California Confirms Strategy for Centralized Offshore Wind Procurement

Following more than three years of planning and analysis, California has established an offshore wind goal of 7,600 MW, with procurements starting as early as 2027. Through its central procurement efforts, California intends to bring about a “market transformation” to help reduce the costs of particular technologies, like offshore wind, allowing them to be developed at scale with competitive pricing.

California’s Offshore Wind Policy

Assembly Bill 1373 (AB 1373), enacted in 2023, authorizes the California Public Utilities Commission (CPUC) to order the procurement of resources by electrical corporations, electric service providers, and community choice aggregators as part of its Integrated Resource Planning (IRP) process. The same bill also allows the CPUC to identify the need to procure long lead-time resources through a central planning process in which the CPUC may request that the California Department of Water Resources (DWR) procure long lead-time resources on behalf of entities included in the CPUC’s IRP. AB 1373 requires the CPUC to make an initial “need determination” before procurements can commence through the centralized procurement mechanism.

CPUC’s Need Determination

On Aug. 22, 2024, the CPUC approved its “Decision Determining Need For Centralized Procurement Of Long Lead-Time Resources,” setting out the state’s strategy for procuring long lead-time resources, including 7,600 MW of offshore wind energy. Per AB 1373, this decision includes the initial need determination and recommends that the DWR conduct at least three rounds of offshore wind procurements starting in 2027. The CPUC acknowledges that the resources identified in the decision, including geothermal and long-duration storage resources, may have higher costs than current resources. However, it observes that these resources are frequently selected as part of the state’s least-cost planning analysis for achieving its clean energy goals. On this basis, the decision is intended to create opportunities for these resources and send the strong market signals needed to support the associated investments.

COMMENTARY

The 7,600-MW offshore wind procurement goal is intended to balance the state’s needs and the maximum lease space available to develop offshore wind projects. Eligible projects must make the first power deliveries between June 1, 2031 and June 1, 2037. The costs and benefits of the offshore wind procurements will be allocated annually based on the forecasted annual energy load share determined in the most recently adopted Integrated Energy Policy report of the California Energy Commission. Load-serving entities are not permitted to opt out of their share of the centralized procurement, and publicly-owned utilities may opt in to allow their customers to access the procured energy.

As for the next steps, the CPUC may issue an informal request to the DWR within six months of the decision, requesting that the DWR initiate procurement activities. The CPUC and DWR staff will work closely to design and conduct the solicitations. The DWR will submit the projects selected and the associated contracts to the CPUC for a review of the procurement process, selection decision, cost recovery, and a determination from the CPUC that the procurement is just and reasonable. Although subject to modification, the decision outlines the following recommended procurement schedule.

Pre-Bid Activities Solicitation Open Contracts Submitted to CPUC

• Solicitation 1 – Early 2027 Late 2027 Mid 2028
• Solicitation 2 – Early 2029 Late 2029 Mid 2030
• Solicitation 3 – Late 2029 Early 2030 Late 2030

Economic Benefits Associated with Offshore Wind Development

Beyond securing renewable power, many East Coast states have used their solicitation processes to secure additional economic benefits associated with developing offshore wind projects. These benefits include the port infrastructure and manufacturing facilities, workforce development and training opportunities, and local content requirements. In some states, these considerations are implemented through the solicitation process as explicit eligibility requirements or evaluation criteria. It remains to be seen if and how California will link these considerations to the procurement process.

However, California is similarly poised to capture these economic benefits through its procurement process. By 2045, the state estimates offshore wind will generate over $5 billion in state-level gross domestic product, with an additional $1.2 billion in labor income, and $385 million in fiscal revenue. These amounts are projected to increase by 20 percent if the state adopts policies incentivizing in-state supply chain capacity.

Additionally, the state has shortlisted the Ports of Humboldt, Long Beach, and Los Angeles as the most appropriate locations for staging and integration, with Humboldt and Long Beach actively working to meet the immediate needs of the industry. In total, $11 to $12 billion of investment in port infrastructure upgrades is needed to accommodate the state’s 2045 goals. For the Port of Humboldt alone, the state estimates an increase of 500 annual short-term jobs by 2030 and 14,000 annual long-term jobs by 2045 from necessary port infrastructure investments and workforce development.

Finally, significant transmission upgrades are necessary to deliver the procured power to load centers. The state has outlined a regional transmission approach leveraging overland transmission, subsea transmission, high voltage alternating current and direct current options to meet these increasing transmission needs. In furtherance of these efforts, in December 2022, the various state agencies entered into a memorandum of understanding with California Independent System Operation (CAISO) to more closely coordinate renewable generation and transmission planning. Additionally, on May 23, 2024, CAISO approved a 2023-2024 Transmission Plan that included roughly $4.6 billion in new transmission projects necessary to bring North Coast offshore wind development to load.

Taken together, California is proactively defining a path to market for offshore wind. Nonetheless, it remains to be seen how the State will structure solicitations and if the State can maintain its ambitious pace of market transformation.

—Ty Johnson is a partner in the Seattle, Washington, office of the Bracewell law firm, where he advises offshore wind developers and investors regarding the Bureau of Ocean Energy Management’s leasing and permitting processes, the National Environmental Policy Act (NEPA) process and related litigation. His offshore wind experience spans both the Atlantic and Pacific coasts of the U.S. Josh Robichaud is an associate in the Washington, D.C., office of the Bracewell law firm, where he represents clients in matters related to federal and state regulatory policies, regulations and rules applicable to the renewable power and broader electric industry. His experience includes obtaining Federal Energy Regulatory Commission (FERC) and state authorizations for major projects and transactions and on transmission, rate tariff and refund matters.