PROVIDENCE – Deepwater Wind has won both leases up for grabs in a federal auction for the rights to develop offshore wind power in a 257-square-mile area of waters off Rhode Island and Massachusetts.
The Providence company emerged from the nation’s first competitive sale of offshore renewable energy leases on Wednesday as the provisional winner, with bids of $3.7 million for the north section of the area, which is believed to be more suitable for development, and $94,000 for the south section. The results won’t become official until the Department of Justice and the Federal Trade Commission conduct an antitrust review of the auction.
Deepwater beat out two other companies for the leases. Nine companies had met the technical, legal and financial qualifications to participate in the auction, but Deepwater, Philadelphia-based Sea Breeze Energy and U.S. Wind, an affiliate of an Italian conglomerate, were the only ones that lodged bids. The other potential bidders included several other companies with European ties and Energy Management, the Boston company planning the 130-turbine Cape Wind project in Nantucket Sound.
Deepwater was considered the frontrunner in the auction because it was the only company to receive a credit for a joint development agreement with a state. Deepwater’s pact is with Rhode Island.
The company is planning to build a wind farm of up to 1,000 megawatts with more than 100 turbines in the development area in Rhode Island Sound. It would be among the first offshore wind farms in the United States.
Deepwater CEO Jeffrey Grybowski described the leasing area as the “best site for offshore wind in the United States” and said Deepwater’s project would generate clean power and produce jobs.
“We are extremely excited,” he said in an interview. “It’s a huge day for not just our company but for the offshore wind industry and clean energy in general.”
The auction for the two leases occurred simultaneously online and was overseen by the Bureau of Ocean Energy Management, an arm of the U.S. Department of the Interior.
The bureau has delineated federal waters adjacent to several East Coast states for offshore wind development, including areas off New York, New Jersey and Maryland, as well as an additional area off Massachusetts, far south of Martha’s Vineyard and Nantucket. A second lease auction, for waters off Virginia, is scheduled for Sept. 4.
Tommy Beaudreau, director of the bureau, said in a conference call that offshore wind power is a key part of the Obama administration’s efforts to address climate change, which include the development of 20,000 megawatts of renewable energy on public lands and waters by 2020.
“This sale marks a really historic moment in the clean energy future of this country,” Beaudreau said.
The waters targeted for development off Rhode Island and Massachusetts lie about 10 miles south of Little Compton, between Block Island and Martha’s Vineyard. Enough turbines could be built there to power more than 1 million homes, according to the Department of Energy’s National Renewable Energy Laboratory.
The area was divided into two lease zones, north and south of Cox Ledge, an important fishing ground that was removed from development. The 97,500-acre north section is considered more cost-effective for turbines because its waters are shallower and closer to shore. It has a potential capacity of 1,955 megawatts of wind generation, or 65 times the size of a 5-turbine demonstration project that Deepwater has proposed in Rhode Island state waters southeast of Block Island.
The south section of the leasing area covers 67,250 acres and has a potential capacity of 1,440 megawatts.
Although bidders were required to make deposits – $450,000 for each lease – last week, the bureau would not release the names of which companies had done so. A bureau spokeswoman said that information was kept confidential to ensure that the auction was fair and competitive.
The bidding companies remained anonymous during the auction. Not even the companies knew who they were bidding against.
The bureau set opening-round prices for each lease and then raised the prices in subsequent rounds of the auction. Bidders either agreed or not to meet the asking prices.
Bidding for the north section started at $2 an acre, or $194,996. Bidding for the south section opened at $1 an acre, or $67,252.
The sale of the lease to the south zone ended after two rounds when Deepwater met the asking price of $94,153 while the other company bidding on that lease did not, said Grybowski. The bureau would not identify which company bid against Deepwater for each lease.
The sale of the north lease went on for 11 rounds before ending at a price of $3,744,135.
Deepwater signed its joint development agreement with Rhode Island in 2009. Under the pact, the company agreed to fund in part the state ocean zoning plan that identified the areas for wind development off Block Island and in Rhode Island Sound. The company also agreed to stage its projects in the state-owned Quonset Business Park in North Kingstown.
In recognition of the agreement and the state’s efforts to spur offshore wind development, the bureau awarded Deepwater a 20 percent credit on the price for one of the leases up for auction. The company will use the credit for the more expensive north lease, which amounts to a savings of $784,827.
Grybowski said that Deepwater stayed within its budget for the leases, but added that “we were prepared to continue bidding until we won.”
Beaudreau said that the level of competition for the leases was a good sign for offshore wind and that the bidding was higher than skeptics may have thought.
The antitrust review must be completed within 30 days. If there are no problems, Deepwater will get the leases and have 10 days to sign them. It will then pay the balance of what it owes for the leases and start paying rent of $494,000 annually. If the company successfully develops a wind farm, it will pay an operating fee of 2 percent of the market value of the power it produces.
The auction was heralded by environmental groups, including Oceana, the National Wildlife Federation and the Conservation Law Foundation, and politicians who support renewable energy.
“The first competitive auction for wind energy development in the nation is an important step in a process that could ultimately bring badly needed jobs to our state and reduce our dependence on fossil fuels,” Rhode Island Sen. Sheldon Whitehouse, a leading voice in Congress in the fight against climate change, said in a statement.
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