Offshore Wind Auction Raises $4.4 Billion to Topple Record

(Bloomberg) -- Renewable developers spent a record $4.4 billion buying the rights to install wind turbines off the New York and New Jersey coast in a blockbuster auction that underscores surging enthusiasm for carbon-free electricity.

The sale shattered previous records, a sign of growing momentum for the country’s nascent offshore wind industry and President Joe Biden’s effort to decarbonize the electric grid. The bidding frenzy was driven by state commitments to buy offshore wind power, the closeness of sites to large cities and growing confidence that developers can obtain necessary permits to build projects along the U.S. East Coast.

The U.S. government auction concluded Friday, after three days of bidding for six tracts that initially attracted 14 companies. Provisional winners are Bight Wind Holdings LLC, Atlantic Shores Offshore Wind Bight LLC, Attentive Energy LLC, OW Ocean Winds East LLC, Invenergy Wind Offshore LLC and Mid-Atlantic Offshore Wind LLC, according to the Interior Department. 

The sale blew expectations out of the water, said Heather Zichal, who heads the American Clean Power Association, an industry trade group.

“This is a major step forward for the U.S. in terms of standing up a new industry” as well as “the domestic manufacturing opportunities that come with it,” Zichal said in an emailed statement. “There is a strong demand for the benefits these clean energy projects will provide to the residents of New York, New Jersey and across the country as we build out a domestic supply chain.”

European energy heavyweights dominated the auction, sometimes as part of joint ventures with U.S.-based firms. For instance, Atlantic Shores involves EDF Renewables Inc. and Shell Plc; RWE AG and National Grid Plc are partners in Bight Wind Holdings; Copenhagen Infrastructure Partners K/S is involved with Mid-Atlantic Ocean Wind; and Ocean Winds East brings together EDP Renewables, Engie SA and Global Infrastructure Partners, according to news releases. Energie Baden-Wuerttemberg AG and TotalEnergies SE are behind Attentive Energy, said Liz Burdock, head of the Business Network for Offshore Wind. 

The only purely U.S.-based development team to win a lease were Invenergy LLC and EnergyRe LLC, which spent $645 million to secure a nearly 84,000-acre (34,000-hectare) plot about 35 miles (56 kilometers) off the New Jersey coast. 

“The U.S. has really been behind the European nations on getting wind turbines into the water, so we think this will be a transformative project that will allow the U.S. to catch up,” EnergyRe Chairman Jeff Blau said in an interview Friday afternoon. 

Blau said employees in the company’s Chicago headquarters were on the edge of their seats watching the final bidding frenzy. He likened it to a horse race, because “you weren’t sure what the outcome was going to be until the very end.”

Exceeded Expectations

The six parcels snapped up in the sale span 488,201 acres in the New York Bight, a shallow stretch of the Atlantic between Long Island and New Jersey. The tracts, located as little as 27 miles from the coast, have the potential to fit hundreds of turbines -- enough to supply 5.6 gigawatts of electricity or about 2 million homes, according to the Interior Department.

Bids mounted rapidly over the three days and 64 rounds of bidding, ultimately reaching an average price per acre of $8,951 -- more than eight times the previous record of $1,043 set in a December 2018 auction of leases near Massachusetts, when three tracts were sold for $405 million. Still, the sums are well below what oil companies historically have paid for drilling rights in U.S. waters -- as much as $33,780 per acre -- with no similar assurance those plots will contain the crude they’re searching for.

The hottest property was a 125,964-acre parcel 32 miles from the New Jersey shore sold for $1.1 billion to Bight Wind Holdings. The site, the largest available, could fit multiple projects capable of generating 1.4 gigawatts of electricity, with potentially lower costs to transmit that power because of the tract’s proximity to the coastline.

Though some experts have cautioned big bids could translate to higher power prices later, Shell’s James Cotter said the value of clean energy will bring about lower rates. 

“Decarbonization will drive more value for the ratepayer than the lease prices we saw today,” Cotter, who heads offshore wind in the Americas for Shell, said in an interview.

No Guarantees

The leases come with no guarantees of construction. Companies must still secure permits and authorizations from state and local authorities as well as the Interior Department, in a process that can take years. The New York Bight sale itself is under a legal challenge amid objections from conservationists, local residents and fishing interests. A federal court ruling against the government could halt activity on the newly sold leases or invalidate them altogether.

Still, the auction offers a down payment toward Biden’s goal of getting 30 gigawatts of offshore wind-generating capacity installed by the end of the decade, said Burdock. 

“The New York Bight benefited from clear political support, an emerging yet robust local supply chain and a years-long preparation window which should allow the winning bidders to quickly begin the permitting process,” she said.

The administration already has approved projects in waters off Rhode Island and Massachusetts and is weighing additional wind lease sales from the Carolinas to California. Existing wind farms along the East Coast currently provide less than 100 megawatts of generation capacity.

The auction is “a watershed moment for American offshore wind,” said Erik Milito, head of the National Ocean Industries Association. “The record-shattering interest in the New York Bight lease sale is testament to how bright the American offshore wind outlook is and how confident developers are in the strength of the U.S. offshore wind industry.”

(Updates with details on winners from sixth paragraph)

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