calculus for the negotiated PPA price, it is included here as an illustration of the potential impact.

 

12 See e.g., Green Giraffe (2018) for an overview of financing conditions for recent European offshore wind 

projects. 
10

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

 $/MWh

Figure 1. Sensitivity analysis of LROE to variations in ITC, capacity payment, WACC, AEP 

degradation, and 5-year merchant revenue

Note: The base scenario (resulting in $98/MWh) is consistent with the assumptions documented in Table 

2. The ITC sensitivity is derived by varying the assumed CapEx value. The WACC sensitivity was derived 

by varying the assumed discount factor for deriving net present value of expenditures and energy 

production.
11

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

4 Discussion and Conclusions

Starting with the reported first-year PPA price of $74/MWh ($2022) and $65/MWh ($2023) for 

Vineyard Wind facilities 1 and 2, this analysis made a set of adjustments to represent the PPA 

price in $2018 terms and to account for revenue streams outside of the PPA and tax benefits to 

derive an LROE of $98/MWh ($2018). This LROE can serve as an initial reference for bottomup cost modeling but should be validated further as more information from the Vineyard Wind 

LLC/EDC PPA and broader industry and supply chain development in the United States become 

available. The assumptions made herein about the PPA contract pricing have not been validated

extensively and reflect a first-order deterministic scenario that does not capture the inherent 

uncertainty of many of the parameters considered. Limitations and caveats to this analysis

include the following:

• There is inherent uncertainty associated with the parameters considered in this analysis. 

For instance, the monetized ITC value depends on the CapEx of the project (which was 

estimated from global averages but was not explicitly known to the authors) and the ITC 

rate the project will qualify for; similarly, there is inherent uncertainty with any merchant 

revenue considered in this analysis (e.g., from capacity markets).

• Corporate portfolio considerations (e.g., corporate financing conditions, such as balance 

sheet financing) and strategic bidding behavior (e.g., to gain an advantage as a first 

mover/market entrant) are not considered in this study but might have impacted the 

Vineyard Wind LLC/EDC PPA price.

• In this analysis, the election of the 18% ITC rate rests on the assumption that the project 

is able to raise sufficient tax equity financing (of up to $600 million)13 and can adhere to 

the assumed ITC schedule.

• The calculations of this first-order assessment represent simplifications of the contractual 

agreements and market structures.

• It is not clear if all the revenue sources have been identified (e.g., local incentives, sales 

tax abatements).

• Some contractual arrangements in the Vineyard Wind LLC/EDC PPA were not 

considered in this study, such as the risk allocation of negative prices.

In Figure 2, prices from recent European offshore wind tenders were adjusted for contract length, 

as well as grid and development costs to represent “all-in” prices.14 The estimated LROE of the 

Vineyard Wind project seems to fall within a price range similar to that of commercial-scale 

projects in Northern Europe with an expected start of commercial operation in the same period 

(Figure 2). 

 

13 Deepwater Wind (2018) 14 These adjustments were made to allow for a more direct comparison. However, they may not fully account for the 

entire set of differences in procurement mechanisms, available revenue streams, and policy among the offshore 

tenders depicted in Figure 2, which require further analysis. In addition, Figure 2 does not depict some of the 

uncertainty that is associated with any single price point (e.g., if they are exposed to merchant price risk). Any 

conclusions from Figure 2 should therefore be made with these caveats. 
12

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

Figure 2. Adjusted prices from European offshore wind auctions including the Vineyard Wind 

project

Note: Re-printed from Beiter et al. (2018) with the Vineyard Wind project added. European strike prices were 

adjusted for differences in contract length, grid, and development costs to represent “all-in” prices. The Vineyard 

Wind data points reflect the signed PPA price (bottom) and the estimated LROE (top) for the two Vineyard Wind 

facilities. The dashed line represents the difference between the Vineyard Wind LLC signed PPA price and the 

LROE estimated in this analysis.

This could suggest that the generally anticipated price (and cost) premium for the nascent U.S. 

offshore wind industry in comparison to offshore wind projects in the established European 

markets might be much less pronounced than has widely been expected by many analysts (see 

e.g., Beiter et al. 2017; Musial et al. 2016; Maness, Maples, and Smith 2017; Kempton, 

McClellan and Ozkan 2016). Recent cost analyses have estimated an LCOE of between 

$160/MWh and $120/MWh for a commercial-scale offshore wind project built in the 

northeastern United States in the early 2020s. These estimates seem overly conservative in light 

of the LROE of $98/MWh, even under consideration of the sensitivity cases presented in Section 

3 of this report. The ability for technology transfer and the import of major technology 

components from Europe and Asia, rapid technological innovation, larger project sizes, higher

turbine capacity, a relatively predictable revenue stream, and intensified competition within the 
13

