Volatility creates 'prisoner's dilemma' in 2023 offshore wind auction bidding

PA Consulting’s Alon Carmel, energy transition expert, discusses the ‘prisoner’s dilemma’ that volatility creates for offshore wind auction bidding in an article by Camilla Naschert in S&P global.

Commenting on this, Alon says, “There are quite a few contradictory pressures, the recent California offshore wind seabed lease round, which ended in December 2022, was a bellwether for what may be to come”.

Alon adds: “The round attracted fewer bidders than expected, and seabed lease payments were lower than in past U.S. rounds. California-specific uncertainties around remuneration were combined with wider macroeconomic risks, resulting in less exuberant bidding. Technical challenges also played a role, with California's deep waters requiring the use of floating turbines, which have much less of a track record than traditional fixed-bottom machines”.

He concludes, “It is a prisoner's dilemma to the extent that if some bidders start to bid more conservatively to protect themselves against those risks, that might disadvantage them,There's still a significant number of investors who are seeking to establish themselves — you'll still have some element of strategic bidding. But I would hope that the vast majority of bidders would carefully weigh up these different factors”.