Newsletter

Offshore Wind Update: Checks Are in the Mail

Empowered

June 14, 2022

As many industry observers predicted (and hoped), 2022 has been a breakout year for the nascent US offshore wind industry. Spurred by the Biden-Harris administration’s goals of 30 gigawatts of offshore wind by 2030 and net-zero US electricity production by 2035, years of anticipation, planning, and preliminary development have finally culminated in billions of dollars of investment commitments—and “checks in the mail”—from global energy powerhouses, even in the face of increasing global economic headwinds.

The biggest splash of 2022 came at the end of February, when the Bureau of Ocean Energy Management (BOEM) auctioned six project sites off the coast of New York and New Jersey (an area known as the New York Bight). The six projects are anticipated to produce as much as 5 GW of energy, providing enough energy to power roughly 1.9 million homes. The New York Bight auction raised $4.37 billion in the aggregate, with the star of the event, and the largest site, being acquired for $1.1 billion (a winning bid 3-4 times the amount that many observers expected).

The rights to lease the largest site were acquired by Bight Wind Holdings, LLC (now known as Community Offshore Wind, LLC), a partnership of German utility RWE and National Grid Ventures (the nonregulated arm of utility National Grid) that was formed and announced in 2021 to support both parties’ US offshore development goals.

The NY Bight Auction was notable to many because of to the persistence and commitment of the bidders: 12 bidders remained through 43 rounds of bids after the first two days, and it took an additional 20 rounds on day 3 for the auction to end.

Following the NY Bight auction, in May the BOEM conducted an auction for two sites in the Carolina Long Bay Lease Area, resulting in an additional $315 million in lease payments. Winners were subsidiaries of each of TotalEnergies and Duke Energy. The sites are expected to produce up to 1.3 GW of electricity, enough to power about 500,000 homes, and to be operational in approximately eight years.

At the end of May, the US Department of the Interior and the Biden-Harris administration commenced the process for holding auctions for areas off the northern and central coasts of California. The Morro Bay Wind Energy Area and Humbodt Wind Energy Area, totaling just over 370,000 acres, will have the ability to support up to 4.5 GW and to power 1.5 million homes, according to the Department of the Interior. The auction could be conducted as soon as the fourth quarter of 2022, as the BOEM issued a proposed sale notice for five sites on May 26, triggering a 60-day comment period that will be followed by additional review and public engagement. The BOEM also has started the process for delineating—and eventually auctioning in 2023—a large volume of potential sites in the Gulf of Mexico.

Victors in these 2022 auctions have included partnerships formed by global energy giants and competitors, such as Shell, EDF, BP, Duke Energy, Avangrid, Orsted, Equinor, TotalEnergies, Engie, EnBW, and others. A majority of the investment in US offshore projects to date—including those in construction and nascent development—has been through the partnership model.

Although large portions of the construction costs of individual offshore wind projects are expected to be financed through debt and tax equity, securing site leases is the first necessary step to unlocking the multiyear project development stage—where billions will ultimately be spent on activities relating to the permitting, construction, and procurement planning processes; securing transmission and interconnection rights; and in connection with the necessary investments in port infrastructure, supply chain improvements, labor, and workforce training. The next immediate steps in the process include preparing each project’s site assessment plan and construction and operation plan, each of which requires providing the BOEM and other stakeholders detailed plans surrounding a project’s technical specifications, ecological impacts, and mitigation strategies related to shipping, fishing, and other industries.