“To demonstrate the challenge offshore wind is having, 12 companies qualified to bid but only two submitted bids. Although the four leases were in the heart of some of the windiest areas of the U.S., they are further south of Martha’s Vineyard and Nantucket Island. But being in deeper water than the stymied Cape Wind project located to the north, their development and operating costs will be considerably greater.”
In furtherance of the wind power push, the administration has been working to expand wind-favorable regions for development. One region receiving a high-level of attention is offshore the East Coast. In addition to the advertised push to develop offshore wind power as a way to reduce greenhouse gas emissions, the governors of several of the East Coast states foresaw an opportunity to build a new industry that would employ thousands of residents. Rhode Island and Massachusetts led the way, but other states such as Maryland, New Jersey and even Virginia were angling for a piece of the action.
To date, there are no U.S. offshore wind farms in operation–or even under construction. One project, the Block Island Wind Farm (DeepwaterWind), located in Rhode Island state waters, has received all its local, state and federal permits and financing. It is scheduled to begin physical development this spring. The five-turbine project has a hugely expensive purchased power agreement (PPA), however, and faces continued resistance.
Cape Wind, on the other hand, proposed for Nantucket Sound south of Cape Cod and between Nantucket Island and Martha’s Vineyard (Massachusetts), lost its utility contracts when it failed to secure financing by year-end 2014. Cape Wind still believes its leases are valid and project economics solid. But the two power companies should be happy to be free of 15-year power purchase agreements with a starting price of 18.7 cents/kWh and a guaranteed 3.5% annual increase.
BOEM Lease Sale (for wind power)
In late January, the Bureau of Ocean Energy and Management (BOEM) held the fourth federal offshore lease sale for renewable energy. The sale targeted acreage in federal waters off the coast of Massachusetts.
To demonstrate the challenge offshore wind is having, 12 companies qualified to bid but only two submitted bids. Although the four leases were in the heart of some of the windiest areas of the U.S., they are further south of Martha’s Vineyard and Nantucket Island. But being in deeper water than the stymied Cape Wind project located to the north, their development and operating costs will be considerably greater. Two of the leases attracted no interest. Of the remaining tracts, each bidder purchased one lease. The total of the high bids accepted was $448,171.
Exhibit 1. Massachusetts Offshore Wind Leases
Including the recent sale, the government has raised a total of $14.5 million in high bids for more than 700,000 acres leased for renewable power projects. In the Gulf of Mexico, individual oil and gas leases often received high bids in excess of the entire renewable leases won at auction yet for less than 1% of the amount of wind acreage leased.
What was interesting about the Massachusetts lease sale was the positive spin put on the results by the federal government. According to Abigail Ross Hopper, director of the Bureau of Ocean Energy Management, in a conference call with reporters following the sale:
“We are happy with the results of this auction. We are working hard to set up an offshore wind industry in the United States, and so I am very encouraged by the fact that two experienced wind developers have chosen to bid.
But where were the rest of the developers, most of whom were pursuing onshore wind farm projects?
The prospects for U.S. offshore wind power, after a decade of effort, are marginal at best. A combination of very high costs and environmental issues has proven potent to date. Similar difficulties experienced by offshore wind proposals in Massachusetts and Rhode Island seem likely for proposed projects in Texas, Oregon and Hawaii.