What to watch in Biden’s first offshore wind auction

Source: By Heather Richards, E&E News • Posted: Wednesday, February 23, 2022

Wind turbine.

A crowded field of oil companies, renewable developers and groups have lined up to capture offshore wind leases in the waters off New York this week. Francis Chung/E&E News

The Biden administration will held a long-awaited offshore wind auction yesteradyday, with both established players in the developing industry and new competitors expected to vie for a chance to raise turbines in the shallow-water region sandwiched between New Jersey and New York.

Industry has long pushed for a new auction in the New York Bight, where developers haven’t seen a lease sale since 2016, and expectations are high that it could result in a blockbuster sale.

“These leases will, in all likelihood, fetch historically high prices,” said Fred Zalcman, director of New York Offshore Wind Alliance, which advocates for the industry. “I think it’s going to be a very vibrant market.”

The bight offers acreage between two states with some of the most aggressive offshore wind targets in the country.

That supportive political climate and the massive demand for power in the area have bolstered interest from developers that include a crowded field of oil and gas drillers, renewable energy firms and unknown limited liability companies, according to a list of approved bidders from the Interior Department.

A big sale today — which could extend over multiple days — would be a win for the Biden administration, which has thrown its weight behind the rapidly advancing industry.

This is the first offshore wind sale for the Biden administration, but growing the industry has been a hallmark of the White House’s domestic energy and climate policy. President Biden has committed to raising 30 gigawatts of offshore wind power by 2030, a target that S&P Global Market Intelligence reported last week is already within reach due to announced projects.

The sale will auction off nearly 500,000 acres, broken into six individual lease areas. In total, the leases could support up to 7 gigawatts of offshore energy, enough to power more than 2 million homes.

Ongoing leasing in the New York Bight could drive up to 32,000 jobs a year, with more than $45 billion in capital investment, according to a recent study by Wood Mackenzie.

“There’s a great deal of momentum right now in the U.S. for investing in offshore wind projects,” said Erik Milito, president of the National Ocean Industries Association. “That’s built around a foundation of policy, investment commitments. And companies now have the level of experience to be able to design and move forward with these projects.”

The New York Bight will be a snapshot of that momentum, revealing both the level of interest in one of the country’s most competitive markets for clean power and the impact of robust pro-wind policies from Washington, D.C.

Here are three issues to track ahead of the sale.

1. Who’s participating?

More than two dozen companies are approved to participate in the lease auction, from businesses traditionally focused on offshore oil and gas development, like BP America and Norway’s Equinor, to U.S. solar developers and unknown limited liability companies created in recent years in Delaware.

“It’s quite a mix of players,” said Zalcman.

There are the expected participants, like the American arm of Ørsted A/S, the Danish offshore wind giant and a former oil producer, which has already become one of the most dominant offshore wind companies in the United States. There’s also Avangrid, the American energy and transmission powerhouse that’s a partner in Vineyard Wind 1, the first utility-scale offshore wind array to be approved in the United States, located off the Massachusetts coast.

Milito of NOIA said the suite of bidders shows the increasing interest that oil and gas developers have in offshore wind.

“For many years, it was predominantly companies that were solely focused on offshore wind,” he said. “But now you’re seeing the continued diversification of energy portfolios by companies.”

Some unknown bidders are included in the groups. They could be players in a secondary market, providing upfront capital but ultimately hoping to partner with the “more sophisticated developers,” Zalcman said.

Several entities that may participate in the sale are familiar names from previous rounds of U.S. offshore wind leasing.

Horizon Wind Power LLC, for example, was one of several companies that pushed for leasing off the coast of New York’s Long Island in 2018 and after. It’s proposed wind farm, Project Penelope, would have raised 30 turbines off the coast of the Hamptons, but the idea sparked pushback from wealthy shore communities and foundered.

Another developer registered to participate in the upcoming lease sale is East Wind LLC, a subsidiary of EnBW Energie Baden-Württemberg AG. The company participated in a record sale off the coast of Massachusetts in 2018 that garnered a total of $405 million in revenue, but it was ultimately outbid.

