More European developers enter US offshore wind market with NY auction

An offshore wind lease sale totaling $4.37 billion for areas off the coast of New York and New Jersey saw established European developers enter the market and industry player Avangrid Inc. bow out, leaving a consortium of two independent power producers as the only U.S. company to win acreage.

The U.S. Bureau of Ocean Energy Management, or BOEM, ran the auction, which concluded Feb. 25 and represents the nation's highest-grossing competitive offshore energy lease sale in history, including oil and gas lease sales. The results exceeded most expectations; several experts underestimated prices ahead of the auction, predicting total final bids could approach $1.5 billion.

U.S.-headquartered Invenergy LLC and energyRe LLC won an 83,976-acre lease area with a bid of $645 million, backed by Blackstone Inc., Caisse de dépôt et placement du Québec, FirstLight Power Resources Inc. and Ullico Infrastructure Fund LP.

Invenergy founder and CEO Michael Polsky called the U.S. offshore wind market "the next frontier in the clean energy revolution" in a Feb. 28 statement. The company previously bid for offshore wind acreage during Crown Estate Scotland's ScotWind leasing round but came up empty.

Iberdrola SA subsidiary Avangrid bowed out. "[T]he bid prices of the lease areas did not correspond with the strategic goals of our renewables portfolio," Bill White, president and CEO of Avangrid Renewables Offshore, said in a statement released after the auction concluded.

Industry analysts, however, saw the move as a win for Avangrid, which has a 4.9-GW portfolio of offshore wind projects under development, as well as Ørsted A/S and Public Service Enterprise Group Inc., which were also registered bidders.

"Losing can be a winning strategy," Wells Fargo Securities told clients Feb 28.

"On the one hand, we are pleased that neither [Avangrid nor Ørsted] won given our initial impression that it will prove challenging for the winners to generate adequate returns," the analysts continued. "In our view, the real winners of the auction could end up being the companies with undeveloped lease area in the U.S including [Avangrid, Eversource Energy, Ørsted and Public Service Enterprise Group]."

KeyBanc Securities agreed that the lease sale's record interest "bodes well" for those developers, given that "there should be attractive opportunities to monetize the projects either through financing partnerships or stake sales" to European developers.

Victors' track records

Some of the winners are already consolidating their holdings. Germany's EnBW Energie Baden-Württemberg AG on Feb. 28 announced it will sell subsidiary EnBW North America and its offshore wind operations in the U.S. to France's TotalEnergies SE as EnBW focuses on the European offshore wind market. EnBW and TotalEnergies won a $795 million bid as Attentive Energy LLC.

EnBW is already developing its 900-MW He Dreiht wind farm in the North Sea. The company also won seabed lease auctions in England, Wales and Scotland in the past two years for the development of three offshore wind farms with a total capacity of about 6 GW. TotalEnergies is expanding into Asia, having secured with developers the first electric business license in South Korea for a floating offshore wind project and co-commissioning the 200-MW Dongtai V offshore wind farm in the China Sea.

Bight Wind Holdings LLC, backed by the UK's National Grid plc and Germany's RWE AG, won the largest lease area in the BOEM auction, bidding $1.1 billion for a 125,964-acre parcel. RWE has agreed to co-develop a cluster of wind projects in the German North Sea with a total capacity of 1.3 GW and signed a concession agreement with the Danish Energy Agency, granting the company the right to construct and operate the Thor offshore wind farm in Denmark for 30 years.

Energy investment bank Tudor Pickering Holt & Co. wrote in a Feb. 28 report that the process resembled the ScotWind auction in that "the bid price per acre increased with size of the overall land parcel as developers competed aggressively for the largest lease areas while smaller parcels sold for relatively lower prices."

Atlantic Shores Offshore Wind Bight LLC, a joint venture between EDF Group and Shell PLC, won a 79,351-acre lease area for $780 million. France's EDF, which has four offshore wind projects underway, has attempted to enter the U.S. market before. In 2018, New Jersey's Board of Public Utilities rejected a pilot project proposed by EDF and a co-developer for the second time.

EDP - Energias de Portugal SA, Engie SA and Global Infrastructure Partners L.P. won a 71,522-acre lease area with a bid of $765 million as OW Ocean Winds East LLC. The two companies have teamed up on other offshore wind projects, securing a 25-year contract for difference from the Polish Energy Regulatory Office for its 369.5-MW B&C Wind offshore projects in 2021.

Copenhagen Infrastructure Partners K/S' Mid-Atlantic Offshore Wind LLC won the bidding at $285 million on a 43,056-acre lease area. Avangrid and Copenhagen Infrastructure recently restructured their offshore wind joint venture in a $175 million transaction that gives Avangrid Renewables LLC an option to gain operational control of the 800-MW Vineyard Offshore Wind Project, now under construction, once it achieves commercial operation.

Avangrid will also take full ownership of lease area OCS-A 0534, which includes the planned 804-MW Park City offshore wind project in Connecticut and the Commonwealth Offshore Wind Project, which recently submitted a bid for up to 1,200 MW to the third Massachusetts offshore wind competitive solicitation.

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