GOM Lease Sale:
The U.S. Bureau of Ocean Energy Management (BOEM) held its long-anticipated offshore wind lease sale for the federal Outer Continental Shelf (OCS) in the Gulf of Mexico (GOM) on Tuesday, August 29, 2023. Three GOM leases were offered for sale, with one located offshore Lake Charles, Louisiana, covering 102,480 acres (OCS-G 37334), and two located offshore Galveston, Texas, covering 102,480 acres (OCS-G 37335) and 96,786 acres (OCS-G 37336). Disappointingly, the sale resulted in a single $5.6 million winning bid for the lease area offshore Louisiana, submitted by the provisional winner, RWE Offshore US Gulf, LLC (RWE). According to results posted online by BOEM, the other two lease areas offshore Texas received no bids.
RWE, as the provisional winner, earned two bidding credits from this auction. First, a credit equal to 20% of the cash bid if it successfully commits to supporting workforce training programs and developing a domestic supply chain for the offshore wind energy industry. Second, a credit equal to 10% of the cash bid if it successfully contributes to, or establishes and contributes to, a fisheries compensatory mitigation fund to reduce potential negative impacts to commercial and for-hire recreational fisheries caused by wind development in the GOM. RWE's bidding credits will result in more than $860,000 in investments for workforce training and a domestic supply chain, and over $430,000 for fisheries compensatory mitigation.
BOEM also included two stipulations in the lease requiring a lessee to: (1) make every reasonable effort to enter into a project labor agreement (PLA) covering the construction stage of the project; and (2) establish a Statement of Goals describing its "plans for contributing to the creation of a robust and resilient U.S.-based offshore wind industry supply chain that would facilitate this or other renewable energy projects permitted by BOEM." The lease stipulations mandate that a lessee provide regular progress updates on the achievement of those goals, and BOEM will make those updates publicly available.
This was BOEM's first offshore wind lease sale this year — and the second of its kind for floating wind. According to BOEM, this lease has the potential to power 435,400 homes based on 1.24 GW per year of production. Although the results fell short of expectations, the GOM lease sale is a significant step forward in bringing offshore wind to Louisiana and Texas electricity markets.
What's Next:
The Department of Justice now has 30 days from the announcement of RWE as the provisional winner to conduct an antitrust review of the results of the sale. Once all post-auction reviews are complete to BOEM's satisfaction, it will issue three unsigned copies of the lease to RWE. RWE will then have 10 business days from receipt of the lease copies to (i) sign and return them to BOEM, (ii) post financial assurance, and (iii) pay any outstanding balance of its bonus bid. The first year's rent is due 45 calendar days after RWE receives the lease copies for execution. BOEM will then verify that all required obligations have been satisfied and execute the lease.
Execution of an offshore wind lease does not, in and of itself, allow a lessee to develop offshore wind energy projects. Instead, it allows the lessee the opportunity to conduct activities and submit for BOEM approval project-specific plans to develop offshore wind energy. The lease provides for a preliminary term of 12 months for the lessee to submit a site assessment plan (SAP). Approval of the SAP initiates a five-year site assessment term. If a lessee intends to continue to develop a commercial wind project, then it must submit a construction and operations plan (COP) before the end of the five-year site assessment term, which must be approved by BOEM before construction of the project can begin. The twenty five-year operations term commences from COP approval.
BOEM's 2023 Renewable Energy Modernization Rule:
BOEM's 2023 Renewable Energy Modernization Rule (Proposed Rule) proposes to update and modernize existing regulations governing offshore wind energy development, including those pertaining to existing wind lease terms. For example, the Proposed Rule, among other things, proposes to: (i) merge the existing preliminary and site assessment terms into a single five-year preliminary period commencing at the lease effective date, which may be extended upon approval of a suspension request; (ii) add new COP review and design/construction periods of varying length depending on the duration of the COP review and the design and construction process; (iii) convert the twenty-five operations term to a thirty-year operations period commencing at the commercial operations date; and (iv) clarifying that lessees may modify the default schedule and propose an alternative for phased development (i.e., deferring developing portions of a lease). The Proposed Rule also makes clear that BOEM can extend any lease period for good cause shown. Notably, unlike federal offshore oil and gas leases, BOEM in its sole discretion can refuse to approve a wind lease assignment.
Path Forward:
GOM lessees, like RWE, face significant challenges in developing their wind projects, including new floating wind technologies, development of transmission infrastructure, interconnection with the grid, engagement with stakeholders and sovereigns (i.e., Tribes, states, and local governments), and navigating the federal permitting process which will likely include addressing potential conflicts among multiple uses of the GOM OCS.
BOEM's Offshore Wind Leasing Path Forward for 2021–2025 anticipates additional auctions for federal offshore wind leases in the Central Atlantic, Oregon, and Gulf of Maine, in that order. Hopefully, these future auctions will produce more interest and higher bids, similar to the New York Bight and Carolina Long Bay auctions, but only time will tell.
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