Are falling energy prices and the collapse of the Cape Wind project undermining other offshore wind projects?
A federal government auction of four leases to build wind farms off the coast of Martha’s Vineyard drew little interest, selling for a fraction of what previous auctions raised recently.
Just two of 12 qualified bidders participated in the auction Thursday by the federal Bureau of Ocean Energy Management to sell wind development rights for a 1,161-square-mile swath of ocean about 14 miles south of Martha’s Vineyard. Two of the four leases did not receive any bids.
One of the winning bidders, the renewable energy company RES Americas, paid $281,285 to lease 187,523 acres, while the second, New Jersey-based MW Offshore LLC, paid $166,886 for 166,886 acres.
That works out to just $1.50 and $1 per acre, respectively, for each lease.
In contrast, Deepwater Wind New England LLC paid about $23 an acre in 2013 with its winning bid of $3.8 million for a nearby stretch of ocean closer to Rhode Island. The federal ocean energy bureau has also sold offshore leases off the coasts of Virginia and Maryland.
Despite the poor showing, officials noted the new leases would nearly double the amount of acreage the bureau has leased for offshore wind power through competitive sales.
“I‘m very encouraged by the fact that two experienced wind energy companies have chosen to bid,” said bureau director Abby Ross Hopper, adding that the leased areas have “exceptional wind energy potential.”
But Hopper acknowledged that the site’s remote location, in deep water miles from the coast, prompted the agency to set a lower minimum bid than it had in past auctions.
Putting towering wind turbines further offshore may help the companies avoid the kind of intense opposition endured by the Cape Wind project, located in Nantucket Sound within eyesight of some of the priciest ocean-front properties in New England.
In addition, offshore winds blow harder and more steadily, allowing each turbine to generate more electricity. But building far from the coast increases the cost of construction and makes it more difficult to connect the turbines to the power grid.
Hopper also said the lack of a Massachusetts law compelling electric utility companies to purchase wind power drove the prices of the leases down. An energy bill including such a provision is pending in the House but is expected to be the subject of long and intensive negotiations.
Another factor driving down the price of offshore wind leases, analysts said, is low oil and gas prices, which have made building relatively expensive wind energy facilities less attractive to developers.
According to the National Renewable Energy Laboratory, the two leases sold Thursday could produce about 2,000 megawatts of electricity if fully developed, or enough to power around 700,000 homes.
The specter of Cape Wind hung over Thursday’s auction. The $2.5 billion project, which would have been the nation’s first offshore wind farm, is struggling after the utilities NStar and National Grid pulled out of contracts to buy electricity from the project’s 130 turbines.
Cape Wind would have sold electricity to the utilities at 18.7 cents per kilowatt hour in the first year of its contract, with prices rising 3.5 percent each subsequent year —above typical wholesale electricity rates.
Dan Dolan, president of the New England Power Generators Association, said Cape Wind’s troubles could haunt the nascent offshore industry.
“It’s unfair, but until there is a project that actually goes commercial, that bad impression will stick in people’s heads,” Dolan said. “Cape Wind was going to sell electricity for three times the going market price. You’re going to have to do better than that.”
Dolan said the low participation in Thursday’s auction probably reflected reluctance by financiers, who are concerned about the high construction costs and falling prices of other energy sources, especially natural gas.
“In last few years, you’ve seen the cost for both onshore wind and solar really come off a cliff, but we simply haven’t seen the same thing in offshore wind,” he said. “The financial community is still saying, ‘This technology is not one we feel secure enough in.’ ”
Wind energy advocates said that, despite the low participation, Thursday’s auction was a significant step forward for the offshore wind industry.
“We’re just beginning to scale up in a relatively new area,” said Peter Rothstein, president of the New England Clean Energy Council.
“You’ve got to take a mid- to long-term perspective. I see it as indication that there’s some interest, but not enough players to have a full, robust, competitive market — yet.”