Inside Clean Energy: Explaining the Record-Breaking Offshore Wind Sale

After days of bidding, six companies emerged as winners last week in a record-breaking auction for the rights to develop offshore wind in federal waters off New York and New Jersey.

The total of the winning bids was $4.37 billion for 488,000 acres spread across six lease areas. The process was overseen by the Bureau of Ocean Energy Management.

Of the winning companies, all but one, Invenergy Offshore Wind, are based in Europe or include European partners. Two European oil companies, Shell and TotalEnergies, were among the winners.

The lease areas can support development of up to 7,000 megawatts of offshore wind, which could generate about 25 terawatt-hours of electricity per year. For perspective, New York state’s power plants generated 129 terawatt-hours in 2020.

But obtaining leases is just the beginning of a long process. The companies now need to obtain permits and project financing, looking ahead to a day, they hope before the end of this decade, when they are installing wind turbines.

The new projects will be near several others that were previously leased, including Empire Wind 1 and Empire Wind 2, which is a partnership of two European oil companies, Equinor and BP.

Here are four things that are important to understand in this moment:

1. The total of the winning bids is a breathtaking number.

In writing about energy, I throw around a lot of big numbers, and it’s easy to lose track of the differences between numbers that are big and ones that are staggeringly huge. The total of these winning bids is staggeringly huge.

The $4.37 billion total is more than 10 times the previous U.S. record for offshore wind leases, which was $405.1 million for 390,000 acres in 2018 for four lease areas off Massachusetts.

Looking at the total in terms of dollars per acre, last week’s sale was about $8,950 per acre, compared to about $1,040 per acre for the 2018 leases in Massachusetts.

Last week’s sale was also huge compared to leases of other federal energy assets, like areas to drill for oil and gas. In 2021, companies set a new record for winning bids for oil and gas leases with $191.7 million for leases in the Gulf of Mexico.

The prices for offshore wind leases are an indication that companies see strong economics for potential projects, said Aaron Barr, an energy analyst for the research firm Wood Mackenzie, in an email.

“The high auction prices are a function of the large lease areas and the rapidly maturing U.S. offshore industry,” he said in an email. “These particular lease areas hold significant value due to the proximity to load centers of New York and New Jersey, which will have an unrelenting demand for more and cleaner electricity.”

2. The companies behind the winning bidders show Europe’s dominance of the offshore wind industry.

Here are the six companies that won leases:

• Atlantic Shores Offshore Wind Bight, a joint venture of Shell, the oil and gas company based in the United Kingdom, and EDF Renewables, a French power company.
• Attentive Energy, a subsidiary of TotalEnergies, the oil and gas company based in France.
• Bight Wind Holdings, a joint venture of RWE, Germany’s largest power company, and National Grid, a power company based in the United Kingdom. National Grid’s assets include local utilities that serve Massachusetts, New York and Rhode Island.
• Invenergy Offshore Wind, a partnership of Invenergy, the Chicago-based renewable energy developer, and energyRe, a clean energy developer with offices in New York and Houston.
• Mid-Atlantic Offshore Wind is owned by Copenhagen Infrastructure Partners, a Denmark-based company that also is a co-owner of the Vineyard Wind offshore wind project in Massachusetts.
• OW Ocean Winds East, owned by Global Infrastructure Partners, a New York-based investment firm, along with Ocean Winds East, a joint venture of two large energy companies, EDP Renewables of Portugal and Engie of France.

The list is filled with European companies that are giants in their home markets, several of which have extensive experience in offshore wind.

And that’s a good thing, a sign that the best players in this space see strong opportunities in the U.S. market, said John Rogers, an energy analyst for the Union of Concerned Scientists.

“Europe’s been doing offshore wind for 30 years,” he said. “It’s a global market, so I think bringing not just their capital but their expertise to our shores makes a lot of sense.”

As the U.S. market develops, he expects to see more American companies leading projects. But even if European companies are in charge, the projects will require billions of dollars in investment and thousands of jobs in the United States, as shown by announcements in coastal states of new businesses opening to serve the offshore wind industry.

