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United States

Leasing plan "could let in speculators"

UNITED STATES: As the US starts to open up parts of its east coast to commercial wind farm leasing, some industry players are concerned that awarding leases could actually hinder development.

The Bureau of Ocean Energy management (BOEM) wants to use price-based auctions to allocate parts of the outer continental shelf to wind-farm developers. But its proposal leaves the door open to bidders who might not have plans to actually develop projects, said Jim Lanard, president of the Washington DC-based Offshore Wind Development Coalition.

"There is no subjective analysis that looks at whether a company is inclined to be an offshore wind developer," he said. "The analysis is objective - is this bidder capable of owning his lease and paying for it?"

Lanard suggested there is room for speculators who seek to obtain a lease and then sell it on for a profit, leading to delays and higher costs. Some in the wind industry are also worried that the leasing rules as they currently stand could allow people who oppose offshore wind development to obtain leases which are then unused.

"We'll see in the first round of leases whether our fears are well-founded or whether we are just, based on our eagerness to get this industry going, doing worst-case scenario planning," said Lanard.

Tied into concern about who might obtain leases is the question of how the federal auctions integrate with state processes to award power and renewable-energy credit purchase agreements. "There is the possibility that the way this programme has been proposed, we could have different winners of the revenue stream from the states and of the leases from the federal government," said Lanard.

The US government should not be leasing parts of the ocean unless it is in conjunction with an offtake agreement, argued Daniel Cohen, president of Fisherman's Energy of New Jersey. "The only way to be as efficient as possible and reduce the price in the long term is to give certainty to offshore wind projects," he said. "The only thing that will give certainty to a project is both site control and a customer."

The complexity of the auctions themselves could also add to uncertainty for developers. The process BOEM is proposing mimics the high-stakes auctions of the broadband spectrum where bidders employ sophisticated game-theory analysis and where the payout to the US Treasury is in the tens of billions of dollars. "We estimate that the maximum BOEM would raise from the lease auction process for offshore wind is around $20 million, " said Lanard. "Yet we're using this very complicated process."'

It may leave a little shorthanded some developers who really know how to build wind farms, but may not have expertise in game theory. Meanwhile, BOEM has completed its review of the feedback it received during the recent public consultation process and said it is now "working towards an auction design reflective of the public's input".

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