1. The Auction: A measured start for offshore wind in the Gulf of Mexico

BOEM held its first-ever auction for wind energy lease areas in the Gulf of Mexico on August 29, 2023. The three lease areas up for auction covered a combined 301,746 acres off the coast of Lake Charles, Louisiana, and Galveston, Texas.¹ RWE Offshore US Gulf LLC (RWE) won the Lake Charles Lease Area with a final bid of $5.6 million for 102,480 acres, 44 miles off the coast of Louisiana, after two rounds.² The area is expected to generate 1.24 GW of wind energy, enough to power over 400,000 homes.³ The other two lease areas, located off the coast of Texas, received no bids.

The Gulf of Mexico lease areas had a less robust outcome than those BOEM lease areas put up in recent California and New York auctions. By contrast the California auction produced $757.1 million in winning bids for five areas.⁴ Several features of the Gulf region may have fueled the lack of competitiveness, including hurricane risk, lower estimated wind speeds (which may require specifically built turbines), lack of state incentives, as well as construction challenges posed by the Gulf’s topography and existing fossil fuel infrastructure.⁵ Economic realities may have also dissuaded some potential bidders, including persistent supply chain issues, inflation, rising cost of capital, and low energy prices in Louisiana and Texas.⁶ Over the past two years the cost of wind turbines has risen by 38%.⁷ These economic forces have put some wind developers in hot water, leading to 20% higher construction and operation costs, and attempts to renegotiate power purchase agreements.⁸

The Final Sale Notice for the Gulf of Mexico auction, published on July 21, took into account 331 public comment submissions and clarified bidding requirements and processes. Fifteen firms qualified as bidders, ranging from renewable energy developers to global oil and gas majors.⁹ BOEM awarded bidding credits to RWE based on commitments to support local workforce training programs, develop domestic supply chains for clean hydrogen (20% of the value of the cash bid), and contribute to fishery compensation mitigation funds (10% of the cash bid).¹⁰

2. The Context: Climate goals, state incentives, and legal challenges

The auction advances both national and state climate goals, including the Biden-Harris administration’s commitment to deploy 30GW of offshore wind energy by 2030 and to reach a carbon-free electricity sector by 2035.¹¹ The event supports Louisiana’s goal of achieving net zero by 2045, in part through 5GW of offshore wind capacity by 2035.¹² The gulf parcel will add to the few dozen active commercial leases federal officials have already issued, most recently near California.¹³ BOEM recently approved the fourth major offshore wind project for construction, Revolution Wind, off the coast of Rhode Island, projected to provide 704 MW of renewable energy.¹⁴

The respective states have taken a more varied approach to wind leases. The Texas General Land Office does not yet have a regulatory scheme in place for offshore wind leasing, despite programs for other renewable energy leases including solar, onshore wind, onshore geothermal, and offshore geothermal.¹⁵ Yet Texas generates more electricity from onshore wind than any other state.¹⁶ Louisiana, on the other hand, has taken legislative steps to develop offshore wind. In June 2022, Governor John Edwards signed House Bill 165 into law. The legislation allows Louisiana to receive part of future wind farm revenues and charge for wind energy leases up to 25,000 acres.¹⁷

Tuesday’s auction was not without objection. Oil industry firms, the state of Louisiana, and environmental groups had all challenged the auction parameters in court.¹⁸ Louisiana, Chevron, and the American Petroleum Institute argued that regulators cut the size of the lease areas and added endangered whale–related boat speed restrictions without proper administrative process or justification.¹⁹ The fossil fuel groups and Louisiana sought to force BOEM to proceed with an auction under the originally proposed terms, which included fewer lease stipulations and more leased areas.²⁰ The disputed changes resulted in part from litigation by conservation groups, including the Center for Biological Diversity and the Sierra Club, which sought stronger protections for whales and amendments to BOEM’s environmental analyses.²¹ Such litigation is ongoing and unresolved.

3. The Future: Next steps and expanded development

Both the statements of government stakeholders and BOEM’s approach to meeting its pre-auction environmental requirements signal optimism for wind energy in the Gulf, despite the outcomes of the first auction. During the announcement of the auction, BOEM Director Elizabeth Klien projected that the Gulf of Mexico will “play a key role in our nation’s transition to a clean energy future.” Interior Secretary Deb Haaland has also heralded the auction, saying, “By catalyzing the offshore wind energy potential of the Gulf of Mexico, we can tackle the climate crisis, lower energy costs for families, and create good-paying jobs.”²² After the auction, Elizabeth Klien reiterated that the lease sale was just the beginning representing an “important milestone for the Gulf of Mexico region – and for our nation – to transition to a clean energy future.”²³

BOEM’s approach to satisfying the National Environmental Policy Act, which requires an environmental assessment before a lease auction, also indicates the agencies’ commitment to future development.²⁴ Instead of focusing on the NEPA-related environmental impacts to the more narrow proposed Wind Energy Areas, the Bureau looked to the entire Gulf of Mexico Call Area of 30 million acres, ranging from New Orleans, Louisiana, to Port Isabel, Texas, on its way to a Finding of No Significant Impact.²⁵ According to BOEM, this approach will provide greater flexibility and advance the agency toward its goal of issuing 18 further leases in the gulf for both commercial and research purposes.²⁶ Estimates from the National Renewable Energy Laboratory put the offshore generating potential of the region at 500GW.²⁷

RWE has work ahead. BOEM’s renewable energy program requires RWE to submit a site assessment in the first year, and construction and operations plans within five.²⁸ Any planned generation facility will require new transmission, permits and environmental assessments. RWE projects its Gulf facility to become operational by the mid 2030s.²⁹ Despite regional challenges and weaker than expected auction results, given the enthusiasm of BOEM and other government entities, aggressive climate goals, and massive generation potential, this is likely just the beginning for offshore wind in the Gulf of Mexico.

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