The U.S. Interior Department sold two leases to build wind farms off the coast of Massachusetts to the only two bidders and for a fraction of what the agency received from previous sales.
RES America Inc. agreed to pay $281,285 for access to 187,523 acres and Offshore MW LLC is paying $166,886 for 166,886 acres, according to the Bureau of Ocean Energy Management. Previous auctions generated millions of dollars.
The auction results for these areas are lower than what the Interior Department previously received for offshore wind zones because the deeper water off Massachusetts may drive up project costs, Abigail Ross Hopper, BOEM’s director, said on a conference call with reporters on Thursday.
“We knew that developing an offshore wind facility in these areas is going to be more expensive,” she said. “As a result of that, we set the minimum price for the bids lower than for the other states. We’re happy with the results of this auction.”
Interior said in November it intended to auction 742,000 acres in four zones off Massachusetts and that a dozen companies were qualified to bid. The U.S. has no utility-scale offshore wind installations and is seeking to spur development. Plans have lagged elsewhere, including in China, as energy from offshore turbines costs about twice as much to produce as power from coal, according to data compiled by Bloomberg New Energy Finance.
Both leases sold on Thursday cover 25 years of operation. Two other zones approved for potential development received no bids.
The U.S. previously awarded seven leases – two through non-competitive bids – for projects in the Atlantic Ocean, including Cape Wind in Nantucket Sound. More than $14 million was raised from five competitive sales for more than 357,000 acres off Maryland, Virginia and New England.
Cape Wind was awarded a lease in 2010. Two utilities that agreed to buy power from the project said earlier this month that they’re seeking to terminate those contracts because Cape Wind Associates LLC missed a deadline to complete financing.
“The recent activity at Cape Wind shouldn’t be read as any indicator of what happened at today’s auction,” Hopper said.
The department’s auctions have improved the permitting process for offshore wind, though they don’t guarantee revenue to the projects, even those that qualified for now-expired federal tax incentives, said Amy Grace, a Bloomberg New Energy Finance wind-power analyst.
“It’s difficult with the Investment Tax Credit to find a utility willing to pay four to five times the price of wholesale power for offshore wind, especially as the price for solar and onshore wind decline,” Grace said. “With the expiration of the federal tax credits, it’s even more difficult to justify.”