I. The auction: First of its kind for five West Coast offshore lease areas
The US Bureau of Ocean Energy Management (BOEM), completed its first west coast offshore wind lease auction on Wednesday.1 The auction covered 373,268 acres off the coast of Central and Northern California, including two Wind Energy Areas: 240,898 acres labeled Morro Bay WEA west of San Luis Obispo County, and 132,369 acres labeled Humboldt WEA located west of Eureka in Humboldt County.2 BOEM broke the two WEAs into five constituent lease areas, OCS-P 0561 and 0562 in the Northern Californian Humboldt WEA and OCS-P 0563, 0564, and 0565 in the Central Californian Morro Bay WEA.3 In total, the two leased areas are projected to accommodate more than 4.5 GW of wind energy.4 In the Final Sale Notice, BOEM determined that forty three entities were qualified to hold these five commercial wind leases pursuant to 30 CFR 585.106.5 Bidders were only permitted to bid on one of the lots per round.6 The winners are provisional until they sign the leases and provide a surety bond of $100,000 to BOEM and pay the balance.7
The five winning bids were:
- $157,700,000 submitted by RWE Offshore Wind Holdings, LLC for the 63,338 acre OCS-P 0561;
- $173,800,000 by California North Floating LLC for the 69,031 acre OCS-P 0562;
- $130,000,000 by Equinor Wind US, LLC for the 80,062 acre OCS-P 0563;
- $150,300,000 by Central California Offshore Wind, LLC for the 80,418 acre OCS-P 0564;
- and $145,300,000 by Invenergy California offshore LLC for the 80,418 acre OCS-P 0565.8
The auction comes on the heels of aggressive state and federal green energy goals and a decade of accelerating offshore wind development in the United States. The auction winners must now balance the benefits of strong wind speeds, direct access to the California market, and government support against the challenges of deep waters, emerging technology, and rising industry costs.9
II. The context: Climate goals, emerging technology, and a distinctive market
Both Federal and California authorities have set ambitious climate and green energy goals, and followed through with legislative and administrative action. The Biden administration has set a target of 30 GW of offshore wind by 2030.10 To get there, both Congress and federal agencies have acted. This summer President Biden signed the Inflation Reduction Act into law, providing a bevy of incentives for green energy production, including an extension of the production and investment tax credits and an end to the outer continental shelf leasing moratorium.11 In September, the Biden administration also announced the “Wind Shot” program.12 The initiative will focus $50 million into floating offshore wind research with the aim of promoting 15 GW of floating offshore generation.13
Meanwhile, the California Energy Commission, in service of the state’s goal of carbon neutrality by 2045, has targeted up to 5 GW of offshore wind capacity by 2030 and 25 GW by 2045.14 In May of 2021, Governor Gavin Newsom announced an agreement to procure 4.6 GW of offshore wind through a partnership between state and federal agencies.15 A year later, BOEM made good on that collaboration, placing notice of sale of the Morro Bay and Humboldt WEAs in the Federal Registry.16 The California Energy Commission and Natural Resources Agency are set to provide preliminary assessments on economic benefits of wind energy to seaport investments, as well as workplace and permitting needs by the end of the year.17
This most recent foray into California waters comes on the heels of a decade of offshore development auctions. BOEM began auctioning offshore lease areas in 2013 with tracts off the coasts of Rhode Island and Massachusetts.18 The Biden administration has been active in the space, holding ten auctions in two years for twenty-seven leases in the Atlantic.19 Two other sets of wind energy areas have also been auctioned in 2022. Duke Energy Corp. and Total Energies SE won 110,091 acres off the coast of North Carolina for $155 million and $160 million respectively in May.20 That auction represented more modest results after an industry-shaking New York Bight Auction which saw six lease areas go for a combined $4.27 billion.21 Wednesday’s auction came out somewhere in the middle, capping out at $756.5 million for the two WEAs as developers balance the challenges of deep waters and higher technology costs against strong wind speeds.
