BOEM’s New York Bight Lease Auction

March 1, 2022
John Dalton

BOEM’s New York Bight lease auction was a huge success, but with such success comes challenges. First, let’s celebrate the success. An industry that until recently was frequently referred to as “nascent” in the US, was able to attract $4.4 billion for the right to develop six offshore wind (OSW) projects. It was possible to attract significant amounts of capital at relatively low cost because we have put in place a regulatory & market framework that provides investors with the certainty required to secure this capital under reasonable terms. This accomplishment is heightened by the fact that OSW projects have multi-year permitting processes with multiple federal, state and local agencies and require the commitment of billions dollars for project construction.

In addition, the auction was able to attract new entrants to the US OSW sector that will enhance competition to the benefit of customers and strengthen the OSW supply chain. Welcome EnBW/Total Energies, RWE/National Grid and Invenergy!

The presence of existing US OSW sector participants who fully understand the opportunity and environment as well the availability of six lease areas provides a compelling market test for these valuations. Congratulations CIP, Atlantic Shores and Ocean Winds!

However, these lease prices do suggest that the auction framework employed can present challenges recognizing that these lease holders will be seeking to earn a return on this investment. The net result is that there is a cost to customers from these prices. Competition between these six lease holders and incumbents that have existing lease areas will temper the ability of these new leaseholders to pass the full cost of these leases through to customers without offsetting economies. While price is the most effective criterion for clearing markets, it is probably time to consider alternatives to single factor bidding and having the lease sale proceeds go directly to the Federal Treasury. One alternative is to use a portion of the sale proceeds to invest in the industry (supply chain), local communities or workforce as well as potentially to fund rebates to customers.