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

global and U.S. supply chain and among bidders, seem to have extended the European cost 

reduction trajectory to the Vineyard Wind project. It is possible, however, that the Vineyard 

Wind LLC/EDC PPA price retrospectively could be classified as an outlier among early U.S. 

commercial-scale projects. The project might have benefited from one-time effects, such as 

strategic bidding behavior among market entrants to gain first-mover advantages for subsequent 

U.S. offshore wind tenders. The PPA price was also negotiated in a macroeconomic environment 

that provides historically low financing rates. Finally, the underlying Massachusetts legislation 

mandating the procurement of 1.6 gigawatt of offshore wind capacity by 2027 requires future 

offshore wind procurement under this scheme to produce a price below the Vineyard Wind 

LLC/EDC PPA contract price. This will require further cost reductions amid a tax environment 

that is expected to become less favorable with the ITC phase-out underway (Table 3). Future 

research is needed to validate and refine the project, price, and contractual assumptions made in 

this analysis, so that this first U.S. price point for a commercial-scale offshore wind project can 

serve as a robust reference point for bottom-up cost modeling.
14

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

References

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01/first-big-u-s-offshore-wind-offers-1-4-billion-to-customers.

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Harries, T. 2018. “U.S. Offshore Wind. Bloomberg New Energy Finance.”

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Kempton, W., S. McClellan, and D. Ozkan. 2016. “Massachusetts Offshore Wind Future Cost 

Study.” Special Initiative on Offshore Wind. University of Delaware. 

https://www.ceoe.udel.edu/File%20Library/About/SIOW/MA-Offshore-Wind-Future-CostStudy-rev-4-April-16.pdf.

Maness, M., B. Maples, and A. Smith. 2017. NREL Offshore Balance-of-System Model. Golden, 

CO: National Renewable Energy Laboratory. NREL/TP-6A20-66874.

https://www.nrel.gov/docs/fy17osti/66874.pdf.

Massachusetts Department of Energy Resources (DOER). 2017. “Request for Proposals for 

Long-Term Contracts for Offshore Wind Energy Projects.” June 29, 2017. 

https://macleanenergy.files.wordpress.com/2017/02/section-83c-request-for-proposals-for-longterm-contracts-for-offshore-wind-energy-projects-june-29-2017.pdf.

Massachusetts Department of Public Utilities. 2018a. “Offshore Wind Generation Unit Power 

Purchase Agreement Between NSTAR Electric Company d/b/a Eversource Energy and Vineyard 

Wind LLC (Facility 1).” July 31, 2018. Redacted. 2018. Exhibit JU-3-A.

https://eeaonline.eea.state.ma.us/EEA/FileService/FileService.Api/file/FileRoom/9676522.

Massachusetts Department of Public Utilities. 2018b. “Offshore Wind Generation Unit Power 

Purchase Agreement Between NSTAR Electric Company d/b/a Eversource Energy and Vineyard 

Wind LLC (Facility 2).” July 31, 2018. Redacted. 2018. Exhibit JU-3-B.

https://eeaonline.eea.state.ma.us/EEA/FileService/FileService.Api/file/FileRoom/9676523.

MHI Vestas. 2018. “Vineyard Wind Selects MHI Vestas as Preferred Supplier for First LargeScale Offshore Wind Project in the United States.” November 27, 2018. Accessed December 

2018: http://www.mhivestasoffshore.com/vineyard-wind-selects-mhi-vestas-as-preferredsupplier/.

Musial, W., P. Beiter, S. Tegen, A. Smith. 2016. Potential Offshore Wind Energy Areas in 

California: An Assessment of Locations, Technology, and Costs. Golden, CO: National 

Renewable Energy Laboratory. NREL/TP-5000-67414.

https://www.nrel.gov/docs/fy17osti/67414.pdf.

Musial, W., P. Beiter, P. Schwabe, T. Tian, T. Stehly, P. Spitsen, A. Robertson, and 

V. Gevorgian. 2017. 2016 Offshore Wind Technologies Market Report. U.S. Department of 

Energy. Washington, D.C. https://www.energy.gov/eere/wind/downloads/2016-offshore-windtechnologies-market-report.

National Renewable Energy Laboratory. 2018. “2018 Annual Technology Baseline and Standard 

Scenarios.” Golden, CO: National Renewable Energy Laboratory.

http://www.nrel.gov/analysis/data_tech_baseline.html.

New York Independent System Operator. 2018. “Installed Capacity Manual (Manual 4, Version 

6.39)”. March 2018. Accessed September 2018.

http://www.nysrc.org/pdf/MeetingMaterial/RCMSMeetingMaterial/RCMS%20Agenda%20218/

2018%20Mar%20Installed%20Capacity%20Manual%20Section%204.2.pdf.
16

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Peregrine Energy. 2018. “Independent Evaluator Report: On the Solicitation, Evaluation, and 

Bid Process Under Section 83C of the Green Communities Act.”

