The U.S. Bureau of Ocean Energy Management (BOEM) held its first offshore wind lease auction in the Pacific, with winning bids lower than similar auctions on the East Coast. Experts say this result reflects the uncertainty facing California's offshore wind industry, but may benefit electricity consumers in the long run.

"Given California's enthusiasm for developing offshore wind, the ambitious goals set by the state government, and the push to establish a floating offshore wind industry in the U.S., this was definitely not the super-competitive auction I expected," said Samantha Woodworth, senior research analyst at Wood Mackenzie.

Five companies won bids in the auction, with total winning bids of $757.1 million, covering five lease areas spanning more than 370,000 acres off central and northern California. BOEM estimates these areas could generate about 4.6 gigawatts of offshore wind. However, the average winning price was $2,028 per acre, lower than the $2,861 per acre in the May Carolina auction and the $8,951 per acre in the February New York and New Jersey auction.

Woodworth noted that many project developers realize global supply chain issues and high inflation trends will not ease in the short term, making them cautious about committing huge investments. "Lower bid prices are a way developers can save costs. Also, I think many developers are thinking, this is a strange time—let's proceed cautiously and take it easy."

But lower bid prices may offer an advantage—they translate into lower upfront costs for developers, which could in turn lead to lower offshore wind power purchase prices, ultimately passing through to consumer electricity bills, while also allowing lease holders to invest in building California's offshore wind supply chain.

"So keeping bid prices lower is not only good for the industry because it reduces overall project costs—it also increases the likelihood of projects gaining approval from authorities like public utility commissions and state governments," Woodworth said.

Now, industry advocates say California needs to develop a permitting plan for offshore wind projects, build ports capable of supporting the new industry, and determine the transmission facilities needed to bring offshore wind onshore.

Lease auction results: both surprises and encouraging trends

In a statement announcing the auction results, BOEM said the California lease auction was a "significant milestone" toward the Biden administration's goal of installing 30 gigawatts of offshore wind in the U.S. by 2030 and 15 gigawatts of floating offshore wind by 2035. Five companies were announced as provisional winners of the auction: RWE Offshore Wind Holdings, California North Floating, Equinor Wind US, Central California Offshore Wind, and Invenergy California Offshore.

Molly Morris, president of Equinor Wind US, said in a statement that the U.S. West Coast is "one of the most attractive regions for floating offshore wind growth globally, due to its favorable wind conditions and proximity to markets needing reliable clean energy." Equinor secured lease rights for about 2 gigawatts in the Morro Bay area off central California, covering more than 80 acres. The company also operates the Empire Wind and Beacon Wind lease areas on the Northeast coast.

"We have underinvested in ports, there is no clear power purchase plan, and at least on the North Coast, no transmission plan."

—Nancy Rader, Executive Director, California Wind Energy Association

For the industry, the auction results contained some surprises and encouraging trends, said Sam Salustro, vice president of strategic communications at the Business Network for Offshore Wind. Bid prices were lower than the East Coast, but indicated confidence in a new market that has no clear power purchase agreement path yet and still needs port construction and supply chain and workforce development.

Salustro noted that surprisingly, the auction had only seven bidders, while 43 were pre-qualified. Most of the seven were developers already active in the U.S. market. "I think it's surprising because there are many floating offshore wind developers globally, and we might have thought... some of them would participate. But they didn't, and those who won leases were those already in the U.S. market—which to some extent shows that despite strong confidence in the U.S. market, those most confident are those actively involved."

Salustro and other experts were not surprised that bid prices were lower than this year's New York Bight auction, which attracted winning bids of about $4.4 billion from six companies. "That was a perfect storm because they had ports, supply chain, power purchase agreements, and a developing workforce—we may not see prices like that again in the U.S. market for a long time."

Nancy Rader, executive director of the California Wind Energy Association, also believes the auction results reflect California's lack of a clear path to establish this new offshore wind industry, which adds more risk for developers and leads to lower lease bid prices. "We have underinvested in ports, there is no clear power purchase plan, and at least on the North Coast, no transmission plan."

