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A Bight-Sized Analysis on the Upcoming BOEM New York Offshore Wind Lease Area Auction
The Bureau of Ocean Energy Management (BOEM) will hold an auction for commercial wind energy leases in the New York Bight on February 23. Up to twenty-five qualified bidders – some of them affiliated with each other (and subject to bidding rules that preclude collusion) – will be competing for six lease areas, the most areas offered in a single offshore wind auction to date. In total, the lease areas could host as much as of 5.6 to 7 GW of offshore wind capacity, based on anticipated deployment spacing and currently expected turbine sizes. The capacity may turn out to be even larger, given continued advancement in turbine size. The auction drew an unprecedented level of interest that potentially could set another record auction price, although the large number of offered lease areas combined with BOEM’s new rule limiting one lease area per winning bidder could temper somewhat the degree to which bidders trying to break into the U.S. offshore wind market at any cost must pay a scarcity premium to succeed.
In BOEM’s 2018 auction for leases in the Massachusetts wind energy area, three areas went for just over $405 million in aggregate, with the approximately $135 million lease prices for each individual lease area, easily exceeding the previous record for a U.S. offshore wind auction set by Equinor’s $42.5 million purchase in 2016.
This auction is timely, as New York and neighboring northeastern states are beginning to run out of offshore wind resource potential to meet their ambitious procurement goal; together these states collectively have over 11 GW left to procure (under established goals) with even greater ambitions brewing to meet greenhouse gas targets.
The next New York offshore wind procurement (ORECRFP 22-1) likely will take place shortly after the dust settles from the New York Bight auction. NYSERDA has set eyes on at least 2 GW of new projects. New Jersey is also shopping for at least 1.2 GW of offshore wind in 2022. Both states may be expecting bids from the new New York Bight leases.
The lease prices, if continuing the increasing trend, could become a bigger driver in offshore wind procurement award prices than they have been in the past. The latest round of New York offshore wind procurement in 2020 (ORECRFP 20-1) resulted in the selection of the 1,260 MW Empire Wind 2 and 1,230 MW Beacon Wind 1 offshore wind projects at contracted strike prices of $107.50/MWh and $118.00/MWh respectively (on a nominal levelized basis). The results are comparable to the state’s 2018 offshore wind procurement awards but came at a material premium to the most recent offshore wind procurement award prices in neighboring Massachusetts. The difference between the two states’ results is attributable to a combination of market and policy factors, including distance to onshore interconnection points and wind resource, differences in contract terms and hedging opportunities, targeted economic development requirements in New York’s solicitation, and the presence of a Massachusetts bid price cap.
1While prices for the 83C III solicitation are not yet published, they are subject to the price cap set by the preceding 83C II price of $77.76
2Empire Wind will have a $99.08 strike price in the first year of the contract, with a 2% annual escalator, which comes out to a nominal levelized price of about $118.64 per MWh
In Governor Kathy Hochul’s first State of the State address, she outlined that New York investment of up to $500 million in offshore wind ports, manufacturing, and supply chain infrastructure will be coupled with the next NYSERDA procurement. In a “shared vision” with BOEM and New Jersey, Governor Hochul and the state committed to include scoring criteria related to economic benefits and supply chain investments in the next solicitation. The New York Public Service Commission also recently ordered NYSERDA to include requirements for meshed grid-ready project characteristics in the next offshore wind procurement. These elements could, in conjunction with COVID-driven supply chain constraints, raw material price increases, and labor cost increases, exert upward pressure on bid prices.
Subscribers to Sustainable Energy Advantage’s Eyes and Ears Regulatory, Policy and Legislative Tracking and Renewable Energy Market Outlook services can look forward to continued coverage and analysis of the evolving New York offshore wind industry—as well as regional trends. Additionally, our Simulator of Northeast Offshore Wind Buildout and LCOE (SNOWBaL) model can help evaluate the competitive landscape and forecast bid prices and procurement dynamics for different projects, lease areas, and states. Contact SEA to learn more about these services, and how our work can help your future bidding and procurement strategies!