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Schwabe, P., D. Feldman, J. Fields, E. Settle. 2017. Wind Energy Finance in the United States: 

Current Practice and Opportunities. NREL/TP-6A20-68227 (August 2017). Golden, CO: 

National Renewable Energy Laboratory. Accessed December 2018.

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Vineyard Wind LLC. April 30, 2018a. “Vineyard Wind Connector: Draft Environmental Impact 

Statement (EEA#15787).” Submitted to the Massachusetts Office of Energy and Environmental 

Affairs. https://www.boem.gov/Vineyard-Wind-EIS/.

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Vineyard Wind Project. Submitted to the Bureau of Ocean Energy Management.”

https://www.boem.gov/webteam/Vineyard%20Wind/Vineyard-Wind-COP-Vol-I-ProjectInfo.pdf.
17

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

Appendix A

A-1. Levelized Cost of Energy and Levelized Revenue of

Energy Equations

Levelized Cost of Energy (LCOE)

LL LL ( $

MMMMh

) = ∑ CCCC CCtt + OO&MMtt + FFtt

(1+DDDD)tt

TT

tt=1

∑ AAAAAAtt

(1+DDDD)tt

TT

tt=1

(A-1)

where

CapExt ($/kilowatt [kW]): capital expenditures in t

O&Mt ($/kW per year): annual operation and maintenance costs in t

Ft ($/kW): annual fuel costs in t

DR (%): discount rate

AEPt (megawatt-hour [MWh]): annual energy production in t

Levelized Revenue of Energy (LROE)

LL LL ( $

MMMMh

) = ∑ ∑ ppppppeett

II + − pppppp ,tt

(1+DDDD)tt

TT

tt=1

∑ AAAAAAtt

(1+DDDD)tt

TT

tt=1

(A-2)

where

Power purchase agreement (PPA) pricet ($/MWh): price set for PPA products in t

Ex-PPA pricei,t ($/MWh): price or valuation for product i in t that is exogenous to the 

PPA and compensated in applicable market

Annual Energy Production (AEP)

(MMMMh) = 8760h × NN × (A-3)
18

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

A-2. Financing Assumptions

Table A-1. Financing Assumptions for Weighted Average Cost of Capital Under Consideration of 

the ITC Election

Low Mid High

Debt Interest Rate 4.4%

After-Tax Equity Rate 

(Nominal) 9% 9.5% 12%

Debt Share 40% 40% 40%

Effective Tax Rate 

(Federal and State) 26%

Weighted Average Cost of 

Capital (Nominal) 6.7% 7.0% 8.5%
19

This report is available at no cost from the National Renewable Energy Laboratory (NREL) at www.nrel.gov/publications.

Appendix B

B-1. Vineyard Wind/Electric Distribution Companies Power Purchase 

Agreement Price Schedule

Table A-2. Power Purchase Agreement Price Schedule

Facility 1 Facility 2

Year Price 

($/MWh)

Energy Price 

($/MWh)

REC* Price 

($/REC)

Price 

($/MWh)

Energy Price 

($/MWh)

REC Price 

($/REC)

2022 74.00 70.55 3.45 N/A N/A N/A

2023 75.85 72.31 3.54 65.00 61.55 3.45

2024 77.75 74.13 3.62 66.63 63.09 3.54

2025 79.69 75.97 3.72 68.29 64.67 3.62

2026 81.68 77.87 3.81 70.00 66.28 3.72

2027 83.72 79.82 3.90 71.75 67.94 3.81

2028 85.82 81.82 4.00 73.54 69.64 3.90

2029 87.96 83.86 4.10 75.38 71.38 4.00

2030 90.16 85.96 4.20 77.26 73.16 4.10

2031 92.42 88.11 4.31 79.20 75.00 4.20

2032 94.73 90.31 4.42 81.18 76.87 4.31

2033 97.09 92.56 4.53 83.21 78.79 4.42

2034 99.52 94.88 4.64 85.29 80.76 4.53

2035 102.01 97.25 4.76 87.42 82.78 4.64

2036 104.56 99.69 4.87 89.60 84.84 4.76

2037 107.17 102.17 5.00 91.84 86.97 4.87

2038 109.85 104.73 5.12 94.14 89.14 5.00

2039 112.60 107.35 5.25 96.49 91.37 5.12

2040 115.41 110.03 5.38 98.91 93.66 5.25

2041 118.30 112.78 5.52 101.38 96.00 5.38

2042 N/A N/A N/A 103.91 98.39 5.52

*Renewable energy credit (REC)

Source: Re-printed from Massachusetts Department of Public Utilities (2018a and 2018b, Exhibit D).