The first auction for leases to build massive wind farms off California's coast netted bids reaching $402.1 million Tuesday, signaling the beginning of a competitive market for a new industry producing carbon-free electricity.

The auction -- the first on the West Coast -- includes five sites about 20 miles off Morro Bay and Humboldt County, totaling 583 square miles of deep ocean waters. The leases from the federal government are the first step in a years-long regulatory process that could culminate in the nation's first commercial-scale floating wind turbines off California's coast.

After 20 rounds of bidding, Tuesday's top bid stood at $100.3 million for a 125-square-mile area off Morro Bay, while the lowest leading bid so far is $62.7 million for a 98-square-mile area off the coast of Humboldt County. Bidding was resuming on Wednesday at 7 a.m and winners will be released that afternoon.

So far, the total bids are considerably smaller than the record-breaking $4.37 billion paid for six offshore wind leases off New York and New Jersey's coasts in February. That was the largest amount ever paid for U.S. offshore energy leases -- including for oil and gas. The funds are paid into the U.S. Treasury's General Fund.

The results of the auction offer the first key signs for gauging how strong the market is for producing offshore wind energy off California. Forty-three companies, including industry leaders like the Danish company Orsted, are eligible to bid on the leases offered by the U.S. Bureau of Ocean Energy Management, which oversees offshore energy and mineral projects.

The offshore waters included in the auction have the potential to host several hundred turbines that produce more than 4.5 gigawatts to power about 1.5 million homes.

Offshore wind projects are considered critical to meeting California's goals to provide a new source of electricity, end reliance on fossil fuels and battle climate change.

"(Tuesday's) auction is great news for California's offshore wind industry, workers, and electricity ratepayers," said Adam Stern, executive director of Offshore Wind California, a trade group for industry developers and technology companies. "It's the most consequential milestone yet for the Golden State's efforts to make offshore wind a key part of its diverse clean energy future."

Experts say construction is at least five to six years away, and an array of unknowns must first be addressed by the companies: the high costs of construction, the logistics of producing the energy and bringing it to shore, and the environmental risks to marine life and commercial fisheries.

"There's a lot of opportunities, but there's also some challenges," said Habib Dagher, executive director of the University of Maine's Advanced Structures and Composites Center, who is helping develop the first offshore floating wind turbines in the U.S.

"California has deeper waters than any other areas with these floating turbines so far in the world," he said. "How do you protect the environment, protect local stakeholders, protect the fisheries, protect indigenous communities, while also speeding up permitting so we make a difference with global climate change?"

Unlike current offshore wind turbines fixed to the ocean floor off the East Coast, California's turbines -- the first of their kind in the nation -- would float on platforms anchored by cables in waters reaching about half a mile deep.

The turbines are hundreds of feet tall with blades that are bigger than a football field, but they would largely be out of sight from the shore, about 20 miles away. The Morro Bay lease area covers 376 square miles, while Humboldt's is 207 square miles.

The state's ambitious offshore wind targets build off President Joe Biden's 2021 pledge to deploy 30 gigawatts of offshore wind nationally by 2030. Gov. Gavin Newsom hopes to add between 2 to 5 gigawatts of offshore wind off California's coasts by 2030.

The state's ultimate goal is to produce at least 25 gigawatts from offshore wind sources by 2045 -- the boldest commitment any state has made. That could supply electricity for 25 million homes.

"Offshore wind is a critical component to achieving our world-leading clean energy goals and this sale is an historic step on California's march toward a future free of fossil fuels," Newsom said in a statement. "Together with leadership from the Biden-Harris Administration, we're entering a new era of climate action and solutions that give our planet a new lease on life."

How do offshore wind farms work?

Offshore wind turbines work similarly to land-based ones. Wind makes the turbine's blades spin around a rotor, which then turns a generator to produce electricity. The turbines send energy through cables under the seabed to an onshore substation, where the energy is converted to a higher voltage before being fed into the grid that provides electricity.

California's offshore wind farms would be the first in the country constructed with floating platforms at a large scale. Europe has long been a leader in developing offshore wind technologies, including a few existing floating offshore wind farms.

The U.S. hopes to soon become another world leader in developing the technology, said Dagher of the University of Maine.

"The U.S. still has an opportunity to lead in floating technologies," he said. "But we need to move forward on the technology side and keep investing in research and development."

The first offshore wind turbines in the U.S. are rooted to the sea floor in relatively shallow waters on fixed structures, which are unsuitable for deep waters. California's floating turbines, however, will be located about 20 miles offshore and will need to be anchored by cables that reach to the ocean floor at depths of several thousand feet.

To date, the federal government has held 10 competitive lease sales and issued 27 commercial wind leases in the Atlantic Ocean, spanning from Massachusetts to North Carolina, according to the U.S. Bureau of Ocean Energy Management.

The two offshore wind farms operating in U.S. waters are capable of generating a combined 42 megawatts of electricity. The country's first offshore wind project, off the coast of Rhode Island, launched in 2016 with five turbines, followed by a project in Virginia with two turbines. More projects are on the way, including off the coasts of Massachussetts, New York and New Jersey.

