Several contestants asked for zero government support in their bids for three offshore wind farm locations, so the German regulatory body was forced to choose the winners by drawing lots. RWE Renewables and EDF were the luckiest. WindEurope CEO Giles Dickson suggests the approach needs to change.
Are offshore wind power projects on track to become profitable without subsidies? In its latest round of auctions, Germany awarded the rights to install a combined 958 MW in three locations without government support – except for a free grid connection, which will be paid by consumers through network charges.
Furthermore, several participants asked for zero incentives in their bids for each lot. In line with the propositions for the so-called central model for auctions, the Federal Network Agency (Bundesnetzagentur) chose the winner by drawing lots. RWE Renewables got two zones and EDF was awarded the remaining one.
Investors need long-term visibility
According to Chief Executive Officer of WindEurope Giles Dickson, that’s not a functioning market, because there isn’t any kind of equilibrium between supply and demand.
WindEurope’s Dickson: The auctions were crowded due to a three-year break
“There was huge interest from wind farm developers. They were desperate to get the market share, just to get the permits to build, rather than to minimize their financing costs. It was the first offshore wind auction in three years and it’s not entirely clear when the next ones are going to be taking place. You have to have long-term visibility. Then the supply side is going to be much more confident about how it behaves in these auctions,” he told Balkan Green Energy News.
Early developers have entry right for two out of three projects
It was the first time that Germany used the central model for offshore wind auctions. Some zero support bids were registered in the previous two rounds as well.
The latest auctions were made more complicated by the fact that the original developers of two of the projects have the right to step in on behalf of their costs in the early stages of planning. Namely, the rules have changed with the introduction of the auction system in 2017, so now they can opt to participate in the projects by November 2, but only under the same conditions.
Zero support bids were registered in all three round of auctions that were held so far
“We still don’t have final certainty and clarity on who is going to develop these sites, despite having waited three years for an auction,” Dickson said. “We’ve been saying for many years to the German government: you have to introduce contracts for difference. CfDs are the auction system for offshore wind in the United Kingdom, France, Poland and Denmark, and they will be in Greece in Lithuania. Only Germany and the Netherlands operate a different system, which allows for zero bidding. It means higher financing costs and higher costs for society.”
All projects must come online by 2026
RWE Renewables won the N-3.7 zone in the North Sea, located near the island of Borkum. The envisaged capacity is 225 MW.
The same company was the luckiest in the lottery for 300 MW in O-1.3 in the Baltic Sea, 40 kilometers from Rügen island. Iberdrola’s Windanker has entry rights for the location.
EDF from France won N-3.8 in the North Sea, also near Borkum. The planned capacity is 433 MW. Northland Power and RWE Renewables have the preemption rights there and they can exercise them via their joint venture Nordsee Two, which was the early investor.
The winning bidders are obligated to complete the facilities by 2026. They have the right to run them for 25 years.