Germany’s Bundesnetzagentur (BNetzA or Federal Network Agency) recently unveiled the outcomes of its largest-ever offshore wind auction, awarding 7 GW of new capacity. This significant achievement marks a substantial milestone in Germany’s quest for renewable energy expansion and is worth about €12.6 billion or $13.96 billion.
At the Global Wind Energy Summit in Australia last month, offshore wind experts discussed the landmark auction started in April and completed in the middle of July with cautious excitement. Two of Europe’s big oil companies, BP and Total Energies, won the bids in the North Sea totaling 6 GW and 1 GW in the Baltic Sea.
This September, renewed interest in the German auction came about because of the failure of the UK to secure takers for its own offshore wind projects.
But the win of BP and Total was seen differently and the impact of the negative bidding required project developers to essentially pay for the privilege of building their wind farms. While it undoubtedly ensured a cost-effective outcome for the government, the repercussions are far-reaching.
As an example, wind energy expert Ørsted chose to exit the German seabed lease auction before its completion this September, a Reuters report said last July. The report also indicated that company executives “expressed concerns about high prices.”
The negative bidding system inherently transfers additional costs to offshore wind developers, who must now decide where to allocate these expenses. The wind supply chain, which is already grappling with inflation and surging input costs, may find itself further burdened. Alternatively, consumers, who are already contending with rising electricity prices and the overall cost of living, may bear the brunt of this financial burden.
Impact on EU’s energy security
The Bundesnetzagentur is steadfast in its model to achieve its ambitious energy targets.
The outcome of this auction compels offshore wind developers to foot the staggering €12.6 billion bill to the German Government. Notably, 90% of these funds will be allocated to financing grid connection costs, while 5% will be devoted to protecting maritime biodiversity, and another 5% will support environmentally-friendly fishing initiatives.
The European Union is committed to enhancing energy security through domestically-sourced renewables, including wind energy. However, Germany’s negative bidding model in offshore wind energy auctions could undermine these efforts.
Negative bidding allows developers to offer to pay the government to build offshore wind farms. This can lead to lower electricity prices for consumers, but it can also put downward pressure on profit margins for companies along the wind energy supply chain. This could discourage investment in new wind energy projects and make it more difficult to achieve the EU’s renewable energy goals.
The German government is urged to reconsider the use of negative bidding in offshore wind energy auctions. Instead, the government should focus on supporting the development of the wind energy supply chain through investments in industrial capacity and infrastructure.
Germany plans to tender another 1.8 GW of offshore wind capacity before the end of this year or early 2024 using a different auction design that incorporates a non-price criteria. This is a welcome development according to wind energy experts, as it could help to reduce the unwanted impact of negative bidding on the wind energy supply chain.
Klaus Mueller, President of the Federal Network Agency, hailed these zero-cent bids as a positive sign for Germany’s energy transition, indicating that offshore wind energy is economically viable without subsidies.
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