The number of development consortia now circling the US’ first floating wind auction, set for early December off California, has spiraled up to 43, almost double the headcount a few weeks ago and far outstripping any previous sale in federal waters along the US east coast.
Five lease zones spread across two separate wind energy areas (WEA) off Morro Bay in central California and Humboldt County in the north of the state are to come under the hammer. The WEAs sprawl over some 373,000 acres of Pacific deepwater and hold a wind resource expected by the Bureau of Ocean Energy (BOEM) to translate into at least 4.5GW of generation capacity.
“The number of bidders reflects both confidence in the direction of national and state energy goals coupled with the knowledge that offshore wind has to be a significant part of the solution,” Theodore Paradise, chief policy and legal officer in the US for Swedish floating wind developer Hexicon, qualified as a California bidder, told Recharge.
California has set the most ambitious offshore wind targets in the US, 2-5GW by 2030 and 25GW by 2045, and the sector’s future power production is considered crucial to managing its currently solar-heavy ‘duck curve’ supply-demand imbalance.
High demand might also drive-up prices, too, however. Huge appetite in the US' record setting New York Bight offshore wind auction this past February resulted in six leases selling for a total of $4.37bn – almost $9,000 per acre.
“It could be that people just bid the lights out to get that first position in the market, [which] is very valuable,” Scott Urquhart, CEO of research consultancy Aegir Insights, told Recharge.
“Getting one of the first leases gives you a good foothold and positions you for many future options that might come your way.”
Competition for this early-mover advantage in this emerging industry play may be cutthroat, particularly with so many deep-pocketed international oil majors and utilities crowding into the pack, including BP, Shell, and EDF, as well as industry stalwarts Orsted, Avangrid, and Equinor.
Lease costs would ultimately factor into total project capex so the higher the bids go, ultimately the higher the levellised cost of energy
Samantha Woodworth, WoodMac
Many of these developers jockeying into the US offshore wind industry have been shut out of recent auctions, including the Carolina Long Bay this past May, and will be hungry to recover any perceived lost of momentum the market.
Chelsea Jean-Michel, wind energy analyst for BloombergNEF, added that BOEM has not clarified when another lease auction off California will occur following this current round.
As BOEM typically requires at least four years to identify and auction off new wind energy acreage, “this auction could represent developers’ last chance to win a lease off California for several years, also pushing up prices”, Jean-Michel told Recharge.
Strong competition driving up lease prices could raise overall sector costs, Samantha Woodworth, lead wind analyst for Wood Mackenzie, told Recharge: “Lease costs would ultimately factor into total project capex [capital expenditure], so the higher the bids go, ultimately the higher the LCOE [levellised cost of energy].”
Driving down LCOE by 70% is a key goal of the Biden administration’s recently launched Floating Wind Shot initiative aimed at shepherding the installation of as much as 15GW by 2035 from precisely one part-scale unit deployed so far off the US – and that off the east coast.
The New York Bight’s record prices may have contributed as much as $11 to the total LCOE, calculates Aegir Insights, and such a LCOE rise could spell trouble for California.
But Woodworth sees the west coast state’s prices falling more in line with the much cheaper Carolina Long Bay last May, where a pair of leases in roughly 110,000 acres sold for $160m and $155m respectively, not a small amount but at some $2,860/acre, a bargain compared to the Bight.
“I doubt we’ll see New York Bight prices again if the industry can help it,” she said, “especially considering that floating is so much more logistically challenging and therefore more expensive.”
“But I do think they’ll be higher than Carolina Long Bay purely because of the competition and plot size.”
Uncharted waters
The California floating auction is uncharted territory for the US sector, with multiple factors at play that could push prices up or stifle them.
The auction includes a ramped-up regime of bidding credits for community benefit as well as workforce or supply chain development to 30% of the total bid, but whether this will factor into bids is unclear.
How many bidders will actually participate in the auction on the day is another wildcard. Fourteen of 25 qualified New York Bight bidders competed, while only five out of 16 entered the Carolina Long Bay auction.
Moreover, multiple developers have common owners or are partners, and so – as per BOEM rules preventing “affiliated eligible bidders [from] compet[ing] against each other” – will not be able to participate.
BOEM was originally scheduled to have two separate auctions for the two WEAs, but in response to industry comment changed the format to a single auction, resulting in the redundant bidders.
TotalEnergies, for one, has qualified both independently and as partner in a joint venture (JV) with Trident Winds to form Castle Wind. Copenhagen Infrastructure Partners (CIP), for its part, has put forward multiple entities, while French energy firm EDF is competing as Seaglass for two project bids.
No central offtake or mandate
Further, unlike in the more established offshore wind markets in the northeast US, California has not enshrined its targets into legal mandates, potentially diminishing the urgency to ensure these goals are met.
More significantly, the state lacks a clear pathway to market, as it doesn’t have a central authority along the lines of the New Jersey Board of Public Utilities or the New York State Energy Research & Development Authority capable of organising procurement of vast volumes of renewable energy production.
Lynsey Paulo, spokeswoman for California’s largest utility, Pacific Gas & Electric Company (PG&E) told Recharge that “although the CPUC [California Public Utilities Commission] has adopted a form of centralised procurement for reliability in transmission constrained load pockets, [it] has not adopted a central procurement entity for projects of this nature”.
The state will depend instead on utilities or California community aggregators (CCA), socially driven power consortia, to purchase production from floating wind power developers.
PG&E has never entered into a long-term gigawatt-scale wind contract, however, and floating wind leaders doubt CCAs can manage such procurement either.
Adrienne Downey, US country head for Hexicon, told Recharge: “Even with a drive for 100% clean power, no single CCA, or other disaggregated power purchaser in California’s market, can buy this much power on their own. California needs a different approach to procurement to achieve the state’s offshore wind goals.”
Matthew Marshall, spokesperson for CCA Redwood Coast Energy Authority, which plans to bid into the California auction – as well as being a potential customer for power generated in the Humboldt WEA, countered that CCAs have a track record of forming coalitions to increase buying power when pursuing large scale procurement contracts.
“CCAs are quite capable of working together on joint solicitations for renewable power,” he told Recharge.
Route-to-market challenges aside, the state will also struggle with multiple bottlenecks that could delay projects and raise costs, including an almost complete lack of port availability near to the larger WEA at Morro Bay.
The Humboldt WEA, which can be serviced through the Port of Humboldt, conversely has existing transmission infrastructure to handle only some 150MW of offshore wind power, a tenth of its 1.5GW capacity potential.
All factors considered, Wood Mackenzie’s Woodworth says: “California is pretty all-in on offshore wind, so [developers] may be willing to pay that premium, but banking on that is still a risk.”
