2nd Interior lease sale boosts N.C. offshore wind

Source: By Heather Richards, Kristi E. Swartz, E&E News • Posted: Thursday, May 12, 2022

Wind turbine

A wind turbine spins off the coast of Virginia. Francis Chung/E&E News

Developers bet big on the prospect of offshore wind in North Carolina yesterday in an auction that accelerates the momentum of the Biden administration’s offshore wind thrust — and proves the industry aims to grow its footprint in the southern Atlantic.

After an all-day bidding war, French oil giant TotalEnergies SE and southern utility Duke Energy Corp. pledged a combined $315 million for the right to raise turbines in the sea off the state’s coast.

The two lease areas sold yesterday by the Interior Department could support an estimated 1.3 gigawatts of wind power between them and total 110,000 acres in federal waters roughly 20 miles south of North Carolina’s Bald Head Island. That’s enough to potentially power a half-million homes (Energywire, March 25).

The sale is part of the Biden administration’s push to raise hundreds of offshore wind turbines — 30 gigawatts of clean energy — on the outer continental shelf by 2030. Offshore wind is a critical lever in the White House’s larger climate ambitions, to decarbonize the nation’s grid by 2035 and zero out emissions economywide by midcentury.

But the robust sale that closed after 17 rounds of bidding was widely seen also as a success for the industry’s regional prospects and the sector’s growing potential footprint in the U.S. energy mix.

“We’re seeing the maturation of the market and an optimistic outlook for offshore wind in areas beyond our Northeastern states,” said Erik Milito, president of the National Ocean Industries Association, in a statement. “A stronger supply chain, with new jobs and investments, will stretch through the Carolinas and communities throughout our nation.”

The auction reflects a growing appetite for offshore wind leases during the pro-wind Biden era, revealed first by the blockbuster $4.4 billion sale of leases off the New York and New Jersey coast earlier this year.

The North Carolina sale was not expected to reach the New York heights due to its smaller market. But the results still beat out the state’s first offshore wind sale in 2017 when 122,000 acres near the border with Virginia, garnered just under $9 million.

Aaron Barr, global head of onshore wind at Wood Mackenzie, said the Biden administration’s support gets some credit for the momentum. It adds to investor’s confidence in offshore wind and that translates to investments, he said.

“There are clear ramifications of who’s in charge of the administration, and how these projects work and how quickly they can get permitted and approved,” he said. “And that that pace has everything to do with business certainty.”

But yesterday’s action also solidifies offshore wind as a likely part of North Carolina’s path to decarbonize. North Carolina has a clean energy mandate, passed just last year, expected to propel offshore wind forward, though the state has not named the industry specifically for a carve-out in its decarbonized future (Energywire, April 13).

Duke Energy, the electric monopoly for North Carolina, has also been coy on how much offshore wind power it plans to deploy to meet its clean energy goals. With its winning bid yesterday, Duke made an “educated bet” on offshore wind, said Paul Patterson, a utility analyst with Glenrock Associates LLC.

“I would say it’s a preliminary position,” he said. “If things turn out in a way that they want to go for offshore wind, the company is in a great position to exploit that opportunity.”

Duke plays ball

Duke’s winning bid galvanized offshore wind supporters yesterday, but the utility still faces hurdles if it wants to deploy offshore wind — and pass the cost of development on to its ratepayers.

That dynamic explains the utility’s caution when committing to offshore wind as one of its future generation sources.

Katharine Kollins, president of the Southeastern Wind Coalition, said it was a good thing the bidding war yesterday didn’t replicate the billion-dollar heights evidenced in New York. This is because customers eventually pay, she said.

“I don’t think we want to find ourselves in the same situation of wondering how ratepayers are going to handle those costs,” she said. “From that perspective, it’s certainly a good thing.”

But Duke’s participation, while expected, is a welcome sign for the industry, she said.

“Duke at the table is fantastic,” she said.

The sale comes just days before Duke is required to file a plan with state utility regulators on how it will cut its carbon emissions 70 percent by 2030 from 2005 levels. According to state law, Duke would be given more time to reach that target if it decided to use offshore wind.

This is because the industry is still maturing in the U.S.

Duke CEO Lynn Good told Wall Street analysts on Monday that her company will present several options to the North Carolina Utilities Commission next Monday. Solar, batteries and energy efficiency would be a part of every plan, and offshore wind “will be presented for consideration,” she said.

Duke has stressed that next Monday’s filing is just the next step in the process.

Staff at the state utilities commission have been keenly interested in Duke taking advantage of offshore wind as soon as possible. But the law orders a “least cost” approach to reach the state’s carbon reduction goals, which could make offshore wind questionable.

“Securing this lease creates optionality for future offshore wind if the North Carolina Utilities Commission determines it’s part of the least cost path to achieve 70 percent carbon reduction by 2030 and net-zero by 2050,” said Stephen De May, Duke Energy’s North Carolina president, in a news release.

