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Germany recently announced victorious bidders of its largest offshore wind auction to date, granting them rights to develop 7 GW of capacity. Unlike previous auctions, this particular auction model required project developers to pay for constructing wind farms. This was Germany’s biggest offshore wind auction to date and also the first auction where the sites were not pre-developed by the State.
The auction was for four sites, with three sites of 2 GW situated in the North Sea (N-11.1, N-12.1, N-12.2), and one site of 1 GW located in the Baltic Sea (O-2.2). The successful bidders are:
- bp, securing two sites in the North Sea, and
- Total Energies, won one site in the North Sea as well as a site in the Baltic Sea.
Multiple companies committed to building projects without state support for each of the four sites, prompting a “dynamic bidding procedure.” This procedure mandated developers to engage in a second round of uncapped negative bidding, with bids evaluated solely based on price.
The implementation of negative bidding poses challenges for offshore wind developers, leading to additional costs. These costs must be passed on — the already strained supply chain grappling with inflation and rising input costs would have to bear them or the consumers who are already grappling with higher electricity prices.
The European Union places great emphasis on bolstering energy security through competitive and domestically-produced renewable energy sources. The EU has an alarming need for substantial increases in wind energy capacity, with a focus on expediency. However, the practice of negative bidding, as seen in Germany, is not advisable.
A direct consequence of the auction is the offshore wind developers collectively paying €12.6 billion to the German government. Up to 90% of the funds will be allocated to cover grid connection costs, while 5% will be dedicated to safeguarding marine biodiversity and another 5% will support environmentally-friendly fishing initiatives.
The four awarded projects are slated for commissioning by 2030. To ensure their timely delivery, Germany must expand its offshore wind supply chain, including industrial capacity for turbine construction, foundations, and installation vessels. Investments in grids, ports, and skilled workers are also essential. But the negative bidding approach poses challenges. Developers passing on the additional costs to companies along the wind energy supply chain will tighten their profit margins.
It is important to note that the recent auctions are not the final offshore wind energy auctions to be held in Germany in 2023. This summer, Germany will conduct another auction for 1.8 GW of offshore wind on pre-developed sites. This auction will employ a different design, considering non-price criteria such as environmental protection, contribution to a skilled workforce, CO2 footprint in turbine production, and existing power purchase agreements (PPAs). The “dynamic bidding procedure” will not be applicable to these sites.
When combined, these two offshore wind auctions will allow Germany to tender a total of 8.8 GW of offshore wind capacity in 2023, surpassing the country’s current combined installed offshore wind capacity.
