Asked and Answered: The Gulf of Mexico Offshore Wind Lease Auction

The Biden administration conducted the first offshore wind lease auction in the Gulf of Mexico on Tuesday, a major step in expanding offshore wind production beyond the Northeast. Allegra Dawes, associate fellow with the CSIS Energy Security and Climate Change Program, sat down to discuss the results of the auction, challenges of implementing offshore wind infrastructure, and potential policy solutions.

This interview, conducted by Lauren Adler, has been edited for brevity and clarity.

LA: The Biden administration just held the first offshore wind lease sale in the Gulf of Mexico. Why is this so important, and how will it impact electricity in the region?

AD: The Biden administration has set really ambitious goals for offshore wind development in the United States. They’re targeting around 30 gigawatts of offshore wind energy by 2030—a massive increase from the current operating offshore capacity, which is below one gigawatt. On Tuesday, they were leasing areas that would have had the capacity to generate around 3.7 gigawatts of offshore wind energy. That’s a significant amount—with one gigawatt, you can power about 800,000 homes.

To date, we’ve only seen offshore wind projects developed along the East Coast, primarily in the Northeast. The Biden administration is trying to increase and expand the areas that are developing offshore wind, including the Gulf of Mexico and the West Coast. The lease auction was the first step towards that in the southern United States.

It’s important to note that the Southeast power sector has typically seen lower prices, in large part because of access to other forms of energy like natural gas, onshore wind, and solar. So offshore wind’s cost will become a bigger problem as these development projects continue. But offshore wind can also deliver a lot of electricity to load centers. In recent years, we’ve seen grids in the South become strained under increased demand and extreme temperatures. Expanding some of the generation options we have and making sure that clean energy is delivered in a reasonable and reliable manner could be seen as an effort to expand grid resilience.

LA: What is offshore wind, and how does it work?

AD: Offshore wind—it’s kind of in the name. Essentially, these are wind farms, wind turbines that are installed offshore. The leases in the Gulf of Mexico were 30 to 40 miles off the coast. To install them, the operator builds a solid base fixed to the ground and then brings the turbines out in parts. The installation process requires heavy lift vessels that have a large capacity for fitting massive turbines, and also cranes that are able to install them on the fixed base.

Offshore wind turbines are really large. For scale, some of the smaller offshore wind turbines are around the height of the Washington Monument, so around 550 feet tall, and the larger ones can range up to 800 feet. They’re really big items, which means that it’s difficult to install them in the ocean. And it also means that you have a lot of requirements for onshore port infrastructure that enables you to build and transport these turbines to the sea.

LA: What happened at the auction? What do the results mean for the expanding offshore wind sector in the Gulf region?

AD: The auction had a few interesting results. There were three lease areas up for auction, and there were 16 prequalified bidders, which were companies interested in building offshore wind farms. The results of the auctions were a little bit negative for the short-term outlook of offshore wind in the area. Only one of the leases actually received a bid offer—$5.6 million to develop the Lake Charles lease area. The other two didn’t receive bids. That points to some of the challenges that I think the Biden administration and these companies and interested utilities will have in developing the sector there.

When you first have an auction, that enables a project developer to get access and rights to a plot of land—or plot of ocean, more precisely—and then they can develop infrastructure. So, it’s the first step in a really long project. They need to submit cited site assessment plans, they need to develop the project scope—how many turbines they want to put in, how it’s going to connect to the grid onshore, and the timeline for bringing that power to the grid. That involves a lot of permitting, a lot of project financing. And those are all areas where we’ve seen challenges recently.

LA: You are publishing a brief next month on state strategies for developing offshore wind. Beyond the high cost, what are some of those challenges in expanding offshore wind infrastructure in the Gulf of Mexico?

AD: I think the lack of direct state policy support in some of these Gulf states for offshore wind is one of the biggest challenges facing development. In the regions where we’ve seen offshore wind have competitive auctions, many of the projects under development have supportive regimes within states. New York, New Jersey, Massachusetts—these states have mandated a certain requirement and target for offshore wind production by law, so utilities in the state have to actually contract a certain amount of offshore wind capacity by a certain date. When you look in the Gulf states, especially Texas and Louisiana, there is no firm mandate for offshore wind. Louisiana has a Climate Action Plan, which sets a soft target for 5,000 megawatts of offshore wind by 2035, but it’s not mandated. So, offshore wind projects in the Gulf of Mexico then have an extra burden to be economically viable when compared to other energy sources. That’s a challenge because offshore wind is generally more expensive because of those project construction costs.

The Gulf of Mexico itself also comes with certain difficulties. The area is prone to hurricanes, so you need to have turbines that are resilient to really high and intense winds and intense waves at certain points of the year. But on average, it’s also an area that sees slower winds, so developing turbines that generate enough electricity to have sustainable project returns throughout their life cycle will also be a problem.

With that said, there are also some advantages that the Gulf of Mexico brings. It is a really mature spot for offshore energy. The oil and gas industry has been producing offshore in the Gulf for many years, so there’s a strong workforce base that’s familiar with operating in the ocean environment. There are maritime assets like ports that can be used for staging wind turbines. There’s also an established industrial supply chain to help accelerate the development of this industry.

LA: How do you think policymakers should be thinking about these types of issues in order to counter some of those challenges that you mentioned?

AD: At the federal level, the Biden administration has obviously made offshore wind a priority for their clean energy rollout. Setting these high-level targets provides the industry with a target of how much demand they should be expecting, how they should size their supply chains, how they should plan projects. Having lease auctions that are announced far in advance can also help the industry respond on a timely basis.

The state level is really what sets the tone for the procurement of offshore wind energy, and that’s really where demand for this resource comes in. Along the East Coast, these firm, by-law requirements for offshore wind have provided incentives for industry and for state regulators and utilities to really go after these projects. But it doesn’t insulate them from some of the cost challenges. So, bringing it to the market will depend on working systematically to lower costs, develop the supply chain, and ensure that there’s a sufficient skilled workforce that can support the rollout of this industry.

I think that moving forward, states will have to reckon with the fact that this is a great resource—the United States is lucky to have a lot of coastline that we can develop, and we can see a lot of benefits of this clean energy—but it will likely be expensive in the short term.

Allegra Dawes is an associate fellow with the Energy Security and Climate Change Program at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Lauren Adler is content coordinator with CSIS External Relations. 

Allegra Dawes

Allegra Dawes

Former Associate Fellow, Energy Security and Climate Change Program