3. European oil companies continue to expand into offshore wind.

Shell and TotalEnergies were already players in the offshore wind market. They are indicative of a larger trend of European oil companies moving quickly to invest in renewable energy. The companies are often responding to climate goals in their home countries and pressure from shareholders and environmental advocates.

U.S.-based oil companies like ExxonMobil are also working to develop renewable energy, but not to the same extent.

“By growing our portfolio and deepening our power synergies in the New York and New Jersey markets, we will help scale our own low-carbon ambitions while providing cleaner energy options the world needs,” said Wael Sawan, Shell’s integrated gas and renewables director, in a statement.

Rogers said oil companies’ interest in offshore wind is an encouraging sign, although many of them are still expanding fossil fuel production.

“We know that oil companies, if they’re going to carry through the 21st century, they’re going to need to stop being oil companies,” he said.

4. After an extended prologue, it’s time to start building stuff.

I started writing this newsletter in 2018, around the time that developers announced plans to build Vineyard Wind off of Massachusetts, a project that, with 800 megawatts of capacity, was going to be the country’s first super-size offshore wind farm.

Since then, progress has been slow despite lots of announcements and investments. The only operating offshore wind projects are tiny, in Rhode Island and Virginia, with a total of seven turbines.

Vineyard Wind went through years of delays before getting a federal permit in 2021, while more than a dozen other large projects have been announced and are in various stages of planning.

Now, the construction phase of the U.S. offshore wind industry looks tantalizingly close.

Vineyard Wind’s developers held a ceremonial groundbreaking in November, and say they have begun onshore construction work. The next step would be offshore construction work, with plans to begin generating electricity in 2023.

A second project, South Fork Wind Farm, which will produce 130 megawatts east of Long Island in New York, got federal approval in November and held its ceremonial groundbreaking last month.

Other projects will follow.

Last week’s lease results were the latest of many signs that the offshore wind industry is healthy and about to begin a building boom. But the boom isn’t here yet.

Other stories about the energy transition to take note of this week:

Coal Giant Peabody Announces Venture Focused on Solar Power and Energy Storage: Peabody Energy, the world’s largest private-sector coal company, has said it is part of a joint venture that will develop utility-scale solar power and energy storage. St. Louis-based Peabody is working on the venture with Riverstone Credit Partners and Summit Partners Credit Advisors, and intends to develop 3,300 megawatts of solar and 1,600 megawatts of battery storage over the next five years, as Bryce Gray reports for the St. Louis Post-Dispatch. Peabody has extensive land holdings, which it can use for clean energy projects.

Midwestern Utility Says It Will Quit Coal by 2025: AES Corp., a multinational energy company that owns utilities in Indiana and Ohio, said last week that it will stop burning coal by 2025. That’s potentially significant for the company’s Indianapolis Power & Light and Dayton Power & Light service territories, except it’s not clear whether AES intends to make the change by shutting down coal plants or merely selling them, as Sarah Bowman reports for The Indianapolis Star. AES, with headquarters in Virginia, has been a leading developer of energy storage and renewable energy projects, most of them in places outside of its utility service territories. AES’ lack of commitment to shutting down its coal plants, like the Petersburg plant in Indiana, “kind of takes the shine off” of its announcement, said Wendy Bredhold with Sierra Club’s Beyond Coal campaign in Indiana.

Supreme Court Hears Major Environmental Regulation Case: The U.S. Supreme Court is showing some willingness to place new limits on the Environmental Protection Agency’s ability to regulate greenhouse gases from power plants, based on comments in oral arguments this week. The case, led by the state of West Virginia, could sharply reduce the federal government’s powers to encourage a transition to clean energy, as my colleague Marianne Lavelle reports.

Ford to Split Its EVs and Legacy Autos into Different Units Within Company: Ford Motor has said it plans to reorganize its operations to put its electric vehicle operations into a unit separate from its vehicles that run on gasoline and diesel. The company expects the move to help maximize profit in its growing EV business, as Michael Wayland reports for CNBC. “We’re announcing one of the biggest changes in our history today,” said Jim Farley, Ford’s CEO.

Inside Clean Energy is ICN’s weekly bulletin of news and analysis about the energy transition. Send news tips and questions to [email protected].