Offshore Wind Bonanza Draws Bidding War in Record-Setting Sale

Photo: Rost9 / Shutterstock

By Jennifer A. Dlouhy (Bloomberg) — Companies competed Thursday for the opportunity to install wind turbines in Atlantic waters off Massachusetts in an auction that shattered records even as it headed toward a second day of frenzied bidding.

After 24 rounds of sealed bidding, companies had already pledged $285 million toward the three offshore wind leases that are up for grabs — more than six times the previous high-water mark: Norwegian energy company Equinor ASA’s $42.47 million bid in 2016 for the rights to build an offshore wind farm near New York.

High bids in the offshore wind auction, set to resume Friday, also already eclipsed the $178 million the U.S. government collected in its August sale of offshore drilling rights in the Gulf of Mexico.

By Thursday evening, when Interior Department officials called an overnight halt to the auction, four companies were still vying for the territory, drawn by growing demand for renewable power in the Northeast U.S. and a chance at gaining a foothold in the nation’s growing offshore wind market.

“The unprecedented interest in today’s sale demonstrates that not only has offshore wind arrived in the U.S., but it is set to soar,” said Randall Luthi, head of the National Ocean Industries Association.

Active Bidders

Some 19 companies were deemed qualified by the Interior Department to participate in the auction — higher than in any of the previous seven competitive sales of wind leases in U.S. waters. The prospective bidders included units of established offshore wind developers and renewable power companies that have primarily focused on land as well as oil companies such as Equinor and Royal Dutch Shell Plc.

Eleven companies were actively bidding at the start of Thursday’s sale, nearly twice the most-recent record, in 2016, when six developers competed for the New York offering. The Interior Department’s Bureau of Ocean Energy Management, which is conducting the sale, will name participants after the auction ends, expected sometime Friday.

The frenzy reflects growing interest in U.S. offshore wind, which has surged since 2016, when the nation’s first such facility, a 30-megawatt facility development near Block Island, Rhode Island, went online.

“We’ve seen a massive uptick in momentum,” said Nancy Sopko, director of offshore wind policy at the American Wind Energy Association. “Offshore wind in the U.S. went from an idea to a reality. Folks understand the U.S. is the next frontier for this technology.”

Playing Catchup

Although the U.S. is a relative latecomer, it’s making up for lost time. Wind developers are being lured to American waters by near-guaranteed demand, as coastal states ratchet up commitments to buy renewable electricity. For instance, in August, Massachusetts enacted a target for buying 1,600 megawatts of offshore wind.

“Looking up and down the East Coast — and specifically in the Northeast — we see states with huge commitments to buying this power,” Sopko said. “That is driving incredible demand for this energy.”

Declining installation costs and uncertainty about the timing of the next U.S. sale of an offshore wind lease also were feeding activity on Thursday.

Analysts also describe growing investor confidence in the stability and predictability of the market, as President Donald Trump continues making territory available for new projects. The U.S. has held eight auctions of federal offshore wind rights since the Obama administration started competitive lease sales in 2013, including two under Trump.

Rising Demand

And the extent of offshore wind power is expected to surge over the next decade — reaching 10,000 megawatts by 2030, compared to just 30 megawatts installed in the water today, according to Bloomberg New Energy Finance.

Companies are paying ever higher sums for the offshore development rights. Five years ago, Deepwater Wind’s $3.8 million bid was enough to win two tracts for the Block Island project.

But as of Thursday evening, when bidding was paused, the leases were going for $93 million, $91 million and $101 million. The territory spans nearly 390,000 acres (157,800 hectares) south of the resort islands of Martha’s Vineyard and Nantucket.

Bidding began Thursday morning at far more modest sums — as low as $254,776 for one of the available leases — before rapidly escalating. One company dropped out of bidding after the fifth round, when the total pledges hit $8 million. Another four companies had abandoned the auction by the end of the 13th round, when totals reached $77 million.

The higher prices reflect the transition to a more established market, said Tom Harries, an offshore wind analyst with Bloomberg NEF.

“Five years ago, you’d acquire a lease, and it would be more speculative — you were speculating there would be a market at some point. And that’s why there were fewer bidders and the prices were cheap,” Harries said. “Now that there is a route to market for your project and somebody who is incentivized to buy your power, then prices will be higher and competition will be higher.”

To keep momentum, industry experts say the Trump administration will need to schedule more offshore wind sales, beyond an auction of territory near New York slated for early 2020.

“Maintaining this tremendous level of interest from offshore wind developers requires a reliable inventory of regularly scheduled offshore wind sales and the ability to develop those resources,” said Luthi, whose ocean industries group has pushed the government to conduct at least four sales annually. “The unprecedented interest in today’s sale suggests that goal could easily be met and even surpassed,” Luthi said.

Companies with U.S. government qualification to participate in Thursday’s auction include Avangrid Renewables LLC, which won the rights to build an offshore wind farm near North Carolina last year, EDF Renewables Development Inc., Cobra Industrial Services, Inc., EDPR Offshore North America LLC, EC&R Development LLC, Enbridge Holdings Green Energy LLC, Equinor Wind US LLC, Mayflower Wind Energy LLC and Vineyard Wind LLC.

© 2018 Bloomberg L.P

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