U.S. BOEM Announces Offshore Wind Auction in the Central Atlantic
On June 28, 2024, the United States Bureau of Ocean Energy Management (BOEM) issued a Final Sale Notice (FSN) announcing the offshore wind lease sale in the Central Atlantic. BOEM set the auction date for August 14, 2024, and will be offering two leases totaling 277,948 acres – a 101,443-acre area 26.4 nautical miles (nm) offshore the States of Delaware and Maryland (Lease Area A-2; OCS-A 0557) and a 176,505-acre area approximately 35 nm offshore the Commonwealth of Virginia (Lease Area C-1; OCS-A 0558). The lease areas combined have the potential to power 2.2 million homes with clean energy.
Lease Area Details
The two lease areas included in the FSN are the same size and orientation described in the Proposed Sale Notice (PSN) and are depicted as follows:
Qualified Bidders
The FSN identifies 17 entities that are qualified to bid in the auction. The qualified bidders are:
- Atlantic Shores Offshore Wind, LLC
- Avangrid Renewables, LLC
- Central Atlantic Offshore Wind LLC
- Corio USA Projectco LLC
- energyRE Offshore Wind Holdings, LLC
- Equinor Wind US LLC
- Invenergy Central Atlantic Offshore LLC
- OW North America Ventures LLC
- Reventus Power Central Atlantic, LLC
- RWE Offshore US CATL, LLC
- Seaglass Offshore Wind II, LLC
- Shell New Energies US LLC
- TotalEnergies Renewables USA, LLC
- US Mainstream Renewable Power Inc
- US Wind Inc
- Vineyard Central Atlantic LLC
- Virginia Electric and Power Company
Prior to the auction, each entity is required to submit a Bidder’s Financial Form (BFF) that, among other things, lists eligible bidders with whom they are “affiliated,” as such term is defined in the FSN. Affiliated entities cannot compete against each other in the auction.
Based on past BOEM auctions, it is likely that not all qualified bidders will participate in the Central Atlantic auction. For the North Carolina auction, 16 entities were qualified and only five ended up competing in the auction. For the California auction, 43 entities were qualified and only seven ended up competing in the auction. For the Gulf of Mexico auction, 15 entities qualified and only two ended up competing in the auction.
Multi-Factor Bidding Process
Similarly to how it conducted the North Carolina, California, and Gulf of Mexico competitive auctions, BOEM will use an ascending clock auction format with a multi-factor bidding system involving a monetary factor and up to two non-monetary factors.
BOEM will grant bidding credits to bidders in exchange for financial 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. However, in response to public comments, BOEM has revised the bidding credit percentages from those proposed in the PSN. A bidder may still elect to qualify for one or both bidding credits, and the total bidding credits remain at 25%. However, BOEM has increased the credit for establishing a fisheries compensatory mitigation fund from 8% to 12.5% and has reduced the credit for workforce training programs and/or supply chain development from 17% to 12.5%. Unlike past auctions, the bidding credits are calculated as a percentage of the whole bid rather than a percentage of the cash portion of the bid.
Each bidder is required to identify whether it is making the commitments to earn the bidding credits in the BFF, which is due on July 12, 2024. Where a bidder commits to the bidding credit requirements, such bidder is also required to submit a conceptual strategy that describes objective, quantifiable, and verifiable actions that will be taken to qualify for the credits.
In addition to submitting the BFF, qualified bidders are required to submit a bid deposit of $5 million no later than July 29, 2024. If a bidder is unsuccessful in the auction, its bid deposit will be returned. If a bidder wins a lease in the auction, the bid deposit will be contributed towards its winning cash bid.
Auction Mechanics
Both lease areas will be offered in a single online auction. For this auction, BOEM is only permitting bidders to bid on one of the offered lease areas at a time, and bidders may only win one of the lease areas.
The auction will proceed in a series of rounds with incremental price increases until no more than one active bidder remains for each lease area. The bid made by a bidder in each round will represent the sum of the monetary amount (cash) and the non-monetary factor (bidding credits). To continue to participate in the auction, a bidder must submit a bid for one of the lease areas in each round. A bidder may move between the two lease areas throughout the auction.
BOEM has set a minimum bid of $100 per acre for each lease area and will be holding a mock auction for qualified bidders on August 12, 2024.
Auction Rules & Lease Stipulations
BOEM will employ the new auction software that it has been using for 2024 lease sales, which implements the following 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”).
- Each bidder’s bidding credit will be expressed directly as a percentage of the final price of the lease.
Whilst most of the stipulations included in each lease are carried over from the form lease used in the Gulf of Mexico, BOEM has included new stipulations for Lease Area C-1 related to (1) NASA operations originating from the Wallops Island Flight Facility; and (2) potential vessel navigation issues as a result of Lease Area C-1 being adjacent to existing lease OCS-A 0483 (Coastal Virginia Offshore Wind – Commercial).
The Central Atlantic leases published with the FSN will be revised to conform with BOEM’s Renewable Energy Modernization Rule, which was finalized on May 15, 2024 and will become effective on July 15, 2024. BOEM anticipates that the changes will primarily affect the timing of the lease terms and the formula for calculating operating fees. BOEM will notify all qualified bidders of changes made to the leases published with the FSN after July 15, 2024.
What to Expect After the Auction
Immediately after the auction concludes, BOEM will announce the provisional winner of each of the two lease areas. The U.S. Department of Justice will then have 30 days to conduct an antitrust review of the auction. If there are no issues identified, BOEM will send each provisional winner a copy of the lease and they will have 10 business days to post financial assurance, pay any outstanding balance of their winning cash bid, and sign and return the lease. Once BOEM receives the signed lease and verifies all other obligations have been fulfilled, it will execute the lease. The rent for the first year is due 45 calendar days after the lessee receives the lease copies for execution. The leases to be awarded would have an operations term of 33 years.
Special thank you to Shun Iwamitsu, Law Clerk in the Energy & Infrastructure Group, for his assistance in preparing this alert.
