How much is an offshore wind lease area really worth?
Offshore

How much is an offshore wind lease area really worth?

Today the Bureau of Ocean Energy Management completed its fifth offshore wind lease sale held during the Biden-Harris administration, auctioning two areas offshore Delaware, Maryland, and Virginia. The sale – the first in the region in a decade – resulted in two provisional winners and $92.65 million in winning bids.

Six companies participated in the auction, including Equinor Wind US LLC, which placed the highest bid on Lease OCS-A 0557 at $75,001,001. That area consists of 101,443 acres approximately 26 nautical miles (nm) from Delaware Bay. Virginia Electric and Power Company, a wholly-owned subsidiary of Dominion Energy, provisionally won Lease OCS-A 0558 at $17,650,500, which includes 176,505 acres about 35 nm from the entrance of Chesapeake Bay. Some quick iPhone math tells us Equinor’s bid works out to about $739 per acre; Dominion’s an even $100/acre.

“Today’s lease sale represents a major milestone in meeting the demand for clean renewable energy along the East Coast,” said Bureau of Ocean Energy Management director Elizabeth Klein. “BOEM remains committed to responsible offshore wind energy development in the Central Atlantic region in a manner that avoids, reduces, or mitigates potential impacts to other ocean users and the marine environment while growing local economies.”

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Since the start of the Biden-Harris administration, there have been nine commercial-scale offshore wind projects approved via five offshore wind lease auctions. The provisional winning bids of the latest one, while hardly chump change, are significantly lower than top offers in previous BOEM auctions. Its 64-round, multi-day auction in February of 2022 for areas offshore New York and New Jersey (billed as the highest-grossing offshore auction ever) attracted bidders willing to spend hundreds of millions more for comparably-sized and even smaller chunks of ocean. Just look at the winning bids from that one:

Provisional winners of BOEM’s February 2022 offshore wind lease auction (courtesy: BOEM)

BOEM’s second offshore auction of 2022 focused on part of the Atlantic Outer Continental Shelf and raised $315 million for Carolina Long Bay lease areas. TotalEnergies Renewables offered $160 million on May 11, 2022 for a roughly 55,000 acre area about 20 nautical miles off the coast of North Carolina. Duke Energy Renewable Wind provisionally won the other lease awarded, plunking down $155 million for about the same acreage. Those bids work out to $2,916 and $2,818 per acre, respectively.

The first-ever wind lease sale in the Pacific region concluded December 7, 2022 and brought in $757.1 million across five provisionally winning bids:

Provisional winners of BOEM’s December 2022 offshore wind lease auction (courtesy: BOEM)

California North Floating LLC paid the most at $2,517 per acre, followed by RWE’s $2,489 per acre. Central California Offshore Wind got in at $1,869 per acre for an 80,000 acre+ area; Invenergy California Offshore $1,806/acre and Equinor $1,623/acre.

In August of 2023, the first Gulf of Mexico auction drew minimal industry interest, and two areas offshore Texas — Galveston I and Galveston II — did not receive any bids. The only provisional winner from that auction was RWE, which secured 102,480 acres offshore Lake Charles, Lousiana for a paltry $5.6 million, the highest of just three bids submitted (about $55 per acre). The Bureau of Ocean Energy Management (BOEM) recently canceled its second planned Gulf of Mexico offshore wind lease sale due to a lack of competitive interest. Shallow waters, low wind energy potential, and hurricane risks likely limit potential in the Gulf region. You can find the results of each BOEM offshore wind lease auction here.

So what gives?

It makes sense that the areas offshore New York and New Jersey would attract more bidders with deeper pockets, but there is a clear downward trend in BOEM’s subsequent auctions, indicating there’s a limit to how much developers are willing to pay for offshore wind lease areas. High interest rates and supply chain issues likely have a lot to do with that. Investors like certainty, and with ongoing threats to the IRA and Vineyard Wind 1’s turbine kerfuffle likely not helping matters, offshore wind feels pretty uncertain at the moment. Shakeups within the industry over the last year solidify that notion.

In October 2023, Avangrid and Connecticut utilities agreed to terminate a long-term PPA for a Massachusetts offshore wind project citing economic conditions that left the project “unfinanceable.” The following month, Danish energy developer Orsted said it was scrapping its Ocean Wind I and II projects in southern New Jersey, citing (you guessed it) supply chain issues and rising interest rates. In early 2024, Equinor and BP decided to kill the Empire Wind 2 project, blaming (wait for it) inflation, interest rates, and supply chain disruptions.

The Biden-Harris administration wants to deploy 30 gigawatts of offshore wind energy capacity by 2030, a goal that lies likely significantly out of reach according to a recent report released by the American Clean Power Association (ACP), which projects about 14 GW of wind capacity offshore U.S. coastlines by 2030.

Earlier this year, Department of the Interior Secretary Deb Haaland announced a schedule of additional lease sales through 2028, which looks like this:

You can mentally scratch the second Gulf of Mexico auction off that graphic, for reasons previously noted. How much will an acre of ocean go for in Oregon and in the Gulf of Maine this October? We’ll keep you posted here on Renewable Energy World.