Little Action in Offshore Wind Rights Auction

Last November the U.S. Department of Interior (DOI) announced that over 742,000 acres of offshore Massachusetts land would be auctioned for commercial wind development by the Bureau of Ocean Energy Management (BOEM) as part of the Obama Administration’s Climate Action Plan. The land was divided into four leasable tracts of varying sizes, and twelve companies qualified to bid.

That auction took place on January 29th, and the results were rather anti-climactic. Two of the four parcels received nary a bid, and only two of the twelve qualified companies participated: RES Americas Inc., which will pay $281,285 for 187,523 acres, and Offshore MW LLC, which will pay $166,866 for 166,866 acres. It is unclear what will be done with the remaining 388,569 acres.

By comparison, in 2013, Deepwater Wind New England LLC’s winning bids for two parcels of offshore land amounted to $3.8 million for approximately 164,000 acres.

The low participation rate and low winning bids have led to reports of a lack of interest in offshore wind development from an already-wary industry, and yesterday’s results indeed appear to have fallen below DOI expectations. When the auction was announced last year, Secretary of the Interior Sally Jewell lauded it as “our largest competitive lease sale to date for offshore wind energy development,” adding that the sale was expected to “triple the amount of federal offshore acreage available for commercial-scale wind energy projects . . . .”

The lackluster results can at least partially be attributed to the recent drop in oil and natural gas prices. But more importantly, the offshore wind market is awash in uncertainty relating to opportunities to secure long-term contracts for power. For example, the Long Island Power Authority (LIPA) recently rejected Deepwater Wind’s attempt to secure a power purchase agreement (PPA) for its planned Deepwater ONE project. LIPA based its decision primarily on the relative costs of offshore wind power, given the “financial risks inherent in those proposals.” Adding to the uncertainty is the failure of the New England States Committee on Electricity’s (NESCOE’s) coordinated renewable power procurement plan to move forward in 2014.

Granted, not everyone interpreted the auction’s results as indication of a tepid market. Secretary Jewell praised the sale, saying that “[o]ffshore wind along the Atlantic holds great potential to help power our nation with renewable energy while adding jobs to the economy.” BOEM Director Abigail Hopper was likewise “pleased to see continued commercial interest in the offshore wind industry, as demonstrated by today’s lease sale.” Notably, the auction nearly doubled the acreage of land leased through competitive sales for offshore wind development, and two qualified companies were able to lease land cheaply, minimizing some of their initial development costs. They may be well positioned if and when market forces change for offshore wind.