Department of the Interior Conducts Second Offshore Wind Auction

10 September 2013 Renewable Energy Outlook Blog

On September 4, 2013, the Interior Department’s Bureau of Ocean Energy Management (“BOEM”) held its public auction of the first federal lease for an offshore wind energy site off the Mid-Atlantic coast. This was the second federal lease sale; the first was in July for two lease areas offshore Massachusetts and Rhode Island. In this Mid-Atlantic sale, eight companies pre-qualified to bid, that is BOEM determined they had the financial and technological wherewithal to win the lease and develop the wind energy within the lease area.

The auction winner was Dominion Virginia Power, the d/b/a of Virginia Electric and Power Company, out-bidding Apex Virginia Offshore Wind, LLC. The winning bid was $1.6 million. Before BOEM will issue the federal lease, there is a Justice Department antitrust review of the auction process and the winning bidder. Besides Dominion Virginia and Apex Virginia, the qualified bidders were: Energy Management, Inc; EDF Renewable Development, Inc.; Fishermen’s Energy, LLC; Iberdrola Renewables, Inc.; Sea Breeze Energy LLC; and Orisol Energy US, Inc.

BOEM determined in its July auction notice that it would offer the entire auction area – 112,799 acres, or a block roughly 10 by 12 miles, as a single lease. The lease area is from about 23.5 to 36.5 miles from shore, off Virginia Beach. The agency held a mock auction for the eight pre-qualified companies in August, given the complex “ascending clock” auction method established for the sale. In this format, bidders indicate their interest at an initial lease asking price, which was set in the sale notice at $2 per acre ($225,598). Bidders who responded at the initial price level were then eligible to participate in the next incremental bid stage, with the auction increments 20-50% higher than the next prior level. BOEM provided that the bid increments would decline as the auction progressed to be in the 5-20% range. At each level, BOEM announced how many bidders remained, and what the increment was going to be for the next round. This process continued until only one bidder remained.

The federal wind generation lease terms were set well in advance, with the per acre bonus bid the single auction variable. BOEM’s Mid-Atlantic site lease calls for full payment of the auction-winning bid at lease issuance and annual rental payments of $3 per acre, which are gradually waived as the project is installed based on the percentage of total planned generation capacity approved for installation. Payment for a “project easement” to cable electricity off-lease (to shore or to any offshore transmission cable) by the lessee is additional. Upon commercial operations, the lessee pays a 2% annual “operating fee.” The operating fee is calculated on the “imputed wholesale market value of the projected annual electric power production.” In turn, this involves the project’s nameplate capacity, a capacity utilization factor and an average price of electricity using a historical regional wholesale power price index. The lessee’s construction and operation plan is due within five leases under the lease.

BOEM has scheduled a series of additional site lease sales in the Atlantic over the next year.

If you want further information on this lease sale, or the BOEM offshore wind site leasing program, contact Larry McBride at Foley & Lardner LLP, 202-205-4017 (lmcbride@foley.com)

This blog is made available by Foley & Lardner LLP (“Foley” or “the Firm”) for informational purposes only. It is not meant to convey the Firm’s legal position on behalf of any client, nor is it intended to convey specific legal advice. Any opinions expressed in this article do not necessarily reflect the views of Foley & Lardner LLP, its partners, or its clients. Accordingly, do not act upon this information without seeking counsel from a licensed attorney. This blog is not intended to create, and receipt of it does not constitute, an attorney-client relationship. Communicating with Foley through this website by email, blog post, or otherwise, does not create an attorney-client relationship for any legal matter. Therefore, any communication or material you transmit to Foley through this blog, whether by email, blog post or any other manner, will not be treated as confidential or proprietary. The information on this blog is published “AS IS” and is not guaranteed to be complete, accurate, and or up-to-date. Foley makes no representations or warranties of any kind, express or implied, as to the operation or content of the site. Foley expressly disclaims all other guarantees, warranties, conditions and representations of any kind, either express or implied, whether arising under any statute, law, commercial use or otherwise, including implied warranties of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Foley or any of its partners, officers, employees, agents or affiliates be liable, directly or indirectly, under any theory of law (contract, tort, negligence or otherwise), to you or anyone else, for any claims, losses or damages, direct, indirect special, incidental, punitive or consequential, resulting from or occasioned by the creation, use of or reliance on this site (including information and other content) or any third party websites or the information, resources or material accessed through any such websites. In some jurisdictions, the contents of this blog may be considered Attorney Advertising. If applicable, please note that prior results do not guarantee a similar outcome. Photographs are for dramatization purposes only and may include models. Likenesses do not necessarily imply current client, partnership or employee status.

Related Services