Published on December 19th, 2017 | by Steve Hanley0
Netherlands First To Hold Subsidy-Free Wind Power Auction
December 19th, 2017 by Steve Hanley
This week, authorities in the Netherlands will unseal bids to construct two 350 megawatt offshore wind turbines. The total cost of the systems is expected to exceed $2.7 billion. They hope at least some of the bids will be for wind power that does not rely on any subsidies at all. If that happens, it will be the second time that subsidy-free wind energy bids have been received. At a recent auction in Germany, Ørsted and Energie Baden-Wuerttemberg submitted bids to build offshore wind farms that would be subsidy-free.
How is such a thing even possible? There are two factors at work, according to Bloomberg. First, wind turbine manufacturers are building new wind turbines that are much larger and more efficient than older turbines. That lowers the cost of construction. Second, Europe is about to begin implementing a carbon fee system that is expected to make electricity from coal-fired plants more expensive. The carbon price will be set at 18 euros per metric ton of carbon dioxide beginning in 2020 and will rise to 35 euros per metric ton by 2030.
At the present time, the wholesale cost of electricity is $45.92 per megawatt-hour. The carbon fee is expected to make coal fired plants less competitive, causing many of them to shut down. That will raise the average price for electricity enough to allow developers to build subsidy-free wind farms and still make a profit.
Dutch regulators admit their subsidy-free model may mean that no bids are submitted, in which case a subsequent auction with traditional subsidies included will take place in January of next year. “We are curious to see if there will be credible zero subsidy bids,” says Sandor Gaastra, energy director for the Dutch Ministry of Economic Affairs. “It is possible that we don’t get bids at all. The market has to calculate the risk.”
In the recent German auction, the proposed wind farms don’t need to be brought online until 2024. Industry experts expect wind turbines by then will be even larger and more efficient than those available today. But the Dutch proposals call for the projects to be completed two years earlier, before the next generation of turbines is available. “Wind energy will almost certainly be free of subsidies in the long term and there is a sense in the market that zero subsidy bids might already emerge at this tender,” the president of Dutch wind energy association NWEA, Hans Timmers, told Reuters. “But for now, no one can tell.”
Sweden’s Vattenfall has called the auction a “big gamble,” but says it will participate. Dutch energy company Eneco says it is too soon for bids without subsidies because the costs of offshore wind farms have not fallen far enough yet. It did not rule out bidding, however, and several other companies are sniffing around the auction as well. By Friday, we should now if subsidy-free wind power is really a viable option in Europe.