Contributed by Jason Hill, Samuel Brown, Garrett Kral and Carter Chandler Clements
On December 7, 2022, the U.S. Department of the Interior’s (DOI) Bureau of Ocean Energy Management (BOEM) announced the results of an offshore wind energy lease sale, or auction, it held the previous day for five lease areas on California’s Outer Continental Shelf (OCS). This auction is the third major offshore wind energy lease sale this year—and the first-ever for the Pacific region—and resulted in high bids from five companies totaling $757.1 million.
The lease areas included in BOEM’s auction cover a combined total of 373,268 acres and have the potential to produce over 4.6 gigawatts (GW) of offshore wind energy. According to BOEM, if and when developed, this amount of energy is enough to power roughly 1.5 million homes.
On the policy front, this offshore wind energy lease sale represents a critical step in achieving the Biden administration’s deployment goal of 30 GW of offshore wind energy by 2030 and 15 GW of floating offshore wind energy by 2035. It is also an important step for California, which is seeking to accomplish its goals of 2-5 GW of offshore wind capacity by 2030 and 25 GW by 2045.
As a result of this auction, the five provisional winners will divide 373,268 acres of California’s OCS as follows:
|Provisional Winner||Lease Area||Acres||High Bid|
|RWE Offshore Wind Holdings, LLC||OCS-P 0561||63,338||$157,700,000|
|California North Floating, LLC||OCS-P 0562||69,031||$173,800,000|
|Equinor Wind US, LLC||OCS-P 0563||80,062||$130,000,000|
|Central California Offshore Wind, LLC||OCS-P 0564||80,418||$150,300,000|
|Invenergy California Offshore LLC||OCS-P 0565||80,418||$145,300,000|
The energy companies listed in the lefthand column provisionally won their respective lease areas at the acerage noted with their high bids. Final determination regarding issuance of the leases is subject to BOEM’s approval, pending an antitrust review by the U.S. Department of Justice pursuant to 43 U.S.C. § 1337(c) and the winner providing financial assurance. Therefore, execution of the leases would likely not occur until early 2023.
Of the five lease areas included in the auction, three are within the Morro Bay Wind Energy Area (WEA) off the coast of Central California, and two are located farther north, in the Humboldt WEA. BOEM has issued Final Environmental Assessments and Findings of No Significant Impact for these locations. However, in the Final Sale Notice (FSN), BOEM warns that the issuance of any lease resulting from this auction does not constitute approval of project-specific plans to develop offshore wind energy, and that such plans remain subject to environmental, technical, and public reviews prior to BOEM’s final authorization. 87 Fed. Reg. 64093 (Oct. 21, 2022).
Further environmental review will likely include, among other things: semi-annual progress reports; regular engagement with Tribal communities; close coordination with the California Coastal Commission; and compliance with Executive Order 12985 “Advancing Racial Equity and Support for Underserved Communities Through the Federal Government” and Executive Order 14008 “Tackling the Climate Crisis at Home and Abroad.”
This auction included a 20 percent credit for the provisional winners who committed to programs or initiatives that “support workforce training” for the floating offshore wind industry or that “develop a U.S. domestic supply chain” for the same. See 87 Fed. Reg. at 64102. According to the BOEM press release announcing the auction results, over time, this credit could result in $117 million in investments.
The auction also included a 5 percent credit for provisional winners who committed to entering into a qualifying Community Benefit Agreement (CBA), which may be either: (1) a Lease Area Use CBA; or (2) a General CBA. A Lease Area Use CBA includes agreements between the provisional winners and “communities, stakeholder groups, or Tribal entities whose use of the geographic space of the Lease Area, or whose use of resources harvested from that geographic space, is expected to be impacted by the Lessee’s potential offshore wind development.” 87 Fed. Reg. at 64102. A General CBA includes agreements with “one or more communities, Tribes, or stakeholder groups that are expected to be affected by the potential impacts on the marine, coastal, and/or human environment (such as impacts on visual or cultural resources) from activities resulting from lease development that are not otherwise addressed by the Lease Area Use CBA.” Id. At this point, it is unclear if and how much of an investment these credits spurred.
A final note, it is important to consider the impact that the Inflation Reduction Act (IRA) has on these lease sales. The IRA ties offshore wind production to conventional leasing over the next 10 years. Therefore, DOI can only issue offshore wind leases if an offshore oil and gas lease sale has been held in the prior year, and the sum total of acres offered for lease during that year was 60 million or more.
To that end, the IRA requires DOI to conduct several conventional oil and gas lease sales in 2022 and 2023. For example, the IRA specifies that DOI must conduct Alaska’s Cook Inlet Lease Sale 258 by December 31, 2022, and Gulf of Mexico Lease Sales 259 and 261 by March, 31, 2023, and September 30, 2023, respectively. Lease Sale 258 is scheduled to be held Friday, December 30, 2022.
It will be interesting to watch how the Biden administration balances its wind energy development goals against those conventional oil and gas lease sales required by the IRA, and whether these provisions of the IRA impact DOI’s selection of alternative energy development projects in the 2023-2028 OCS program, which has yet to be finalized.