David Foxwell reflects on the results of the auction last week for lease areas for offshore wind off Massachusetts.
Amid all the excitement about the record-breaking Massachusetts auction for offshore wind leases last week it’s important to remember the old adage about supply and demand.
When something’s in short supply, and people want it, the price tends to increase. When it’s in very short supply, prices spike. The level of competition for the leases drove the price up significantly, but so did the lack of supply. In fact, the dearth of upcoming lease sales in the US is in stark contrast to states’ ravening appetite for offshore wind.
Yes, the intense competition for the leases really was unprecedented – but not just because of the number of developers that were bidding. Part of the reason there was such a frenzied response is that the next lease auction isn’t due to take place until 2020, probably in the New York Bight.
Don’t get me wrong: that the prices secured for the leases offered by the Bureau of Ocean Energy Management (BOEM) were to so high is certainly an encouraging sign. It clearly demonstrates that the US market is going to expand quickly, but unless more leases are auctioned it could act as a brake on expansion. It could also affect the pace at which the supply chain in the US develops.
Hopefully, the success of the Massachusetts auction will encourage BOEM to expedite the next series of leases and commit to regular auctions. More lease sales are going to be required in order to promote investment and give the supply chain the runway it needs to take off.
There have been calls for BOEM to schedule at least four 500-MW lease sales annually, with a target of an additional 20 GW of offshore wind by 2034. Others have called for a total of 2-3 GW a year.
All of the elements are in place for the offshore wind industry on the east coast to grow rapidly. It has a clear route to market there because power costs are high compared with elsewhere in the country and demand for green energy is growing. It also has political support from most states – even from the current administration, something that seemed very unlikely only 12 months ago. But unless BOEM brings more leases to market, it will develop at a slower pace than demand drivers suggest it ought to, and supply chain development could be held back.