Equinor and Dominion winners in $93m US Central Atlantic offshore wind lease sale

US offshore wind incumbents Equinor and Dominion Energy were winners in Wednesday’s federal lease auction in the Central Atlantic that saw 278,000 acres (1,125 km2) holding at least 6.3GW of capacity sold for $92.65m.

The auction was hosted by coastal regulator Bureau of Ocean Energy Management (BOEM), which is overseeing President Joe Biden’s administration’s drive to reach 30GW of capacity by 2030.

“Today’s lease sale represents a major milestone in meeting the demand for clean renewable energy along the East Coast,” said BOEM director Elizabeth Klein.

Equinor took the 101,443-acre lease 0557 in wind energy area (WEA) A-2 located 30 miles (48 km) from Delaware Bay separating Delaware from New Jersey for $75m after four other bidders fell out over six rounds. The auction closed by 1100, only two hours after starting.

“Equinor’s interest in this auction is consistent with our approach to pursue attractive offshore wind opportunities in the US,” said Molly Morris, president of Equinor Renewables Americas.

Maryland is targeting 8.5GW of capacity under contract by 2031, while Delaware is mulling a 1.2GW goal.

Dominion sealed its win of the 176,505-acre lease 0558 for $17.65m after a single rival quickly dropped out by round 2.

The price paid developer of the nation-leading 2.6GW Coastal Virginia Offshore Wind (CVOW) amounted to around $100 per acre, among the lowest prices ever paid for offshore wind acreage.

“Offshore wind is critical to our all-of-the-above approach to meet the unprecedented growth of our customer electric demand over the next decade,” said Robert Blue, CEO of Dominion Energy.

“Winning this lease area gives us another low-cost option to meet that growing demand while providing our customers with reliable, affordable and increasing clean energy,” Blue added.

Evan Vaughan, executive director for Maryland-based renewable energy advocate MAREC Action said the auction result “makes clear that a combination of state policies in Maryland, Delaware, New Jersey and Virginia, along with rising electricity demand are attracting major interest from our growing industry.”

Regulatory framework

The disparity in prices between the two leases reflects different market regulations in the MidAtlantic states.

Maryland’s deregulated market allows competition among power providers that in theory leads to lower power prices for consumers, yet drove up lease prices to around $739/acre.

Virginia’s regulated market grants Dominion a near-monopoly, which likely quashed interest in the lease over challenges bringing power to market from an independent power producer..

Avangrid has tried to develop its 2.6GW Kitty Hawk array off the maritime boundary of Virginia and North Carolina for years before finally selling a 50% stake to Dominion

Dominion’s win is “an excellent outcome for Virginia,” said Julia Pendleton, managing director for industry group Southeastern Wind Coalition.

“We didn’t have that competition that really drove up the price of the [other] lease and would have therefore driven up the price of the project overall,” she said.

“Having a trifecta [of projects] means the Commonwealth is on a pathway to meeting its offshore wind goal.”

Virginia mandates 5.2GW of offshore wind development by 2035.

Industry reaction

The guarantees offered by Virginia’s regulatory framework enabled Dominion to enter into supplier contracts in 2021 prior to the onset of inflation that devastated the US offshore wind sector, and CVOW remains the only US offshore wind project to remain on budget and on time.

“Today’s successful lease sale underscores the critical importance of offshore wind energy in powering America’s future,” said Anne Reynolds, vice president of offshore wind at industry advocate American Clean Power Association.

“The Central Atlantic wind lease sale can sustain the momentum of American offshore wind, which has matured significantly, creating jobs and driving investments across many states, extending well beyond those adjacent to new wind farms,” said National Ocean Industries Association president Erik Milito.

Liz Burdock, CEO of Oceantic Network, said the sold leases “will strengthen an emerging manufacturing hub in the mid-Atlantic, creating a dependable pipeline of contracts well into the next decade. Despite the general uncertainty around the upcoming presidential election, this is a vote of confidence for an American industry.”

Course correction?

Despite industry optimism, pricing in the Central Atlantic round trailed earlier auctions in more uncertain markets, including the Carolina Long Bay and California floating tenders.

It may be good that leases have gone down in price levels, as “lease prices generally were getting too high, risking higher power prices ultimately being passed on to electricity consumers and locking out all but the biggest players from the game,” said Signe Sorensen, senior market analysts for industry intelligence firm Aegir Insights.

This “may mean it is not necessarily the optimal time from BOEM’s point of view to hold a string of lease sales,” she added.

BOEM is planning on 12 offshore wind lease sales by 2028 but cancelled its second round Gulf of Mexico auction last month due to lack of industry interest.