If regulators greenlight offshore wind, Duke could start site assessment and characterization in the lease area next year. That would keep the company on target for a potential in-service project in the 2030-2032 time frame, according to the news release.

The team also will develop a detailed proposal for how Duke will study the project area to better understand the wind energy resource and potential impacts. BOEM must approve that plan as well as a construction and operation plan.

Duke also said it must secure other federal and state regulatory approvals before it can start construction.

A French company in U.S. waters

Yesterday’s sale greatly expands the U.S. renewables interest of TotalEnergies, one of the remaining seven supermajor global oil companies in the 20th century, who’s flagged wind as part of its future.

The Courbevoie, France-based firm made a “grand entrance” to the U.S. offshore wind market earlier this year when it was a winning bidder in the New York sale, paying $795 million for a lease in a joint bid with the German energy company EnBW.

The company, which is also developing onshore solar in the U.S., has a target to hold 100 gigawatts of renewable energy generation capacity globally by 2030.

“We aim to be a world leader by leveraging our offshore expertise,” said Patrick Pouyanné, chair and CEO of TotalEnergies, at the time.

TotalEnergies isn’t unique in this renewables pivot. It’s one of several oil majors that have made their intention to jump into the offshore wind market clear. But their interest in North Carolina “in many ways, a less favorable market, really demonstrates they’re serious about offshore wind,” said Barr at Wood Mackenzie.

Several other oil majors may have participated in the sale yesterday. The list of bidders is not made public. But more than a dozen companies prequalified to participate in the sale representing a Venn diagram of electric utilities, Big Oil and big wind, such as Denmark’s Ørsted A/S, BP U.S. Offshore Wind Energy, EDF Renewables, Shell New Energies, Invenergy Long Bay Offshore LLC and Avangrid Renewables.

North Carolina’s outlook

With the sale, North Carolina is primed to reach its interim climate goals, and offshore wind targets called for by Gov. Roy Cooper (D). But the sale could be the last of its kind for a long time.

The auction arrived just weeks before a 10-year moratorium begins on new leasing for the southern Atlantic, a ban that the Trump administration ordered shortly before leaving office.

With interest in expanding the offshore wind industry rapidly, North Carolina leaders and pro-climate lawmakers in Washington have tried to remove that ban by congressional action but failed to do so.

Yesterday, 38 lawmakers signed a letter to congressional leadership urging them to retain a provision nixing the moratorium in the ongoing conference negotiations over the Senate’s, S. 1260, the “U.S. Innovation and Competition Act,” and the House’s H.R. 4521, the “America COMPETES Act.”

“This offshore wind moratorium imperils a critical new wave of offshore wind energy development, threatens tens of thousands of high-quality jobs in a globally competitive industry, and wastes billions of dollars of investments planned or already in-progress for offshore wind projects,” the letterstates.

Signers include Massachusetts Sen. Elizabeth Warren (D) and New York Sen. Kirsten Gillibrand (D), as well as the Democrats of the North Carolina delegation: Reps. G.K. Butterfield, Deborah Ross, David Price, Kathy Manning and Alma Adams.

Milito of NOIA said the looming moratorium could “undercut substantial offshore wind momentum,” warning that “the high-level of interest in the lease areas underscores demand for additional future wind lease opportunities.”

The potential of turbines off the coast of North Carolina hasn’t been without controversy. Fishermen have raised concerns about how the offshore wind industry will affect fishing grounds, and beach towns have been worried about visual impacts.

Prior to the sale, BOEM slashed thousands of acres proposed for auction, cutting anything within 20 miles of the shoreline to reduce the risk of viewshed impacts. The agency has also included stipulations for developers in the two lease areas, which lie adjacent, to coordinate on at least two common lanes for navigation purposes. If they can’t come to an agreement, they must respect a 1-nautical-mile buffer along the shared lease boundary, where no structures can be placed.

The leases also call on developers to make reasonable efforts to use labor agreements with the workers that build their wind arrays, and an additional stipulation requires developers to demonstrate efforts to grow the offshore wind supply chain.

Political support for offshore wind in North Carolina is due in no small part to the opportunity for manufacturing and other supply-chain-related economic activity.

The incentives in the North Carolina sale, a first for the market, have pleased pro-business organizations like the Business Network for Offshore Wind who are hoping the industry’s momentum continues to pick up speed.

“With global demand for offshore wind soaring, the U.S. must seize this once-in-a-generation opportunity and develop a robust domestic supply chain to secure our energy future,” said CEO Liz Burdock in a statement that also praised the incentives tacked onto the leases. “[The] lease sale continues the momentum toward a sustainable U.S. offshore wind market, opening the door further to North Carolina’s rich manufacturing sector.”