First, Germany and the Netherlands recently published the results of their latest offshore wind auctions. They awarded a total capacity of 6.5 GW. However, both countries’ auctions included negative bidding. This puts unnecessary additional pressure on offshore wind developers, with adverse consequences for the wider wind energy supply chain and Europe’s electricity consumers, according to industry association WindEurope.

Germany awarded 2.5 GW of offshore wind, and the Netherlands 4 GW. Together, they will extend European Union (EU) offshore wind capacity (19 GW) by a third.

The auctions in both countries used negative bidding. In this format, wind farm developers bid the amount of money they’re ready to pay for the right to build a wind farm. The higher the price bid, the more likely a project is to win. If a wind farm developer wins a negative bidding auction, its revenue will be whatever is the wholesale market price of electricity.  

Most other countries in Europe, including France’s recent floating offshore wind auction, use contract for difference (CfD) auctions. In these, developers bid the amount of revenue they think they need, and the lowest bid wins, explains WindEurope.  

If a bidder wins a CfD auction, the revenue will be whatever was bid in the auction – and if the market prices are higher than the agreed strike price, the difference is paid to the government, it continues.

‘The negative bidding amounts are a straight add-on to the costs of developing an offshore wind farm. It’s extra money the [developers have] to pay which they don’t pay in a CfD auction. Project developers have to pass on these costs. Either to the wind energy supply chain which is still recovering from supply disruptions and cost increases. And/or to electricity consumers in the form of higher electricity prices,’ notes WindEurope.

Latest auction results

The results of the latest German auction were:

• TotalEnergies will pay €1.96bn ($2.1bn) to develop the N-11.2 site, which has a capacity of around 1.5 GW. It is paying €1.3mn/MW.
• EnBW will pay €1.07bn to develop the roughly 1 GW N-12.3 site, at €1.1mb/MW.

The results of the latest Dutch auction were:

• UK-based SSE Renewables and the Dutch state pension funds APG and ABP will pay €40mn to develop the 2GW Ijmuiden Ver Alpha site, at a price of €20,000/MW.
• Vattenfall and Copenhagen Infrastructure Partners will pay €800mn to develop the 2GW IJmuiden Ver Beta site, paying €400,000/MW.

Germany and the Netherlands have both used negative bidding in earlier offshore wind auctions, according to WindEurope. The Netherlands previously applied a cap on the bids, which equated to €70,000/MW – the cap is higher now. Germany doesn’t apply a cap. The winners of its previous auction, BP and Total Energies, are paying €12.6bn for the right to develop 7 GW – which equates to €1.8mn/MW, reports the industry body.

‘Negative bidding also means higher financing costs than you get with wind farms that are awarded in a CfD auction. The latter have fixed revenue, so banks feel much more comfortable offering more debt finance. But projects awarded in a negative bidding auction have variable revenue – the market price of electricity. So they need to rely more on (more expensive) equity finance – though they can mitigate this by signing PPAs [power purchase agreements] with offtakers,’ continues WindEurope.

The Dutch auction also made extensive use of non-price criteria. ‘For the Alpha site, these were about biodiversity protection. For the Beta site, it was system integration. The winning bidders made significant commitments to invest in these respective areas. Vattenfall and CIP have among other things committed to build a 1 GW electrolyser facility in Rotterdam which will run on renewable electricity from the Beta site. And the Alpha wind farm is designed as a “living laboratory” – more than 75% of the wind turbines in the wind farm will have artificial reefs for mussels and other maritime animals,’ notes WindEurope.

In contrast, the German auction used price criteria only, with some 90% of the money raised from negative bidding to be used to reduce electricity grid levies. The other 10% is to be used to support maritime biodiversity and sustainable fishing practices. However, WindEurope notes that building these wind farms ‘requires a strengthening of Germany’s offshore wind supply chain and an expansion of port capacity’, and suggests that the ‘German government should consider putting some of the money into that as well’.

Two thirds of UK renewables applications fail to get through planning stage

Meanwhile, an analysis from Cornwall Insight explores the damage caused to onshore renewables in the UK by speculative applications. Between 2018 and 2023, the majority of all applications were unsuccessful and did not progress through planning.  

The low success rate of applications is due, in part, to a rising number of so called ‘phantom projects’, explains the market analyst. ‘In these cases, developers submit multiple applications for many sites, with the expectation being that very few will connect. These speculative and duplicate applications have seen the connections queue grow, increasing the work needed to progress projects.’

Figures from the company’s Renewables Pipeline Tracker show that 63% of projects were either abandoned, refused, withdrawn or ultimately expired during the study period. The data also reveals only 20% of projects remain in development statuses that could see projects coming to fruition, meaning they are now at the stage of having submitted a planning application, were awaiting construction or were under construction.

‘These findings raise concerns about the pace of renewable energy development in Great Britain,’ says Cornwall Insight. ‘Streamlining the grid connections process and addressing speculative applications will be crucial to ensure a more efficient and successful path forward for renewable energy projects,’ it concludes.