On August 29, 2023, the United States Bureau of Ocean Energy Management (“BOEM”) held its first-ever offshore wind auction in the Gulf of Mexico. After only two rounds, RWE Offshore US Gulf, LLC (“RWE”) was announced the provisional winner of the Lake Charles, Louisiana lease for $5.6 million. Unlike previous BOEM offshore wind auctions that were heavily contested, lasted multiple days, and attracted bids in the hundreds of millions, the BOEM Gulf of Mexico auction only had two participants that bid for a single lease area over two rounds and BOEM only awarded one of the three lease areas.
Gulf of Mexico Auction Results
During the auction, BOEM offered three leases totaling 301,746 acres on the outer continental shelf in the Gulf of Mexico — one lease area (102,480 acres) off Lake Charles, Louisiana, and two lease areas (102,480 and 96,786 acres) off Galveston, Texas. The lease areas combined have the potential to produce over 3.6 gigawatts of offshore wind energy and provide power for almost 1.3 million homes.
Fifteen entities were qualified to bid in the auction, but only two entities participated. While it was known that not all qualified entities would participate, participation in the auction was much lower than anticipated and lower than the participation in previous BOEM offshore wind auctions. By comparison, for the New York Bight auction, 25 entities were qualified and 14 ended up competing, for the North Carolina auction, 16 entities were qualified and five ended up competing, and for the California auction, 43 entities were qualified and seven ended up competing.
As compared to previous BOEM offshore wind auctions that lasted for days and went through tens of rounds, the Gulf of Mexico auction was much shorter and finished within a day, lasting only two rounds. The bidders bid exclusively on the Lake Charles lease area, and the two Galveston lease areas received no bids during the auction. The Lake Charles lease area alone has the potential to generate approximately 1.24 gigawatts of offshore wind energy capacity and power nearly 435,400 homes.
RWE was announced as the provisional winner of the Lake Charles, Louisiana lease area. However, the winning bid of $5.6 million (approximately $54 per acre) is extremely low compared to the $157.7 million that RWE Offshore Wind Holdings, LLC paid for a 63,338 acre lease area (approximately $2,490 per acre) in the California auction. As part of the bid, RWE earned a bidding credit equal to 20 percent of the cash bid (approximately $860,000) for committing to supporting workforce training programs and a domestic supply chain, and a bidding credit equal to 10 percent of the cash bid (approximately $430,000) for fisheries compensatory mitigation. Because both Galveston lease areas received no bids during the auction, they will remain unleased for the time being.
What’s Next for the Gulf of Mexico?
There are many global, U.S., and regional factors that may have impacted the participation and outcome of the Gulf of Mexico auction, such as global supply chain disruptions, ongoing re-negotiation of current U.S. offshore wind project offtake and offshore wind renewable energy certificate agreements, lack of state mandates for renewable energy procurement, and state anti-renewable legislation.
Relevantly, Louisiana has set a goal to procure 5,000 megawatts of offshore wind by 2035 and is reportedly in discussions with developers in connection with the potential development of three offshore wind projects in state-controlled waters. By contrast, Texas has not set any goals or targets to procure electricity from offshore wind projects or otherwise support the industry, and there has been strong political opposition to the development of offshore wind projects in the state.
Based on the auction participation and results, the broader offshore wind industry is not wanting at this time to invest in developing offshore wind in these particular Gulf of Mexico lease areas, however it is unclear if the same is true for the broader 30-million-acre Gulf of Mexico Call Area announced in November 2021. BOEM prepared the Environmental Assessment on the entire Call Area to allow greater flexibility for possible identification of additional Wind Energy Areas (“WEAs”) and to provide National Environmental Policy Act (“NEPA”) coverage in the event that non-competitive and research leases were proposed in the Call Area.
Next, we could see BOEM re-gauge the competitive interest in developing offshore wind projects in the Gulf of Mexico Call Area and certain developers may move forward with applying for non-competitive Outer Continental Shelf (“OCS”) leases or research leases in the Call Area. However, due to the noncompetitive nature of the Gulf of Mexico auction, it seems unlikely that BOEM would take near term actions to identify new lease areas in the Call Area for competitive auction.
Other U.S. Offshore Wind Updates
Updated Wind Energy Areas
BOEM is continuing to move closer to holding competitive auctions for areas off the coasts of Delaware, Maryland, Virginia, and Oregon.
On July 31, 2023, BOEM announced three final WEAs offshore Delaware, Maryland, and Virginia, totaling approximately 356,550 acres. The WEAs are located in relatively shallow waters off Delaware Bay, Delaware (101,767 acres), Ocean City, Maryland (78,285 acres), and Chesapeake Bay, Virginia (176,506 acres). The selected WEAs follow the public comment period in November 2022 on eight draft WEAs offshore North Carolina, Virginia, Maryland, and Delaware, which covered approximately 1.7 million acres. If fully developed, the final WEAs could support between four and eight gigawatts of electricity capacity. On August 1, 2023, BOEM published its Notice of Intent to prepare an environmental assessment of potential impacts from offshore wind leasing, which is subject to a 30-day public comment period. BOEM has noted that it may identify additional WEAs in deepwater areas for future leasing after completion of further studies of those areas.
On August 15, 2023, BOEM announced a 60-day public comment period on two draft WEAs located in the existing Call Areas offshore in southern Oregon. The draft WEAs cover approximately 219,568 acres offshore in southern Oregon with their closest points ranging from approximately 18 to 32 miles off the coast. The final WEAs may be further modified based on feedback collected during the comment period. Once the final WEAs are set, BOEM will conduct a NEPA review to analyze the potential environmental impacts from leasing, site assessment, and site characterization activities.
Revolution Wind
On August 22, 2023, the Department of the Interior (“DOI”) announced its approval of the Construction and Operations Plan (“COP”) for the Revolution Wind project. The project is located off the coast of Rhode Island and Massachusetts and is the fourth commercial-scale offshore wind project to be approved by the DOI, after Vineyard Wind (Massachusetts), South Fork Wind (Rhode Island / New York), and Ocean Wind 1 (New Jersey).
DOI approved the COP under a preferred alternative that will help meet energy needs and minimize impacts by installing fewer wind turbines than originally proposed by the developer to reduce impacts to visual resources, benthic habitat, and ocean co-users.
The record of decision from the DOI is the final step in the NEPA review process for the Revolution Wind COP, although the project must still receive BOEM’s final COP approval decision as required by the Renewable Energy Regulations (expected in Fall 2023) and other required Federal and state authorizations. Once completed, the Revolution Wind project will have an estimated capacity of 704 megawatts and will be capable of powering nearly 250,000 homes.
BOEM plans to complete reviews of at least 16 offshore wind project plans by 2025.
For further information, please contact:
Lauren Bachtel, Linklaters
lauren.bachtel@linklaters.com
