U.S. BOEM Proposes Offshore Wind Auction in the Central Atlantic
On December 12, 2023, the United States Bureau of Ocean Energy Management (BOEM) published a Proposed Sale Notice (PSN) in the Federal Register to auction off two separate lease areas in the Central Atlantic Outer Continental Shelf. The Central Atlantic auction is estimated to occur in Q2/Q3 2024 and will be the fifth offshore wind lease auction held during the Biden-Harris Administration.
Lease Area Details
The PSN includes two separate lease areas: a 101,443-acre area approximately 26.4 nautical miles (nm) offshore the states of Delaware and Maryland and a 176,505-acre area approximately 35 nm offshore the Commonwealth of Virginia. The lease areas together total approximately 277,948 acres with the potential to power almost 2.2 million homes with clean energy.
These lease areas include two of the three Central Atlantic Wind Energy Areas (WEAs) that BOEM announced in July 2023.1 The PSN does not include a lease area within Maryland WEA B-1, which is an 78,285-area acre approximately 23.5 nm offshore Ocean City, Maryland. BOEM removed Area B-1 from consideration as part of the proposed lease sale because of the magnitude and cost of collective mitigation that the Department of Defense may impose to accommodate offshore wind construction and operations in the area. BOEM noted that Area B-1 may be considered as part of a potential second lease sale in the Central Atlantic, which could occur as soon as 2025.
Overview of the PSN and Forthcoming Final Sale Notice
The PSN’s publication in the Federal Register initiated a 60-day public review and comment period. The PSN contains detailed information pertaining to the areas available for leasing, certain lease provisions and conditions, auction details, criteria for evaluating competing bids, and procedures for lease award, appeals, and execution.
The development of the Final Sale Notice (FSN) will be informed by the environmental assessment, which was initiated by BOEM on August 1, 2023, related consultations, and comments received during the PSN comment period. The FSN will announce the final auction details, such as the lease areas to be auctioned, auction mechanics, and lease stipulations. The FSN will be published in the Federal Register 45 calendar days before the lease sale is conducted and will provide the date and time of the auction.
Four entities are currently qualified to participate in the proposed Central Atlantic lease sale, according to the PSN. Additional bidders may be qualified to participate in the proposed lease auction by submitting the required qualification materials to BOEM by the end of the 60-day public comment period. The FSN will include a list of all bidders qualified to participate in the auction.
Bidders must submit an original Bidder’s Financial Form (BFF) in connection with this lease sale —BOEM will not consider BFFs submitted for previous lease sales. BFFs must be submitted by the date listed in the FSN and must list any affiliates participating in the same auction, among other disclosures. Affiliated entities are not permitted to compete against each other, and, where two or more affiliated entities have qualified for an auction, they must decide which one will participate.
Multi-Factor Bidding System
Similar to how it conducted the North Carolina, California, and Gulf of Mexico competitive auctions, BOEM proposes a multiple factor bidding system involving a monetary factor and up to two non-monetary factors.
BOEM is proposing to grant bidding credits to bidders for commitments to (1) support the offshore wind energy industry, either through workforce training programs, the development of a domestic supply chain, or a combination of both, and (2) establish and contribute to a fisheries compensatory mitigation fund to mitigate the potential adverse effects for commercial and for-hire recreational fisheries resulting from offshore development in the Central Atlantic.
A bidder may elect to qualify for one or both bidding credits. Bidders can receive a 17% credit for workforce training, supply chain development, or a combination of both, and an 8% credit for establishing a fisheries compensatory mitigation fund. The credits are additive, so a bidder who qualifies for both credits would receive 25% of the cash bid in bidding credits.
To qualify for either credit, a bidder must commit to the bidding credit requirements on the BFF and submit a conceptual strategy as described in the BFF Addendum. The deadlines for the BFF and conceptual strategy will be announced in the FSN. BOEM will notify a bidder if it qualifies for credits, and each particular bid will represent the sum of a monetary (cash) amount and the non-monetary factors (bidding credit(s)).
For use in future auctions, BOEM is soliciting stakeholder feedback on a conservation program bidding credit, which would allow a bidder to receive a credit in exchange for a commitment to advance conservation for threatened and endangered species, migratory birds, or North Atlantic right whales. Specifically, BOEM is seeking feedback on the following:
- What portion of the total bidding credits should go towards a conservation program?
- Eligible activities or projects authorized under a conservation bidding credit.
- Documentation and enforcement mechanisms.
Proposed Auction Mechanics
BOEM proposes an ascending-bid auction that utilizes the monetary and non-momentary factors described above. The bid made by a particular bidder in each round would represent the sum of the monetary factor (cash bid) and the value of any non-monetary factors (bidding credit(s)). BOEM proposes to start the auction using a $100.00 per acre minimum bid price for each lease area and to increase prices incrementally until no more than one active bidder per lease area remains in the auction.
BOEM proposes to allow each bidder to bid for one lease area at a time and ultimately acquire only one lease area. Leading up to the auction, BOEM also proposes that each qualified bidder must submit a bid deposit of $5,000,000, which will be refunded to unsuccessful bidders.
Changes to Auction Rules & Lease Stipulations
BOEM will employ a new auction software for the Central Atlantic lease sale. BOEM is proposing three primary changes to the auction rules:
- If a bidder decides to bid on a different lease area in a subsequent round of the auction, it will be allowed to submit an intra-round bid for the lease area it bid on in the previous round and, simultaneously, submit a bid for another lease area. This allows a bidder to switch to another lease area if the price of the first lease area exceeds its specified intra-round bid price.
- The determination of provisional winners will no longer use a two-stage process. When the auction concludes, the bidder who remains on a lease area after the final round becomes the provisional winner. There will be no additional process to determine if any other lease area can be awarded to other bidders.
- The auction will use a “second price” rule. A lease area will be won by the bidder that submitted the highest bid amount for the lease area, but the winning bidder will pay the highest bid amount at which there was competition (i.e., the “second price”).
BOEM also proposes new lease stipulations (4.4 and 4.5) related to foreign entities and national security. Proposed Stipulation 4.4 requires the lessee to provide the names of entities who own, or will engage in activities at, an OCS facility, and the names of any foreign entities allowed access to such facilities, to the Department of Defense for review at least 14 days prior to the lessee taking any actions in the Lease Area. Proposed Stipulation 4.5 requires an assignor and assignee to notify the Committee on Foreign Investment in the United States as part of the assignment process. BOEM requests comment on both of these proposed lease stipulations.
Federal, Congressional, and State Collaboration for Maryland Offshore Wind Development
On December 11, 2023, the US Department of the Interior, US Department of Defense, US Department of Commerce, US Senators Ben Cardin and Chris Van Hollen, and Maryland Governor Wes Moore announced a commitment to work jointly to evaluate additional areas offshore Maryland that could become WEAs and support the development of offshore wind projects.
As noted above, the Maryland WEA B-1 was not included in the PSN as a lease acre for the upcoming auction. The Administration has preliminarily identified another area offshore Maryland to be more fully analyzed as a potential WEA for inclusion in a subsequent offshore wind lease sale in early 2025.
Such actions are necessary to help Maryland meet its goal of meeting 8.5MW of offshore wind by 2031, which was announced by Governor Moore in April 2023.
1 BOEM Finalizes Wind Energy Areas in the Central Atlantic | Bureau of Ocean Energy Management
We are also grateful to Vivian Meng for her contribution to this alert.
