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Offshore Wind Auction for the Gulf of Mexico Gets a Tepid Response



The first auction of leases for wind farms in the Gulf of Mexico, which the Biden administration had heralded as part of its effort to expand clean energy, ended on Tuesday with just one of three available tracts sold.

The lackluster bidding underscored a number of problems facing the offshore wind industry as companies struggle with soaring costs spurred by inflation, rising interest rates and permitting delays, energy experts said. The challenges pose a threat to President Biden’s climate agenda, which calls for building offshore wind farms to power 10 million homes by the end of this decade.

The Bureau of Ocean Energy Management held auctions on one lease area off the coast of Lake Charles, La., and two off the coast of Galveston, Texas. Together, they have the potential to produce electricity to power almost 1.3 million homes, the agency said.

Two companies bid for the tract off Lake Charles. The winning bid of $5.6 million came from RWE, an energy company based in Germany. There were no bids for the tracts off Galveston.

“This first-ever Gulf offshore wind auction was viewed as a big deal, a potential game changer,” Mona Dajanj, global head of renewables, energy and infrastructure at Shearman and Sterling, a law firm, said in a statement. “Those of us hoping to see a real offshore wind boom in the Gulf may have to wait.”

Experts on renewable energy said they were disappointed but not entirely surprised by the weak response. The Gulf of Mexico has long been dominated by oil and gas, and the region poses physical challenges like lower wind speeds and the threat of hurricanes. Moreover, Gulf states have not committed to purchasing clean energy.

By contrast, a lease sale last year off the coasts of New York and New Jersey netted a record $4.37 billion after a three-day, 64-round bidding war among more than a dozen companies. Those states have pledged to purchase certain amounts of clean energy produced by the wind farms.

Yet some said that it was significant that a lease sale for wind energy in the Gulf was even held.

“Today’s lease sale is a key moment in the continued growth of the Gulf of Mexico as a comprehensive and integrated energy hub,” said Erik Milito, president of the National Ocean Industries Association, which represents offshore oil, gas and wind companies.

The Bureau of Ocean Energy Management estimated that the Lake Charles lease area had a potential capacity of 1.24 gigawatts of offshore wind energy capacity, enough to power about 435,000 homes. Some have speculated that rather than residential use, wind energy in the Gulf could be used to produce hydrogen fuel, a process known as “green hydrogen” that could power the region’s industries.

Offshore turbines can help create green hydrogen through a process that uses electricity to split water into oxygen and hydrogen gas. That could be used to power refineries and other energy infrastructure on the Gulf Coast. In comments to the federal government this year, several companies noted that the area’s existing ports, pipelines and other infrastructure made it attractive for developing and distributing green hydrogen.

A spokeswoman for RWE said the company had not yet decided how it would use the electricity created by the wind turbines. Sam Eaton, chief executive of RWE Offshore Wind Holdings, said in a statement the company was eager to shape the region’s nascent offshore wind market.

“The Gulf has been the heartbeat of the U.S. offshore energy sector for decades,” he said. “Offshore wind will strengthen this legacy. The region is well positioned to bolster its skilled energy work force and world-class supply chain to unlock a new economic engine.”

The awarded site is 44 miles off the coast of Louisiana and has water depths of up to 25 meters. RWE said the project was expected to be in operation by the mid-2030s, contingent upon permitting.

Federal officials said the lease included a stipulation that encourages project labor agreements and another that contributes to establishing a domestic supply chain. In addition, RWE is required to engage with tribes, ocean users and local communities that may be affected by the wind farm.

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