Building and operating the nation's new offshore wind industry will be worth $109 billion to supply chain businesses over the next 10 years, according to one report.

Costs for launching offshore wind projects have decreased by as much as 60% since 2010, according to a July report from the International Renewable Energy Agency. The cost of producing the energy in the U.S. averages about $84 per megawatt-hour, more than most other types of energy, according to the U.S. Department of Energy.

Bigger and deeper carries more risks and higher costs

The auction is just one of many steps in the permitting and construction of commercial offshore wind development off California. Once the sites are leased, developers must submit plans detailing the cost and scale of the wind farms before going through an extensive environmental review. That process could take five to six years before construction, which could take a couple more years, begins, said Stern of Offshore Wind California.

The companies would have to seek approval or permits from several state and federal agencies, including the California Coastal Commission.

The scale and size of the technology means California would need to rapidly build specialized port facilities and servicing vessels to construct and transport the gigantic turbines. To speed up deployment, he said it's critical that the state start now investing in transmission and port infrastructure and developing a clear roadmap on permitting and procurement.

Wind power tends to be stronger in the ocean than on land, making offshore wind a particularly valuable renewable energy source that could help the grid during times when other renewables like traditional wind and solar can't produce energy.

Winds off the coast are strongest in the late afternoon and evening, which is exactly when - particularly in the summer -- electricity demand surges as people go home and turn on appliances like air conditioners.

But several challenges exist with deploying the technology in deep ocean waters, including risks to marine life and concerns over natural disasters, such as earthquakes, said Dagher of the University of Maine.

The turbines off Eureka would be in waters 2,490 feet deep and for Morro Bay, 3,320 feet, he said. No project in the world exists in waters this deep. The deepest project to date is in Norway, in waters 721 feet deep, Dagher said.

"That adds costs and risk because no one's building anything this big or this deep yet," he said.

At a climate summit hosted by the California Energy Commission on Monday, state leaders, public officials and companies gathered to discuss offshore wind deployment in California ahead of the lease sale.

San Francisco City Attorney and former Assembly member David Chiu said the burgeoning industry could help grow the state economy by adding thousands of good-paying union jobs in multiple sectors and helping fossil fuel workers transition into renewables.

Chiu authored AB 525, passed in 2021, requiring the state Energy Commission to establish offshore wind planning goals for 2030 and 2045 and develop a five-part strategic plan by 2023. He said strong workforce training programs and community benefit agreements, especially with Native American tribes, will be crucial to implementing the law. The potential impacts on commercial fisheries also must be considered.

"We know that we have to do something different. Offshore wind is different," he said. "But that being said, we're also acutely aware that there are impacts on communities."

The federal government will offer bidding credits for developers who enter into community benefit agreements and invest in workforce training or supply chain improvements in communities. Companies that develop offshore wind projects in California also will be required to enter into labor agreements and work with Native American tribes before beginning construction.

Studying risks to dolphins, whales, fish and birds

While offshore wind is a climate-friendly resource, many environmental groups and researchers say floating wind turbines could pose environmental risks. Sea turtles, fish and marine mammals could become entangled in the cables, while birds and bats could get caught in the turbines, said Irene Gutierrez, an environmental attorney at the Natural Resources Defense Council.

"We want to make sure it's done right," she said. "There's a lot that we don't know about offshore wind in the West and what that means for various marine and coastal ecosystems."

To reduce harm to these animals, Gutierrez said federal and state agencies, developers and researchers must work together to conduct more research and commit to regularly monitoring the effects on natural habitats once the projects launch.

Brandon Southall, a scientist with the environmental group California Ocean Alliance and a research associate at UC Santa Cruz who studies the effects of noise on marine mammals, is performing a risk assessment on the lease areas for the federal government to assess how to avoid disruptions to endangered animals and noise-sensitive marine life.

"There's a lot of uncertainty," he said. "But there are a lot of tools that we have that are rapidly evolving, like listening and directional vector sensors to locate where animals are coming from, and we have some baseline data from other projects."

He said the boats servicing and maintaining the turbines would pose some of the largest risks to dolphins and whales, which communicate over long distances and are sensitive to noise. To avoid being too disruptive to their communication patterns, Southall said the turbines should be installed with noise-reduction technology. Ship operators should also be required to follow a speed limit to avoid striking marine mammals, he added.

Despite the risks, Southall said they shouldn't derail efforts to deploy the clean energy source given the severity of the climate crisis. He said it's important that the federal and state governments develop a regulatory framework for companies to ensure they comply with environmental protections.

"I hope that when we're looking at these concerns about impacts, that we, as a scientific community and as a conservation community, don't lose sight of the fact that we need sustainable, alternative energy," Southall said. "We need a balance of informed and conservative cautionary decision-making, but not so precautionary and so afraid of the uncertainty that we never get there."