Texas holdout | Why Lone Star state's offshore wind apathy could hobble Biden's Gulf auction

The upcoming offshore wind lease auction in the Gulf of Mexico (GoM) looks set to fall short of even the California round last December, with leading analysts concurring that marked disinterest from Texas as well as lack of a regulatory framework in Louisiana will likely lead to lower prices.

All of the leases are in shallow water down to 36 metres, enabling fixed bottom development.

The leases hold at least 3.65GW of capacity by BOEM’s conservative estimate of 3MW per square kilometre, but likely much more.

Texas is the US’ leading state power market and producer, generating some 12% of the nation’s total, according to the Energy Information Agency, and has the largest renewables sector. The Lone Star state operates at least 40GW of onshore wind and 17GW of utility solar.

“The business case is the opportunity to sell renewable energy into the fast-growing Texas market, but there’s already plenty of capacity to serve the market, so we don’t expect much interest in offshore wind,” said Travis Miller, strategist for UK-based investment consultancy Morningstar.

“We’re hearing very little interest in the Gulf Coast lease auctions,” he added.

Think tanks close to the GOP also make their opposition heard.

Costs factor

“Offshore wind is likely to be priced out,” conceded Wood Mackenzie senior wind energy analyst Samantha Woodworth.

Governor Jon Bel Edwards, a Democrat, spearheaded offshore wind development in the Gulf in 2020 by calling on BOEM to begin investigating the region’s potential and has been a staunch industry supporter ever since.

Louisiana is the centre of the GoM offshore wind oil & gas sector and aims to leverage its vast manufacturing, services sector, and workforce for the nascent industry.

John Begala, vice president of state and federal policy for industry advocate Business Network for Offshore Wind (BNOW) noted that Texas’ worsening “political rhetoric towards renewables broadly or offshore wind specifically could push the industry and all of the associated development and job creation to Louisiana.”

Routing offshore wind power from the Texas leases to Louisiana, a 60-mile (97km) direct route is feasible – Beacon Wind is looking at running an up-to 345 km export cable from its lease in the Massachusetts WEA to its point of interconnection in New York. It would likely require expensive high voltage direct current (HVDC) technology, though, adding significant costs to the region’s already challenged economics.

While the US National Renewable Energy Laboratory sees technical potential of 500GW in the Gulf, the region faces challenges including lower wind speeds of around 7.4 metres per second, weaker than either the Atlantic or Pacific coasts, as well as frequent hurricanes that will require more robust industrial infrastructure, adding to development and operation costs.

Transporting power through the onshore grid would run into interconnectivity issues, as the Electric Reliability Council of Texas (Ercot), the main operator in Texas, and the Midcontinent Independent System Operator (Miso), which includes Louisiana, have few links.

Moreover, while Louisiana has set an ambitious goal, it has made little progress in setting an offtake framework for offshore wind.

John Dalton, senior analyst for Canada-based power market consultancy Power Advisory, noted that New Jersey and New York’s clear procurement frameworks “gave offshore wind developers a lot of confidence in terms of that they could find an offtake market for their projects.”

BNEF’s Jean-Michel noted that Louisiana “has yet to outline any clear support schemes since proposing its 5GW-by-2035 goal”.

“Overall, it seems the Gulf auction will likely yield relatively lower seabed prices compared to recent offshore wind auctions, driven by market uncertainty and slower wind speeds amongst other factors,” Jean-Michel said.

Cause for optimism

While offshore wind in the Gulf does face significant challenges, it does offer distinct opportunities for coastal load centres such as Houston, Texas.

Houston is “a transmission constrained area and offshore wind offers an appealing hedge for the industrial coast looking to insulate against volatility in the electricity markets,” said BNOW’s Begala.

“Offshore wind’s ability to provide utility-scale power reliably can play a critical role in powering the region and its transition to decarbonized power sources,” he added.

The sector may be critical for the development of a green hydrogen sector in the Gulf states as well as decarbonisation of the upstream hydrocarbon sector.

Texas and Louisiana are both heavily industrialised and high consumers of hydrogen in refineries and fertiliser production that make them prime candidates for green hydrogen production.

Greater New Orleans Inc. (GNO) last year won a $50m grant from the Biden administration’s Build Back Better initiative for its H2theFuture plan to slash pollution in Gulf state and generate opportunities for its residents through green hydrogen.

The funds were supplemented by a $24.5m grant from the state, bringing the total award to nearly $75m.

Other bidders include German energy giant RWE, US renewables leader Invenergy, and Iberdrola-controlled Avangrid. South Korean conglomerate Hanwha has thrown its hat in the ring, along with multiple firms that appear to be investment vehicles. Mainstream Renewables is also included but exited the US market months ago.

If last year's auctions are any indication, it is likely that less than a third of qualified bidders will participate in the auction, likely leading to lower lease prices.

BNOW's Begala considers this an opportunity, though, saying: “Lower prices can open the door to innovative offtake agreements and project developments.”

“It's all about creativity,” he added.