Interior to auction Atlantic Ocean lease in U.S. first

Source: Phil Taylor, E&E reporter • Posted: Wednesday, June 5, 2013

The Interior Department today announced that next month it will hold its first competitive lease sale for offshore wind in the Atlantic Ocean, a move hailed as historic by industry officials and clean energy advocates.

The department on July 31 will auction the rights to develop two wind farms on more than 250 square miles off the coasts of Massachusetts and Rhode Island, an area believed to contain nearly 3,500 megawatts of wind power.

The announcement marks a significant step in the administration’s three-year effort to identify wind-rich areas in the Atlantic Ocean that pose minimal threats to wildlife and ocean users including fishermen, commercial shippers and the military.

“This is history in the making as we mark yet another major milestone in the president’s all-of-the-above energy strategy,” Interior Secretary Sally Jewell said in a statement this morning. “Today we are moving closer to tapping into the enormous potential offered by offshore wind to create jobs, increase our sustainability, and strengthen our nation’s competitiveness in this new energy frontier.”

The announcement drew immediate praise from the Offshore Wind Development Coalition, a Washington, D.C.-based trade group, which noted opportunities for nearby U.S. ports to supply, stage and assemble new wind farms.

“This is a great day for our nation’s workforce and for the environment,” said Jim Lanard, the group’s president. “The Port of New Bedford in Massachusetts and the Port at Quonset Point in Rhode Island will have the opportunity to serve these and other offshore wind farms, thereby creating significant economic investments in these communities and high-skilled jobs for their residents.”

Bidders in next year’s sales will be among the first to tap an Atlantic breeze that Energy Department scientists believe could support 54,000 MW of offshore projects by 2030.

While nearly 4,000 MW of offshore wind has been installed in Europe in the past decade, the industry has yet to break ground in the United States, where it faces unsettled federal energy policy, high capital costs and the threat of lawsuits.

Offshore wind energy is expected to cost about 24 cents per kilowatt-hour in 2016, far higher than energy from onshore wind farms or conventional fossil fuels, according to federal economists. But cost is expected to decline as new supply chains are established and companies achieve economies of scale.

Next month’s leasing areas are identical to those that Interior identified in a preliminary sale notice in December (E&ENews PM, Nov. 30, 2012).

Nine companies are eligible to participate in next month’s sale, including Spanish offshore wind firm Iberdrola Renewables Inc., which currently has more than 6,000 megawatts of offshore wind under development in the United Kingdom, Germany and France.

“They represent pioneers in a new energy frontier as participants in America’s first offshore wind energy auction this July,” said Tommy Beaudreau, director of the Bureau of Ocean Energy Management. “We congratulate them on their entrepreneurial spirit and look forward to overseeing a fair and competitive leasing process.”

In contrast with the auctioning of federal oil and gas leases, the offshore wind parcels will be awarded on the basis of both money and merit, the federal bureau said.

The first phase of the auction, on July 29, will consider factors such as whether a company holds a joint development agreement or a contract to sell its power. Two days later, the agency will consider which company is willing to pay the most.

Winning bidders will earn the exclusive right to set up meteorological towers and survey the seabed. Once a wind farm is proposed, it will be subject to a separate National Environmental Policy Act review.

Winning bidders will pay an operating fee rate of 2 percent applied generally to wholesale market value for electricity, according to the lease terms.

Rep. Ed Markey (D-Mass.), ranking member of the House Natural Resources Committee, today called the lease sale a “boon for U.S. taxpayers.”

“I commend the Interior Department for working closely with the states, tribes, fishermen, commercial shippers, and the environmental community to establish these low-conflict areas and for conducting these lease sales in a way that will ensure leases go to companies that are serious about developing new wind energy,” he said in a statement.

Other lawmakers and free-market advocates remain skeptical of the cost of offshore wind and its impacts on the environment.

“The administration has a habit of picking energy industry winners and losers,” said Sen. David Vitter (R-La.), who joined Sen. Lamar Alexander (R-Tenn.) last November in demanding that Interior provide an economic accounting of a noncompetitive offshore wind lease it issued off the coast of Delaware (Greenwire, Nov. 9, 2012). “While they do everything they can to advantage renewable energy production, they ignore the benefits that traditional energy provides.”