Offshore wind auction draws huge interest and big money

Three developers backed by major European energy companies paid a record $405 million to gain access to 390,000 acres of federal waters nearly 20 miles south of Martha’s Vineyard and Nantucket. Above: The wind farm off Block Island, R.I.David L. Ryan/Globe Staff/File

The blockbuster auction for offshore wind leases that wrapped up Friday should leave few doubts: The industry has finally arrived in New England.

Three developers backed by major European energy companies paid a record $405 million to gain access to 390,000 acres of federal waters nearly 20 miles south of Martha’s Vineyard and Nantucket. These firms will each pay $135 million to the federal government for the rights to build massive windmills in their respective slices of the ocean.

“We are completely blown away by this result,” Walter Cruickshank, acting director of the US Bureau of Ocean Energy Management, told reporters after the auction ended.

Cruickshank was speaking for the agency that oversaw the auction, but he also summed up much of the industry’s reaction.

Until now, the record for an offshore wind lease was held by Statoil, which agreed two years ago to pay $42 million to win control of nearly 80,000 acres off New York’s coastline.

“I’m amazed at the numbers,” said Jim Smith, a Boston lobbyist who works on offshore wind issues. “Nobody had this in mind.”

Although these areas will take many years to fully develop, the Bureau of Ocean Energy Management says the three lease sites could collectively support 4,100 megawatts of wind generation someday, enough juice for 1.5 million homes.

“It’s a huge day for Massachusetts,” Smith said. “Historically, we’ve been at the end of the [energy] pipeline. Now, we are at the beginning of the pipeline.”

How rich are these prices? Consider how far the industry has come in four years. In early 2015, the rights to two vast lease areas closer to shore — read: easier and cheaper to develop — sold for less than $300,000 apiece. The offshore areas auctioned off this week? The energy bureau tried to sell them once before, also in 2015. Everyone took a pass.

Not this time. Eleven bidders gave it a shot. The spirited bidding stretched over two days.

The victors: Equinor, a Norwegian company formerly known as Statoil until this past spring; Mayflower Wind, a joint venture owned by Shell and EDP Renewables; and Vineyard Wind, a venture controlled by Spain’s Iberdrola and Copenhagen Infrastructure Partners.

So what changed? State policy, for one thing. In 2016, lawmakers in Massachusetts required the state’s big utilities to seek contracts for up to 1,600 megawatts of offshore wind.

As a result, Vineyard Wind won the first round of bidding in May, for 800 megawatts, for an area it already controlled. The rest will probably be put out to bid in mid-2019. In July, legislators on Beacon Hill passed another law that allows the Baker administration to seek an additional 1,600 megawatts of offshore wind energy.

Other coastal states are getting into the act. For example, Rhode Island set up its own 400-megawatt contract with Deepwater Wind, a Providence company that Denmark’s Orsted just acquired for $510 million. (Deepwater also opened a much smaller wind farm, off Block Island, two years ago.) And officials in New York and New Jersey now have their own ambitious goals for big offshore wind purchases that could put their states on a path to beat ours.

Improvements in technology are playing a key role. Vineyard Wind won the Massachusetts contracts by selling its power for one-third the price that the ill-fated Cape Wind project had offered years earlier. The Vineyard Wind turbines will be much larger, in deeper waters, to take advantage of economies of scale.

The distance from shore means fewer complaints from coastal property owners, another concern that helped doom Cape Wind. But fishermen are still worried. Some are fighting Vineyard Wind, saying the developer isn’t doing enough to accommodate their fishing routes. In response, the four US senators from Massachusetts and Rhode Island, including senators Ed Markey and Elizabeth Warren, fired off a letter to Cruickshank on Friday, pressing him for details about how the Bureau of Ocean Energy Management is considering the commercial fishing industry’s needs.

Vineyard Wind needs to start work by the end of 2019 to capitalize on an expiring federal tax credit. But the intense interest in this week’s auction shows that developers are no longer counting on the promise of federal subsidies to make a big bet on offshore wind’s future.

Vineyard Wind’s 800-megawatt, 84-turbine project is already underway, in terms of design and permitting. But what gets built on the newly auctioned lease areas remains an open question. Presumably, the winners will need to line up similar contracts in state-refereed bids, much like what Vineyard Wind has already done.

Officials at the energy bureau expressed confidence that the wind industry is getting closer to reaching another tipping point when state-orchestrated contracts are no longer needed. But for now, the wind developers require these long-term contracts with utilities to help finance their projects, which are expected to cost $2 billion or more.

The offshore projects will inevitably bring on-shore jobs with them, particularly during the construction phase. The prominent industrial ports along New England’s southern coast — including the Quonset industrial park in Rhode Island, and a state-funded terminal in New Bedford built with the wind industry in mind — are expected to be among the biggest beneficiaries.

Environmentalists celebrated the high auction prices as a sign that the offshore wind industry could be poised to replace a significant portion of the oil and natural gas that gets burned to keep the lights on across the region.

“That was staggering,” said Jack Clarke, director of public policy with Mass Audubon. “This is a message to the industry that we’re in it in Massachusetts for the long run.”