Fixing the Offshore Wind Lease Auction Process Is Imperative to the Industry's Success

US offshore wind development is one arrow in the quiver to reach the Biden administration’s aggressive decarbonization targets of more than 50% by 2030 and 100% carbon pollution-free electricity by 2035. But achievement of this goal is stymied by the current lease auction construct, which strains competition and creates a highly stressful situation for prospective bidders.

In an article for Utility Dive, Dean Koujak, director in Guidehouse's Energy, Sustainability, and Infrastructure segment, says that the federal government, under the Bureau of Ocean Energy Management (BOEM), designated lease areas pursuant to extensive study to facilitate the build-out of offshore wind. The rights to develop those lease areas are auctioned off to the highest collective bidders under an ascending clock auction, extracting the maximum possible lease price and cost from qualified bidders. This maximizes the cost to developers and the ultimate off-takers of offshore wind energy and associated credits.

“Offshore wind continues to have a cost disadvantage compared with land-based wind due to higher development and construction costs,” Koujak said. “This cost burden should not be exacerbated unnecessarily, rather it should be reduced when possible.”

According to Koujak, the solution lies in changing the auction design. Rather than initiate an ascending clock auction, the next step should be for BOEM to identify the party that can get the power onshore at the most economical price. In contrast, the current process supports the buyer with the most money and greatest eagerness for risk.

“A further step in the right direction is to facilitate a separate process for the development of an offshore wind transmission system,” Koujak said. “This measure would ensure that redundant transmission systems for each lease area are not separately constructed, but rather, consolidated and optimized.”