First Offshore Wind Sale in Gulf of Mexico Attracts Paltry Interest

By Nichola Groom

Aug 29 (Reuters) – The Biden administration’s first ever auction of offshore wind development rights in the Gulf of Mexico ended with a single $5.6 million winning bid on Tuesday, reflecting meager demand for the clean energy source in a region known for oil and gas production.

Germany’s RWE won rights to 102,480 acres (41,472 hectares) off Louisiana for $5.6 million, while the other two lease areas on offer off Texas received no bids, according to results posted on the U.S. Bureau of Ocean Energy Management web site.

That result represented a fraction of the billions of dollars of bids secured in an offshore wind lease sale off New York and New Jersey in February 2022, as well as more recent auctions for areas off the coasts of the Carolinas and California. 

Many of those states have passed laws that require utilities to buy power from offshore wind projects – mandates considered critical for a technology that is estimated to produce electricity at twice the cost of a natural gas plant.

A spokesperson for RWE said the sale was “a great opportunity to enter the Gulf’s offshore wind industry at the ground floor” and noted that the first lease sales in the Atlantic had similar participation and prices.

RWE is among the world’s largest offshore wind developers, with an extensive portfolio in Europe, and has also secured leases off the coasts of California and New York. 

The Gulf’s lower wind speeds, soft soils and hurricanes are considered challenges to the industry. The Southeast also has low power prices that could make it harder for higher-cost offshore wind generation to compete for electricity contracts.

French energy giant TotalEnergies, which is developing offshore wind projects in other U.S. regions, is one of the companies that elected to sit out the sale, despite having qualified to bid.

“Our assessment factoring in wind speeds, competition from other onshore renewables, and competitive power market conditions does not, at this time, justify submitting an offer,” a spokesperson said in a statement.

The sale also comes at a challenging time for offshore wind.

In recent months, owners of several planned projects in the Northeast have sought to renegotiate or cancel power delivery contracts due to soaring cost inflation. Many of those companies had been qualified to bid on Gulf of Mexico leases.

RWE said the Louisiana lease was attractive because the state has strong existing coastal port and supply chain infrastructure and a goal to install 5 gigawatts of offshore wind capacity by 2035. Texas does not have an offshore wind target.

“Today’s auction results show the important role state public policy plays in offshore wind market development,” Liz Burdock, CEO of the Business Network for Offshore Wind, said in a statement. 

The sale was cast by the President Joe Biden’s administration as a major milestone in his agenda to make offshore wind a cornerstone of U.S. efforts to fight fossil-fuel driven climate change.

“Today’s lease sale represents an important milestone for the Gulf of Mexico region — and for our nation — to transition to a clean energy future,” said Bureau of Ocean Energy Management (BOEM) Director Elizabeth Klein. 

She said the Louisiana lease had the potential to power about 435,400 homes and create hundreds of jobs.?

According to a BOEM document, fifteen companies were qualified to bid at the sale. 

They included offshore wind development arms of European energy companies Equinor EQNR.OLand Shell SHEL.L, who also have oil and gas operations in the Gulf.

Developers had been looking beyond the grid in the Gulf, with some eyeing the sale as a possible way to fuel a green hydrogen supply chain for the region’s vast industrial corridor.

(Reporting by Nichola GroomEditing by Marguerita Choy and Nick Zieminski)

(c) Copyright Thomson Reuters 2023.