Investors desert latest US offshore wind auction

RWE emerged as the only victor in an auction in which two of the three leases available attracted no bids as the industry’s woes continue.

The latest US offshore wind auction has seen two of the three lease areas available receive zero bids as investors deserted the process in Louisiana and Texas.

The first-ever offshore wind energy auction for the Gulf of Mexico region saw Germany’s RWE emerge as the only winner, paying $5.6 million for the 102,480-acre lease in Lake Charles, Louisiana, providing it with the rights to develop a project of up to 2GW. The area received one other bid from an unnamed player.

However, the auction also featured two lease areas offshore of Galveston, Texas, one comprising 102,480 acres and the other 96,786 acres, neither of which received any bids. The Gulf of Mexico auction could have generated a total of 3.7GW of capacity, according to a statement from RWE.

The results are a far cry from the New York Bight auction in February 2022, which attracted $4.4 billion of investment for six leases, or the $757.1 million generated by the auction in California at the end of last year. Becky Diffen, a Texas-based partner at law firm Norton Rose Fulbright, said she is not entirely surprised by the subdued result.

“There’s many reasons to think the Gulf is a great place to build offshore wind. But, particularly with Galveston, it’s important to remember when developers are looking at sites – onshore or offshore – they’re looking at the market that ultimately they’d be selling the power to and how they create revenues. You have to look at off take scenarios and for me, that has a big impact,” she told Infrastructure Investor.

“For Galveston, you’d be selling into the ERCOT market where power prices are very low and you’ve got an easy ability to build large amounts of onshore wind and solar, so you’re competing against those resources which can build very big projects very cheaply and generate low cost of power,” she added. “That’s a harder market for offshore wind to compete in, compared to the north-east, where power prices are higher, it’s harder to build utility-scale projects and where there’s a strong demand from the utility offtakers for offshore wind projects.”

Diffen also drew a line between the support for clean energy between Louisiana and Texas as a potential factor. Last year, Louisiana set a 5GW by 2030 target for offshore wind, with the US having a federal target of 30GW by 2030. In Texas, state legislatures have been partially successful this year in enacting legislation either facouring natural gas or curbing renewables.

“There’s not that many developers doing offshore wind and there’s only a limited number out there and they have to choose what areas to focus on,” explained Diffen. “If they see that projects make more economic sense elsewhere, that’s telling about where they can think they can build better projects.”

She added: “Developers in general are a little bit worried about Texas right now because of the legislators. That was potentially a factor. A lot of developers onshore and offshore take that into consideration as a factor where to prioritise. I don’t think anyone can deny that the Texas legislature has had a rather anti-renewables stance, certainly this year and I would argue in the last two years before that.”

‘The worst-case scenario for the energy transition’

The underwhelming auction comes at a time of great uncertainty for offshore wind projects in both the US and Europe, with inflation, rising interest rates and supply chain troubles causing some developers to attempt renegotiations on PPAs previously awarded to projects.

This week, Danish developer Orsted said it is expecting impairments of about DKr 5 billion ($728.6 million; €670.9 million) on three of its US offshore wind projects – Ocean Wind 1, Sunrise Wind and Revolution Wind – as a result of supplier delays. These impairments could increase to DKr6 billion, the company added, as a result of frustrated negotiations with federal stakeholders about the three projects’ qualification for additional investment tax credits.

“Orsted has concluded that there is a continuously increasing risk in these suppliers’ ability to deliver on their commitments and contracted schedules. This could create knock-on effects requiring future remobilisations to finish installation, as well as potentially delayed revenue, extra costs, and other business case implications,” it said in a statement.

In a LinkedIn post last week, RWE’s chief executive Markus Krebber said the suspension of offshore wind projects in the US and Europe because of cost increases, tied with the financial struggles of turbine manufacturers, has created “the worst-case scenario for the energy transition” and said it calls into question the achievement of climate protection goals.

“This development must serve as a wake-up call for policymakers to adapt the regulatory framework to market realities,” Krebber said, citing the need for frontloaded auction schedules, acceleration of grid connection for projects, allowance of dual routes to market such as having both contracts for differences and private PPAs to industrial customers in one project, a recognition of inflationary cost increases for the technology by governments and direct and indirect financial support to stimulate investments in European manufacturing capacities.