Other potential participants this week include PNE USA Inc., a wind, solar and storage company in existence since 2008, part of the original German company PNE AG; PSEG Renewable Generation LLC, a primarily nuclear and natural gas power provider in states like Hawaii, New York and Maryland that’s been candid about looking to grow its renewables footprint; and US Wind Inc., a subsidiary of the Italian renewable company Renexia SpA and the developer of an offshore wind project off Maryland.

US Wind has recently sealed additional offshore wind credits from Maryland to significantly expand the size of its original project in exchange for investments that include steel manufacturing at the site of the historic Bethlehem Steel mill outside of Baltimore.

2. How much will they pay?

When the Trump administration held the last offshore wind auction in 2018, it blew away expectations, earning a whopping $405 million in high bids.

Possibly the biggest question in New York this week is how much money industry is willing to pay.

Lucas Stavole, senior analyst on North America wind for Wood Mackenzie, said it’s likely a fixed band for many developers. They’ll have a limit on how high they can bid without beginning to weigh down the cost of potential project and cut into their profit margins.

Several large developers who spoke with E&E News said they planned to take a disciplined approach and not get caught up in the fever of competition.

“We want to win; we’ve got to be competitive,” said Avangrid CEO Dennis Arriola in an interview about the upcoming lease auctions last year. “The market is competitive. You’ve got some major players out there that have been in the market. You have some others that want to get into the market.”

But the company wouldn’t sacrifice its “financial discipline,” he added.

One official with a company that could be a large bidder in the sale said his company wouldn’t lose face if it isn’t successful and was approaching the sale with a “no regrets” attitude. He spoke on the condition of anonymity given the sensitivity of the competition.

He argued that large developers have already positioned themselves with leases that can support years of growth. So they aren’t interested in overpaying to hold the bight. But inflated bids would be irksome for the fledgling industry at large, he added, because they undermine the stability and sustainability of the industry over the coming years.

“If we don’t get something out of the New York Bight, it’s probably because other people paid too much,” he said.

But for those high bidders, the high price may be worth the chance to secure a foothold in such a promising market, several sources said.

“They might be a little more desperate,” Stavole said.

3. Fishing tensions

Uncertainty still lingers around the future of offshore wind in one area: legal conflict. Several lawsuits have been filed against other offshore wind projects so far. While the sale today is not expected to draw lawsuits on its own, projects in the pipeline for these lease areas are already contentious.

“Scallopers are very skeptical, skeptical of coexistence,” said Eric Hansen, owner of Hansen Scalloping, which fishes in the bight but is based in New Bedford, Mass. Hansen is also president of the Fisheries Survival Fund.

The group had warned of a “strong potential for damage” in its public comments to Interior on the lease sale.

Hansen acknowledged that concessions were made in return, like the inclusion of a buffer between the lease area and some fishing habitat, as well as the removal of some areas in prime scallop habitat. The Biden administration shaved about 22 percent of the proposed acreage from the sale to accommodate other ocean users, including the military and scallop fishermen.

It was “not enough,” Hansen said.

The New York Bight is a rich area for scallops, and the waters off the New Jersey coast account for the lion’s share of landings in a given year, Hansen said.

Still, the bight has been a place where fishermen and offshore wind have found unusual compromise. Equinor, whose proposal for the Empire Wind offshore wind project is already being reviewed by the Bureau of Ocean Energy Management on a lease the company won in the 2016 auction, designed a unique layout of turbines to account for fishermen’s concerns, earning praise from industry groups (Greenwire, June 17, 2021).

Hansen said he just hopes lessons are learned and science gathered from the first projects on the impact to fisheries, before the industry grows and it’s too late.

Despite the tension over ocean conflicts, industry and its observers are at an all-time high for optimism.

Zalcman with the New York offshore wind group noted that the sale isn’t just about companies, but about climate targets and economic development goals that are wrapped up in the fate of the industry.

“It’s taken years to get to this point,” he said. “We have, you know, high expectations.”