In fact, California's offshore wind industry still lacks certainty about the form of its final power purchase agreements. Michelle Solomon, policy analyst at Energy Innovation, said these projects are large-scale, and some load-serving entities, such as smaller community choice aggregators, may find it difficult to procure power from them. Experts believe California could address this by establishing a central procurement agency to purchase energy and sell it to smaller entities.

Another uncertainty facing the industry is that California is attempting to establish relatively new technology—floating offshore wind. East Coast waters are shallower, allowing projects to use fixed-bottom turbines commonly used globally. California waters are much deeper, so wind turbines need to float and be moored to the seabed with cables. Floating turbines are proven technology at depths of hundreds of meters, but California's lease areas are about 800 to 1,000 meters deep.

"There's more work to be done to get this industry started in California... so it's not surprising the lease auction was slightly lower than New York. I think it's still a high total," Solomon said.

Rader said the lower bid prices also have a side benefit. She said astronomical bid prices on the East Coast could push up power purchase prices. Additionally, those funds went to the federal government rather than meeting infrastructure needs like transmission and port construction that California needs to invest in. "So in a sense, lower bid prices are good because they have less impact on power purchase prices."

Looking ahead: ports, transmission, and more call areas

As California transitions to a decarbonized grid, offshore wind can play a key role in its energy mix. The state relies heavily on solar for renewable energy, whether rooftop or large-scale solar arrays. Laura Deehan, state director of Environment California, said wind can complement solar when the sun goes down.

In August, California regulators adopted offshore wind planning goals of 2 to 5 gigawatts by 2030 and 25 gigawatts by 2045. Experts say these goals provide key momentum for the industry. "The idea is to show investors and the energy industry—those building offshore wind elsewhere in the world—that California is serious about developing offshore wind at scale," Deehan said.

"As you know, the state has set a goal of 25 gigawatts by 2045, so we need more call areas to achieve that."

—Adam Stern, Executive Director, Offshore Wind California

Looking ahead over the next decade, Adam Stern, executive director of Offshore Wind California, said California needs a clear roadmap for permitting offshore wind projects, a port strategy to deploy and maintain offshore wind, a transmission line siting and construction plan, and procurement policies for offshore wind itself. "We also need more call areas," he said. "It's great that this auction was so successful, but according to BOEM data, these areas total 4.6 gigawatts. As you know, the state has set a goal of 25 gigawatts by 2045, so we need more call areas to achieve that."

Meanwhile, for developers, the next step is to work with communities affected by offshore wind development to determine what community benefit packages they can offer, Solomon said. Developers may not yet have all permits ready to start construction in lease areas and need to focus on construction and operations plans that meet environmental considerations.

On the regulatory side, the California Public Utilities Commission needs to understand how offshore wind fits into its long-term planning and require procurement of offshore wind, ideally through a central procurement entity, said Rader of CalWEA.

Experts say there is still a long way to go before wind turbines off California's coast begin generating power. "We think a big question is: can we get any economic benefits from this? Can we build these facilities in California? We're working to ensure at least some floating platforms are built in California. That's the biggest project most likely to be captured," Rader said.

However, Rader said the state currently lacks sufficient port space to build these platforms, which could be the size of football fields. "That's a challenge—if we can't find ways to expand ports... we won't be able to capture many of these economic benefits."

Environmental impacts are another challenge in establishing floating turbines, said Julia de Lamare, clean energy advocate at the Natural Resources Defense Council. "Floating turbines are a new technology never tested in the U.S., meaning impacts on marine life, fisheries, indigenous peoples, etc., are unknown," she said in an email. de Lamare said regulators must advance environmentally responsible offshore wind development. She recommended requiring lease holders to commit to avoiding and reducing environmental impacts and conducting additional research to fill data gaps.