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'Planet Money': Why offshore wind is facing headwinds

A MARTÍNEZ, HOST:

The Biden administration this week announced what it called the largest offshore wind project in the nation. The government says the opening of a fifth offshore wind operation, this one off the Virginia coast, comes with the potential to power 900,000 homes. But the wind appears to have gone out of the sails for this summer's inaugural round of bidding for wind leases in the Gulf of Mexico. Our colleagues over at The Indicator From Planet Money, Wailin Wong and Darian Woods, looked into why.

DARIAN WOODS, BYLINE: So this year, in the late summer, Mike Celata was in his New Orleans office early. While there was a hurricane that happened to be brewing in the Gulf of Mexico, Mike was fixated on his screen for another big event for the Gulf.

WAILIN WONG, BYLINE: Mike had helped set up the first ever auction for offshore wind farms in the region. He works for the Bureau of Ocean Energy Management. That's a government agency that manages how the sea owned by the government is used for things like drilling oil or gas.

MIKE CELATA: It was a lot of anticipation. We were just waiting to see what those first bids would be. A lot of excitement.

WONG: This auction could mean pretty high bids. A similar patch of ocean near New York had gone for over $1 billion.

WOODS: But the sea patches did not go for anywhere near $1 billion. One of the three sites sold for 5.5 million. And two didn't even get any offers.

MARK REPSHER: It was a little deflating.

WOODS: Mark Repsher, a partner at PA Consulting, which is a clean energy advisory that worked with some of the energy companies that were considering bidding for the auction.

WONG: Mark says there are some downsides to the area. If you think about what other kinds of electricity you could generate in the region, like in Texas, there are cheaper options than to drill giant windmills into the Gulf floor, like solar power.

REPSHER: And you can do it at a fraction of the cost on a much quicker development cycle than you could develop that offshore wind in the Gulf of Mexico.

WONG: Mark Repsher says another issue is the cost of building the wind farms.

REPSHER: Some of these initial cost estimates have slowly started to increase, sometimes quickly started to increase.

WOODS: And you won't be surprised to hear the blame put on supply chain snarls, which raise costs. High interest rates at the moment also increase the cost of borrowing.

WONG: Mark says federal benefits and the IRA could lower these costs.

REPSHER: The Inflation Reduction Act - it was a huge benefit to the industry. You're knocking 30 to 40% off of the construction and installation costs to develop these projects.

WOODS: So Mark says it comes down to what the electricity can be sold for. Generally, states are in charge of how their electric grids operate. And so if you want to encourage offshore wind in your state, financial incentives matter. And the main financial incentive given around the country is a guaranteed price, a price of how much the electricity will be bought for. Mark says this is conspicuously minimal in Louisiana, Texas and Mississippi.

REPSHER: They haven't done anything, really, on the offshore wind side to say, we're going to provide an avenue for cash flow security.

WOODS: Every state basically has a different system for electricity. So even with the federal supports in place, if the whole country is to dramatically boost green energy, what this auction reveals is that the states are critical to creating the electricity markets where that can happen.

WONG: Wailin Wong.

WOODS: Darian Woods, NPR News.

(SOUNDBITE OF MARTIN KLEM'S "COYOTE WEDDING") Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Wailin Wong
Wailin Wong is a long-time business and economics journalist who's reported from a Chilean mountaintop, an embalming fluid factory and lots of places in between. She is a host of The Indicator from Planet Money. Previously, she launched and co-hosted two branded podcasts for a software company and covered tech and startups for the Chicago Tribune. Wailin started her career as a correspondent for Dow Jones Newswires in Buenos Aires. In her spare time, she plays violin in one of the oldest community orchestras in the U.S.
Darian Woods is a reporter and producer for The Indicator from Planet Money. He blends economics, journalism, and an ear for audio to tell stories that explain the global economy. He's reported on the time the world got together and solved a climate crisis, vaccine intellectual property explained through cake baking, and how Kit Kat bars reveal hidden economic forces.