The New York Bight auction is made up of six leases containing an estimated 5.6 GW of bottom-fixed offshore wind capacity that can serve New York and New Jersey offshore wind requirements, amongst others. Till now, New York and New Jersey have secured a combined capacity of 8.1 GW from offshore wind developers from a target to install 16.5 GW of offshore wind by 2035.
On Wednesday, bidding started at $24,711 per square kilometer for all six leases, which translated to a total option payment of $49 million. By the end of the day and 21 rounds, the cumulative bids stood at over $1.5 billion. Bidding will continue Thursday. Three leases secured a bid over $900,000 per square kilometer, and a fourth lease was just under the $900,000 level. Two leases had bids of around $575,000 per square kilometer.
The last auctions by BOEM resulted in the Beacon Wind, Liberty Wind, and Mayflower Wind leases - signed for around a quarter-million dollars per gross square kilometer in 2019. The amount is effectively an option fee to develop the lease. Once a lease is secured and a developer has paid the lease fee, the developer pays an annual rental fee ($3/acre) until commercial operations begin, when an operational fee is paid based on a set formula.
The trend for inflated option payments for certain offshore wind acreage is common to recent offshore wind leasing in Europe, reflecting a higher level of interest and confidence in offshore wind projects. Higher front end payments by developers will translate to increased pressure on the supply chain to reduce prices as developers seek to maintain their margins.
25 companies, including some of the large offshore wind developers who have already secured U.S. offshore wind leases, were invited to participate in the online auction, which kicked off Wednesday, February 23. In the final bid round of the day there were 13 active bids. The auction will continue on Thursday, February 24.
The award of lease does not guarantee a sale of offshore wind capacity. Successful developers still need to secure an offtake commitment through state procurement rounds. The states in the Northeast and Mid-Atlantic have identified 34 GW of offshore wind targets to date, of which 17.5 GW has an offtake.
Once the developers are selected, the process is for a developer to submit a site assessment plan (SAP) to BOEM for approval. Once approved, the developer conducts detailed site investigations which allows the developer to draft a construction and operations plan (COP). The SAP phase is expected to take up to five years.
The COP lays out the strategy of a developer to build and operate a wind farm. Review of this document and a project’s impact on the environment and stakeholders takes around two years. As such, the first leases awarded by BOEM in the New York Bight could see offshore wind production before the end of the decade.
All of the details of the New York Bight auction and all other US offshore wind projects are found in the monthly US Wind Market Update report produced by Intelatus Global Partners.
Subscribe to Intelatus' Monthly U.S. Offshore Wind Report here.