Locke Lord QuickStudy: New York Bight Auction Represents ‎Next Step for Offshore Wind, but Headwinds Remain

On January 12, 2022, the Bureau of Ocean Energy Management (“BOEM”) announced its first ‎offshore-lease auction in over three years. The auction will take place on February 23, and will award ‎leases for over 488,000 acres in the New York Bight, an area off the coast of New York and New ‎Jersey. The New York Bight announcement follows several other recent state and federal actions ‎also aimed at facilitating the expansion of the nascent but rapidly growing U.S. offshore wind ‎industry. While these developments are encouraging and the momentum surrounding offshore wind ‎is undeniable and growing, it is not all smooth sailing, and significant challenges do remain for ‎developers and the auction itself. ‎

New York Bight Auction

BOEM’s February 23 auction will be for six leases in the New York Bight. This sets a record for the ‎most leases available in a single auction and the parcels up for lease could create 7 GW of offshore ‎wind energy that would power nearly 2,000,000 homes. This a key next step in a years-long process ‎to capture the benefits from a significant amount of clean, renewable wind energy near the country’s ‎largest metropolitan area.‎

In 2018, as a lead-up to this auction, BOEM requested information on over 1,700,000 acres in the NY ‎Bight. The agency then identified roughly 807,000 acres of Wind Energy Areas in 2021 and, after ‎BOEM’s further review of scientific data as well as input from the commercial fishing industry and ‎others, BOEM set up next month’s much-anticipated auction with lease areas ranging from 43,000 to ‎‎125,000 acres.‎

In response to feedback, BOEM will only allow a bidder to win a maximum of one lease at the ‎auction. Additionally, the leases signed by winners of the New York Bight auction have a number of ‎new and modified obligations compared with previous leases. The new provisions relate to ‎‎(1) reporting requirements, (2) endangered species, including telemetry tracking of certain birds and ‎bats, (3) surface structure layout, (4) transmission planning, and (5) labor projects agreements as well ‎as the development of a domestic supply chain that can support the growing U.S. offshore wind ‎industry. ‎

Maximizing economic development and U.S. manufacturing from offshore wind has been a national ‎focus. Many states procuring offshore wind power have tied their solicitation to a developer’s ‎economic development initiatives. The leases for New York Bight reinforce that goal. The leases will ‎require the developer to make every reasonable effort to enter into a project labor agreement for the ‎construction of their project. The developer must also explain how it will help grow the U.S.-based ‎supply chain for the offshore wind industry, and the leases will allow a developer to reduce its ‎operating fee by millions of dollars if at least four of eight component parts the developer uses are ‎manufactured, or in one instance assembled, in the U.S.‎

Recent State-Level and Federal Activity

The NY Bight lease auction comes shortly after a flurry of recent activity by states on the eastern ‎seaboard also seeking to promote and facilitate the growth of offshore wind. As discussed in our ‎recent QuickStudy, in mid-December the states of Massachusetts and Maryland procured a ‎combined 3,200 MW of offshore wind power. Then in late December, the U.S. Department of ‎Transportation awarded Port Infrastructure Development Program Grants for tens of millions of ‎dollars to the Port of Albany in New York and the Portsmouth Marine Terminal in Virginia. The grants ‎will help facilitate those ports’ ability to advance the offshore wind industry.‎

In January, the activity has continued. On January 5, New York Governor Kathy Hochul announced ‎a $500 million investment in the ports, manufacturing, and supply chain infrastructure for the ‎offshore wind industry. A week later, on January 12, the Massachusetts Legislature held a hearing ‎on Governor Charlie Baker’s bill that would make a $750 million dollar investment to spur the next ‎phase of clean energy innovation and help advance the offshore wind industry. Also on January 12, ‎the Department of Energy released its Offshore Wind Strategies report that outlines ways to maximize ‎the effectiveness, reliability, and sustainability of the U.S. offshore wind industry. Then, on January ‎‎14, two days after the announcement on the New York Bight auctions, Equinor and BP announced ‎that they had finalized their contracts with the New York State Energy Research and Development ‎Authority for the Empire Wind 2 and Beacon Wind 1 projects that were procured in early 2021 and ‎will provide nearly 2,500 MW of wind power.‎

Potential Headwinds

The flurry of state activity reflects the strong demand for renewable energy along the eastern ‎seaboard, where a lack of available land and numerous siting challenges constrain the development ‎of utility-scale onshore projects. The New York Bight auction will provide a significant boost to the ‎growing industry, and will likely drive a new round of private and public investment that will continue ‎to drive growth and economic development. That being said, significant challenges to successfully ‎permitting and constructing offshore wind projects remain, including supply-chain issues, permitting ‎and environmental compliance, and constraints imposed by Jones Act requirements, to name a few. ‎Even the New York Bight auction itself faces a challenge. BOEM faces a pending suit in D.C. federal ‎court that seeks to reverse its decisions to designate parts of the New York Bight as a Wind Energy ‎Area, on the basis that BOEM’s decision to forego National Environmental Policy Act (NEPA) ‎analysis of the proposed Wind Energy Area until after leases are issued and specific project plans ‎are submitted by the leaseholders was improper. Potential bidders and the industry at large will be ‎watching this case closely in the lead-up to the auction, as an adverse decision could delay the ‎auction, or if coming after the auction is completed, could potentially invalidate or suspend leases ‎until the NEPA process is completed. However, any delay that may result from this suit is likely to be ‎only temporary, and the New York Bight auction is almost certain to mark the next phase in the ‎growth of offshore wind in the U.S.‎