Offshore wind set to make US West Coast debut

The Biden administration has finally announced California’s first offshore wind lease auction – and it’s scheduled for the end of the year. What can investors expect?

The US Department of Interior announced last week that the long-awaited auction for offshore wind leases in California will soon arrive, on December 6. BOEM plans to sell five lots on the outer continental shelf in northern and central California, totaling an area of approximately 373,268 acres.

Dubbed Pacific Wind Lease Sale 1, it will not only be the first of its kind on the US West Coast but will mark the country’s first encounter with commercial-scale floating offshore wind energy development.

The Biden administration has made clear its goals to reach 30GW of offshore wind energy by 2030 and 15GW of floating offshore wind energy by 2035. This auction will represent 4.5GW of floating offshore wind energy capacity.

Auctions have already been held on the East Coast, with the latest auction of lots off the New York Bight making headlines for ultra-high bids. Can we expect the same in the Pacific?

“People will keep valuations very close to their chest, so it’ll be hard to get predictions. It was a surprise to us, and even some of our clients who were bidders, how high the bids for the [New York] Bight were,” Becky Diffen, a partner at Norton Rose Fulbright, told Infrastructure Investor

“To go from $135 million [at the first major offshore wind auction in Martha’s Vineyard, Massachusetts] to $1 billion [at the New York Bight auction] for an individual lease? It’s mind boggling”, she added. “But people are so excited for California, so I do think they’ll pay good money for those leases.”

Exciting time

The Martha’s Vineyard auction garnered $405 million in 2018, a fraction of the $4.37 billion committed this year to the New York Bight. Diffen cited a myriad of reasons as to why this excitement for offshore will continue into the next auction.

“These proposed leases will be the first on the West Coast, so there won’t be the type of competition present that we see on the East Coast. And the California market uses a lot of power, so there will be a lot of demand,” she said. Diffen also credits extended tax credits under the Inflation Reduction Act and high energy prices in the state as being boosts to the attractiveness of the projects.

“It’s more difficult to build onshore wind and solar in California, with the geographical challenges the state has alongside the strict permitting regimes and endangered species concerns”, Diffen explained. “We’ve seen the California electricity market turn to expensive power imported from other states for these reasons. So, from my perspective, being able to do offshore projects and bring that power straight to Californians is an extremely attractive proposition.”

But not all is golden in the golden state. “There will be some technology risk associated with these projects, as they will be the first floating wind turbines in the US However, we have seen the technology deployed successfully in other parts of the world”, said Diffen. Floating wind turbines are necessitated by the deeper nature of the terrain.

The final sale notice for PACW-1 has already been added to the federal register and Diffen is looking southwards for the stage of evolution in US offshore wind.

“Texas would be the easiest place to build offshore wind, as it’s more shallow. The economics are tricky, though, as energy prices in the state are too low for offshore to compete. It’s also much cheaper to set up onshore wind and solar in the state,” Diffen explained. “But we’ll see if we can get an auction in the Southeast – there’s definitely interest for it in the market.”

She continued: “I think we’ll continue to see interest in the space. I expect a big pickup in the number of projects once those in development now are up-and-running. This is the beginning of a big boom.”