THE DEPARTMENT OF INTERIOR’S Bureau of Ocean Energy Management announced last month that it will auction three new wind energy lease areas off the Massachusetts coast, instead of the two that were initially forecast. The move provides a fresh gust of good news for the emerging wind industry in the United States. By mapping out three areas from the two, the auction increases the number of offshore wind developers that eventually will be eligible to respond to requests for proposals in Massachusetts, Connecticut, Rhode Island, and New York. States could see as many as five or six developers bidding to bring energy consumers the lowest price.
Even more encouraging is the qualification of 19 eligible bidders listed in the Bureau of Ocean Energy Management’s October 18 notice of final sale. It indicates the robustness and ever-increasing interest in developing an offshore wind industry on the East Coast. Whether spelled out in the eligible bidder’s name, such as Equinor Wind US LLC, or hidden behind a clever New England sounding name – Shell has taken the name Mayflower Wind Energy LLC – the auction has attracted the attention of the world’s largest energy companies with worldwide experience in offshore wind development.
But the message is mixed for energy consumers. These companies will compete by offering the highest price for the lease areas. That’s good for the federal government’s coffers, but perhaps not so good for ratepayers’ pockets. The high price paid to the federal government to win a lease will be built into the price consumers pay for the wind power from the lease area. The high lease prices brought about by the 19 bidders promise to work against consumer interests.
Imagine instead that the 19 eligible bidders were competing to provide states the lowest price for wind energy over a shared transmission line. Instead of five or six bidders – each with its own transmission export cables and associated permitting, stakeholder engagement process, and environmental disruptions – that there are 19 developers bidding to build wind farms that would plug into a fully permitted offshore wind transmission system developed independent of the generation.
Unfortunately, our current approach to developing the offshore wind industry relies on companies that want to build both the generation and the transmission to get the energy to shore. The incentive for these enterprises is to outbid all others for the lease areas so they can limit future competition. The three lease winners could lock 16 eligible offshore wind developers out of the competition for power contracts, an arrangement unlikely to yield the low prices states desire.
Let’s instead embrace an approach that increases competition and brings consumers the lowest prices. Let’s separate generation from transmission offshore, just as it is separated onshore, and have all 19 eligible bidders compete to provide the lowest energy price, not the highest lease price. In Germany, where offshore wind development areas are geographically similar to those in Massachusetts, generation and transmission are not jointly owned by the same developer. There, developers plug into a shared grid. The result has been good for competition and pricing, and with less impact on the ocean bottom.
The expansion of offshore wind in the United States reflects a growing belief in its potential as an effective, affordable resource. Let’s take full advantage of the new era by maximizing competition through shared infrastructure.
-Stephen Conant is a partner at Anbaric Development Partners, an energy transmission company and president of its subsidiary, Massachusetts OceanGrid LLC.