Carolina Long Bay Auction: What we anticipate during the May 11th Lease Auction

The Carolina Long Bay offshore wind energy lease auction will be the second lease under the current administration – and follows on the heels of the wildly successful New York Bight lease auction in February.

The May 11^th timing of the auction was chosen by the Biden administration to get ahead of the 10-year moratorium on any offshore energy leases in the Carolinas, which was announced in 2020 by the Trump administration.  That moratorium will begin on July 1 of this year. 

However, that timing may also help carry over the momentum from the New York Bight Auction.

Compared to New York, the Carolinas’ lease auction probably won’t see anywhere close to $4 billion in total bids. The lease area is substantially smaller in size (110,000 acres for the two sites against the 400,000 acres auctioned for the New York Bight). There are also various local economic factors such as lower power prices and lack of offshore renewable energy credits that influence the valuation. However, we do expect to see price per acre remain buoyant.  

Reaching the ~$10,000 per acre that we saw in some of the New York lease areas is unlikely, but many multiples of the ~$75 per acre that we saw for Kitty Hawk in 2017 is a certainty.  

We wouldn’t be surprised to see $5,000 per acre or more for the Wilmington East sites.  

More important than the lease valuation though is the impact of the multi-factor bidding format, and how supply chain and labor force commitments will coalesce with others in the mid-Atlantic region.

The new supply chain commitments could shift the dynamics of the emerging US supply chain. Cheaper land and labor in the South could be more conducive to new port infrastructure as well as large tier-1 manufacturing sites, which could serve the local projects as well as potentially other projects on the east coast.  The N.C. Department of Commerce has already released a supply chain study, and a tri-state consortium of North Carolina, Maryland, and Virginia is exploring ways to collaborate and coordinate regional offshore wind supply chain and infrastructure.  

Combined with whatever developer commitments we see in the multi-factor auction, a clear picture will start to emerge next month as to how the region could develop as a major supply chain hub.  

The other potential game-changer we are looking out for is the entrance of another large U.S. electric utility company.  Among the qualified bidders for the Carolina auction is Duke Energy (as Duke Energy Renewables Development).

Dominion Energy is already a dominant force in the region. Having another large U.S. player could alter the competitive landscape of U.S. offshore wind and potentially even how projects are developed.  U.S. companies would be guided by the experience of European developers, but can also contribute their own ways of doing things in their own backyard. This could hopefully advance the industry even further, especially given the unique characteristics of the U.S. market with regards to Jones Act considerations, among others.

Overall, what we anticipate from the Carolina Long Bay auction is not so much the eye-popping lease valuations we saw in the New York Bight Auction (we think those need to cool down a bit), but rather more clues as to how this huge new offshore wind industry will emerge at scale in the U.S.

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