Technical and regulatory hurdles facing floating wind development off California led to unexpectedly low turnout and prices in the recent auction – with knock-on benefits to levelised cost of energy (LCOE) on the cards as a result, according to two leading sector analysts.
Only seven of 43 qualified bidders turned up for five lease areas off Morro Bay and Humboldt WEAs, with five developers paying $757.1m in total for between 4.6GW- 7.5GW of capacity in a process that saw acreage change hands for a fraction of the prices seen in Atlantic rounds earlier this year.
“The lack of offshore wind revenue support programme in California, the need to use nascent floating platform technology, and a non-existent local supply chain can explain the lower prices and turnout,” said Chelsea Jean-Michel, wind energy analyst for BloombergNEF.
California is targeting 2-5GW of capacity by 2030 and 25GW by 2045, but these are not legal mandates. The state also lacks a procurement entity and has severe supply chain, port, and transmission grid constraints – all raising costs and risk.
High costs of floating technology likewise played a role, and BNEF sees capital expenditure (capex) for California floating at $4m-$4.98m per MW, compared to $2.5m-$3.4m per MW for fixed bottom projects.
“The California projects come at a 50% cost premium,” said Jean-Michel.
However, relatively cheap leases may lead to lower LCOE for floating development in the Golden State that is more in line with the less uncertain, fixed-bottom markets of the New York Bight, according to Danish offshore wind analytics firm Aegir Insights.
The New York Bight auction last February saw prices skyrocket to a record $4.37bn, driven by nation-leading legal mandates in the adjacent markets of New York and New Jersey of 9GW and 11GW, respectively.
New York Bight areas sold for nearly $9,000/acre, compared to around $1,700/acre in California.
“The lease prices add about $1-$3 per MWh to the Californian projects, which corresponds to between 1.2% and 4.5% of overall LCOE,” Aegir said in a research note released 18 December. “For comparison, lease prices in New York Bight make up around 10-15%” of the LCOE.
Aegir sees LCOE in Humboldt around $67/MWh and Morro Bay at $85/MWh. The research consultancy estimates New York Bight LCOE at between $68/MWh and $77/MWh, with $10 attributed to costly leases.
“The large difference in lease prices between the two auctions may significantly reduce the differences between final LCOE levels [in California and the New York Bight]”, Aegir noted.
The five winners – all US offshore wind industry incumbents – include German utility RWE; California North Floating – headed up by Denmark’s Copenhagen Infrastructure Partners (CIP); Central California Offshore Wind – led by French-Portuguese joint venture Ocean Winds; Norwegian energy group Equinor; and US renewables giant Invenergy.
“Given the unique challenges of the California market, it is really a market for sophisticated players to open up,” Scott Urquhart, CEO of Aegir, told Recharge.