The Morro Bay and Humboldt WEAs are unique not just because of their Pacific locations but also for their depth. There are just three presently operational floating wind farms in the world, and none come close to the projected output of the Morro Bay and Humboldt WEAs.22 The two largest installations sit off the Scottish coast and produce 50 and 30 MW respectively.23 The other is a 25 MW facility in Portuguese water.24
III. The future: Environmental, logistical, and procedural hoops, but market demand and promise
Winning the Morro Bay and Humboldt lease areas is just the beginning for the five successful firms. The winners must now submit site assessments to BOEM within the year, and a construction and operations plan within five.25 The projects must also obtain local, state, and federal permits as well as environmental assessments.26 The leases will include stipulations from the California Coastal Commissions including marine mammal monitoring measures, wildlife and fisheries training for employees, spill prevention measures, critical operations and curtailment plans, and engagement with the California Native American Heritage Commission.27 In addition to the construction of the projects themselves, each facility will require new transmission infrastructure to move the generated energy 32-34 km to shore. The new facilities may interconnect through substations at the Morro Bay Power plant, or the Diablo Canyon Nuclear plant, which is set to be shut down in 2025.28
The depths of the WEAs present technological challenges. The Morro Bay lease areas range from 530-1000 meters.29 The deepest floating wind installation under construction today rests 300 meters over the seabed.30 That depth presents additional expenses per MWh. Current levelized cost of energy is estimated at $200 MWh for floating wind farms as opposed to $84 per MWh for traditionally anchored offshore wind installations.31 The Department of Energy is seeking to lower that number to $45 per MWh by 2035 through research investments.32
The growth of offshore wind will also require more human capital. By one estimate the industry must generate between fourteen and fifty-seven thousand new jobs to meet the ambitious goals set by the current administrations.33 To offset some of these costs, the winners may be able to qualify for bidding credits, up to twenty percent off the winning bid provided the firm shows a pathway for workforce training, and supply chain development.34 A further five percent is available to those auction winners that enter agreements with communities, industries and tribes historically connected to the leased areas.35
Despite these challenges, California is ripe for offshore wind investment. The bidding was most likely driven by the strong wind speeds over the leased locations.36 The Humboldt WEA OCS-P 0561 experiences average wind speeds of 8 to 8.7 meters per second while OCS-P 0562 sees 100 meter wind speeds with quarterly averages over 10 meters per second.37 As the California market turns to expensive out of state generation, direct interconnection of offshore wind is an attractive alternative.38
Wednesday’s auction broke new ground in the wind energy space, expanding American offshore markets and portending technological possibilities. As the five winners get to work planning their facilities and applying for permits, the rest may set their aims on the next auction: 682,540 acres off the coasts of Texas and Louisiana. Those next tracts, finalized by BOEM in October, and expected to go up for bids in 2023, only add more vigor to a crescendoing wave of offshore wind production.
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1 “Biden-Harris Administration Announces Winners of California Offshore Wind Energy Auction” U.S. Dept. of Interior, (Dec. 7, 2022) Biden-Harris Administration Announces Winners of California Offshore Wind Energy Auction | U.S. Department of the Interior (doi.gov).
2 California Activities “California Offshore Wind Lease Sale” https://www.boem.gov/renewable-energy/state-activities/california (Last Visited Dec. 7, 2022).
3 Id.
4 Adam Wilson, “Upcoming Calif. Offshore Wind Auction to Test Limits of Floating Foundations,” SNL RENEWABLE ENERGY WEEKLY (Nov. 4, 2022).
5 Pacific Wind Lease Sale 1 (PACW-1) for Commercial Leasing for Wind Power on the Outer Continental Shelf in California – Final Sale Notice, 87 Fed. Reg. 64,093 (October 21, 2022).
6 Joshua Surtevant, Nicholas W. Dugdale and Nathan Barbara, “United States: California Offshore Wind Auction,” MONDAQ BUSINESS BRIEFING (Oct. 25, 2022).
7 Id.
8 U.S. Dept. of Interior, supra note 1.
9 Id.
10 Lulia Gheorghiu “Biden Administration Sets Target for 30 GW of Offshore Wind By 2030, Plans Offshore Leasing OFF NY, NJ Coasts,” Utility Dive (Mar. 30, 2021).
11 Tim Ferry, “US Offshore Wind Joy as House Backs End to Southeast Project Ban,” Recharge News (July 15, 2022).
12 Wilson, supra note 4.
13 Id.
14 Kassia Micek, “California Could Hold 1st Offshore Wind Lease by End of 2022,” SNL Energy Finance Daily (Oct. 10, 2022).
15 Id.
16 Id.
17 Id.
18 Wilson, supra note 4.
19 “US to Hold First Pacific Ocean Wind Lease Sale,” Oil Daily, (Oct. 18, 2022).
20 Wilson, supra note 4.
21 Id.
22 Id.
23 Id.
24 Id.
25 Mackenzie Shuman, “Ocean off Morro Bay will be Auctioned for Wind Energy Leases on Tuesday. Here’s How it Works,” The San Luis Obispo Tribune (Dec. 3, 2022).
26 Id.
27 Pacific Wind Lease Sale 1 (PACW-1) for Commercial Leasing for Wind Power on the Outer Continental Shelf in California – Final Sale Notice, 87 Fed. Reg. 64,093 (October 21, 2022).
28 Shuman, supra note 25.
29 Wilson, supra note 4.
30 Id.
31 Id.
32 Ethan Howland, “California Offshore Wind Lease Auction for Up to 3 GW Advances with BOEM Assessment,” Utility Dive (Oct. 7, 2022).
33 Id.
34 Shuman, supra note 25.
35 Id.
36 Wilson, supra note 4.
37 Id.
38 Id.
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