Federal government to auction NC offshore wind energy area

BOEM estimates that when built out, the Wilmington East site will generate enough electricity to power almost 500,000 homes.

Sam Salustro, the Business Network for Offshore Wind’s director of coalitions and strategic partnerships, said the landscape for the industry has changed over the last five years.

The Biden administration has prioritized offshore wind energy, setting a target of 30 gigawatts of production by 2030 and approving construction plans for the country’s first large-scale offshore wind farms. State governments like North Carolina’s have made similar pledges and sought opportunities to reap the economic benefits of developing the supply chain for building and maintaining the huge turbines. And, Salustro added, costs for constructing offshore wind farms have started to drop.

“Stronger federal support, continued strong state support and falling prices have really contributed to an enormous growth of demand for offshore wind in this nation. The benefits have always been there,” Salustro said.

In February, six leases off of the New York and New Jersey coasts went for a total of $4.37 billion, an amount that caught many by surprise. Aaron Barr, the global head of onshore wind energy research at research firm Wood Mackenzie, said that bid was boosted by the demand from large metropolitan areas in the two states, access to agreements to purchase the power from wind farms, and the ability to sell electricity at some of the nation’s highest prices.

Still, Barr said, the North Carolina sites are likely to result in “healthy competition” among bidders.

“One thing we learned from the New York Bight auction is the offshore wind industry is mature now,” Barr said. ”The price signals that are out there for these lease auctions means that a lot of the business-level risk has been mitigated and companies are really aggressively competing for access to install these offshore projects.”

Leasing a wind energy area is just the first step in a years-long process on the way to generating power from an offshore wind farm. It is followed by site assessments, environmental studies and permits, as well as arduous planning and construction of transmission facilities. The Kitty Hawk area that Avangrid leased in 2017 is still about four years away from generating power, according to construction documents submitted last year.

Wind energy in North Carolina

A factor that could impact the price of the North Carolina lease is the fact that a buyer isn’t set in stone like they are in New York or Virginia, where state governments have mandated the purchase of energy generated by offshore wind.

North Carolina’s House Bill 951, passed last year, mandates that Duke Energy cut its carbon reduction 70% from 2005 levels by 2030, but doesn’t prescribe any forms of energy generation.

Instead, it directs the N.C. Utilities Commission to consider cost and reliability when making a decision about Duke’s plans, while also giving the commission the power to delay the 2030 date if Duke is waiting for the construction of an offshore wind farm.

“These developers are going to need to work with the utility in some way, shape or form,” Katharine Kollins, president of the Southeastern Wind Coalition, said. “I don’t know what that looks like and I don’t know if they do, either. Or if Duke does, frankly.”

HB 951 gave the Utilities Commission the ability to approve Duke’s paying to build or purchase power from an offshore wind farm as long as that represents the cheapest carbon-free power source. Before the bill’s passage, Kollins noted, the commission was able to consider only what was cheapest – not the emissions implications.

“You still have to ensure and then justify that offshore wind is that kind of next-least-cost piece,” Kollins said.

Developing a supply chain

Wednesday’s auction will include a first for BOEM: An offer of a 20% credit for developers who pledge to invest in the domestic supply chain. It is likely, industry watchers said, that most or all of the developers will take advantage of the credit. With a credit, a developer could get a 20% discount on the lease price by promising to spend that same amount on, for example, a training program or helping a company get key certifications for offshore wind manufacturing.

When BOEM announced the credit, the Offshore Wind Business Network estimated that it could represent a $100 million investment in the supply chain, a number that would mean bids totaling $500 million.

Salustro of the Offshore Wind Business Network said the credit will benefit the initial bids, and that having a domestic supply chain in place could help lower prices when the wind farm is being built.

“It really is in the developers’ interest to localize that supply chain as much as possible and if this is a way to help them do that, then they’re going to take advantage of that,” Salustro said.

Developers’ use of the credit could include training a local workforce to be prepared for jobs in the offshore wind industry, Salustro added, or helping potential suppliers retool or achieve certifications that will leave them poised to build turbines.

It is possible that the supply chain credits could be used to boost turbine production and workforce development in other states on the Eastern seaboard, said Barr of Wood Mackenzie. New York and New Jersey have boosted their production capabilities, Barr added.

“If you’re talking about staging nacelles (housing for the turbine’s generating parts) or staging tower sections, manufacturing towers or transition pieces, anywhere really along the Eastern seaboard is accessible for these projects,” Barr said.

Last year, a study commissioned by the N.C. Department of Commerce found that the offshore wind industry will spend about $140 billion on construction and supply chain costs in the United States by 2035, with North Carolina capable of attracting more than $100 billion of that market.

Kollins of the Southeastern Wind Coalition hopes that developers will use at least some of their credit investing in port infrastructure in North Carolina. The Commerce report evaluated North Carolina’s ports in Morehead City and Wilmington as well as state-owned property along the coast for potential offshore wind component manufacturing sites and laydown yards – sites where the massive turbines are put together – and found that the state is currently trailing others along the Eastern seaboard.

Even if the supply chain developments aren’t in port facilities, Kollins added, state officials should “press” for developers to make any investments they receive a credit for in North Carolina, not elsewhere on the East Coast.

“If North Carolinians are paying for the power,” Kollins said, “they should receive the economic benefits that go with these projects.”

This story was produced with financial support from 1Earth Fund, in partnership with Journalism Funding Partners, as part of an independent journalism fellowship program. The N&O maintains full editorial control of the work.