U.S. Offshore Wind Leases Up for Grabs

offshore wind
Block Island Wind Farm installation

By MarEx 2016-12-02 16:16:46

The first commercial U.S. offshore wind farm, Block Island, is scheduled to come online in late 2016, and, coinciding with this, on December 15, the Bureau of Ocean Energy Management (BOEM) will hold a lease sale for more projects.

The sale will offer nearly 80,000 acres offshore from New York for nearly 80,000 acres, and it will be followed by another lease sale for areas of offshore North Carolina in 2017. 

14 companies have qualified to participate in the New York lease sale. Since the first lease sale in 2013, the number of companies qualifying to participate has steadily increased, from eight in 2013 to 14 in the latest offering. 

Block Island and More

Located three miles off the southeastern coast of Rhode Island, Block Island consists of five wind turbines that will produce 30 megawatts (MW) of electricity. The developer, Deepwater Wind, began construction on the project in July 2015. 

The electricity will be used on Block Island, where electricity is currently supplied by diesel-powered generators. The high cost of current electricity sources on Block Island helps to reduce the economic hurdles typically associated with power from offshore wind.

In November, Deepwater Wind announced plans for the Skipjack Wind Farm, a new offshore wind farm 17 nautical miles offshore from Maryland. The Skipjack Wind Farm will be the state’s largest renewable energy project. At 120 megawatts, the Skipjack Wind Farm could be built in a single construction season.

The company is also in the early stages of development of its South Fork Wind Farm, a 90 MW offshore wind farm located in federal waters 30 miles east of Montauk, New York that is scheduled to become operational in 2022.

Commercial Development

Although the Block Island Wind Farm was constructed in state waters, these additional leases are farther from shore in federal waters. State waters typically extend out to three nautical miles, and federal waters extend out to 200 nautical miles. The National Renewable Energy Laboratory estimates that the U.S. has 4,200 gigawatts of potential offshore wind energy, with the majority of that potential in federal waters. Although local state agencies typically handle wind development in state waters, BOEM manages all wind development in federal waters. 

BOEM held the first competitive federal offshore commercial wind lease sale in 2013 and auctioned off nearly 165,000 acres for wind energy development off the coasts of Massachusetts and Rhode Island. Since then, BOEM has held four additional auctions for wind development in the Atlantic region. To date, it has issued 11 commercial leases in federal waters. Cumulatively, since 2013, more than one million acres of land in federal waters have been leased for wind development and have generated more than $16 million in revenue from the lease sales for the federal government.

During the same period, the federal government collected more than $24 billion in revenue from offshore energy extraction activities, predominantly from oil and natural gas. This revenue includes rent, royalties per energy unit, and other fees. 

Because offshore wind is still in the development phase, companies are not currently paying royalties on production or other fees, but BOEM will collect future revenue from operating fees and additional lease sales. Production fees will be based on the capacity of the wind farm, its capacity factor, the average wholesale electric power price and an operating fee rate that BOEM determines.

Wind speeds offshore tend to be higher and less variable compared to onshore. Additionally, offshore wind has the potential to provide power in coastal areas where demand is high and land-based renewable energy resources are limited. However, offshore wind currently has much higher costs than onshore wind, solar or nonrenewable electricity generation options to serve loads on the U.S. mainland.

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