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A new Offshore Wind Law has been adopted by the German Parliament (WindSeeG). This law makes significant changes to the design and operation of Germany’s offshore winds auctions. There are two types of auctions. One involves negative bidding, with no limits on the amount developers can bid. This is bad because uncapped negative bidding can lead to increased costs for consumers of electricity and the supply chain. In the auctions, there are also some non-price qualitative criteria. The original proposal contained Contracts for Difference (CfDs).
The German Parliament approved a revision to Germany’s offshore wind law (WindSeeG). This included important updates to the offshore wind auction design. This new design will allow for negative bidding and introduce qualitative auction criteria. The original proposal contained Contracts for Difference (CfDs).
WindEurope CEO Giles Dickson says: “The German Government had proposed to introduce Contracts-for-Difference (CfD), a model successfully used by many other European countries. Last week, the UK auctioned 11GW of renewables through its CfD program. The German Parliament has now dropped this. We now have a model that allows uncapped negative bidding. That’s bad. Negative bidding raises the cost of offshore wind. This is bad news for consumers as well as the wind energy supply chain.”
Germany’s offshore wind auction is now open. Germany plans to construct 30 GW offshore wind power by 2030, 40GW by 2035, and at least 70GW by 2045.
WindSeeG introduces a 2-track auction system. The first track is for sites that have been pre-surveyed by the state authorities. The second track is for undeveloped sites.
1. Sites centrally developed
The next offshore wind auctions for Germany are set for June 2023 and August 2023. Both will be held for sites that have been centrally developed. These will be auctioned based on a list of qualitative criteria. 60 points out of 100 possible points can be assigned to the bidding price. 40 points are assigned to the following criteria: green electricity and hydrogen production, education and training quotas, conclusion of a power purchase arrangement, and nature and biodiversity protection during the installation of wind turbines.
WindEurope supports qualitative criteria. They can be rewarded for the added value that wind energy provides if they are well designed. Wind farm developers used to focus on the lowest cost for their offshore wind farms. This was because the price of the electricity they produce was the only criterion.
“Qualitative criteria for wind auctions can be very useful. The criteria used in Germany are not as comprehensive as those currently being used elsewhere”. Giles Dickson says that how they are implemented and whether they allow differentiation between bids will determine their success.
2. Sites not yet developed
The WindSeeG creates auctions for these sites that are solely price-based and allow for negative bidding. Developers will not receive any state support. Developers will have to pay to be able to build an offshore windfarm. There is no limit on the amount they can offer to pay.
The last Danish offshore wind auction was for Thor’s wind farm. It used negative bidding. The government will pay EUR375m to the winner for the right to the project’s development. Germany could be facing even more negative bidding and ruinous cost competition. The Netherlands does it better. In their most recent offshore wind auctions, they have capped negative bids at EUR50mn.
Negative bidding can be tempting for governments. They should remember that negative bidding carries additional costs. Developers must pass these costs onto someone. These costs are either passed on to consumers as higher energy bills and/or they pass them onto the suppliers by paying less money for their turbines.
Consumers don’t want higher energy bills. The energy prices are already very high. Europe’s turbine producers don’t want any more cost pressure. All five of them are currently operating at loss, with inflation in material prices and disruptions to supply chains. Instead of adding to Europe’s woes, the governments should support Europe’s wind energy supply chains. Not least in Germany, where much of the supply chain is concentrated.
Alignment is required for joint offshore wind projects
The Esbjerg Declaration outlined that Germany, Belgium and Denmark, as well as the Netherlands, pledged to build 150 GW offshore wind in North Sea waters by 2050. To collaborate on cross-border projects such as hybrid offshore wind farms and energy islands, and to produce renewable hydrogen at sea. It is essential that all countries align their regulatory frameworks in order to achieve this. This is what the new WindSeeG does not do.
“This law was passed by Germany before the summer break in order to demonstrate its determination to expand offshore wind rapidly. That’s good. They got it wrong with the negative bidding. This means that both consumers and suppliers will have to pay more, at a time when they are already facing rising costs,” says Dickson.
Already, the Government hinted at a possible bill of repair later in the year. “Yes, fix this bill. Your consumers and your supply chain are important.” Dickson says to align with your neighbors.