‘CfD-only’ the only way forward for German offshore wind

In a position paper submitted in response to a draft amendment to the Offshore Wind Energy Act (WindSeeG), legislation that sets out a future framework for German offshore wind tenders, the BWO said a ‘CfD-only’ model with indexation was essential.

In the draft amendment to the legislation published by the Federal Ministry for Economic Affairs and Energy earlier this month, the Government proposed the use of Contracts for Difference (CfDs), but as part of a ‘two-stage’ auction model in which CfDs would kick-in only if there were no bids to realize a project without support.

In its position paper, the BWO said the industry also needs a ‘one-time option’ to return rights for at-risk projects from tenders conducted in 2023-2025, and what it called ‘a proportionate system of financial guarantees and penalties.’

The BWO said it welcomed the Government’s ongoing commitment to a target of at least 70 GW of offshore wind by 2045, the extension of the standard operating period for offshore windfarms to 35 years, and expanded opportunities for cross-border projects.

In a statement, the BWO said that, in principle, it welcomes the introduction of CfDs, but believes the two-stage tender proposed by the government won’t work. “The CfD should serve as the central, sole tender instrument for offshore wind energy. Only in this way can long-term revenue and financing risks be effectively reduced and the feasibility of projects increased,” it said.

BWO managing director Stefan Thim said, “The two-way CfD is an instrument that lowers risks and facilitates financing of offshore wind projects. It should become the standard for tenders. If it did, it would create greater planning certainty and increases the likelihood that projects will actually be built.”

The BWO said indexation is crucial to the success of future tenders. It noted that up to seven years can elapse between a tender, an investment decision and commissioning an offshore windfarms. It said effective indexation of a CfD, to reflect changes in financing costs and changes in the supply chain, is essential. 

“Proper indexation is not an additional subsidy mechanism but an essential tool to reduce risk and increase the likelihood of a project being realised,” the BWO said. “If Germany was the only European offshore wind market to forgo CfD indexation, it would place the country at a significant competitive disadvantage.”

Turning to the question of how to address the issue of projects awarded in auctions held between 2023 and 2025, for which final investment decisions have not been taken by the companies involved, the BWO called for a one-time, time-limited option to return the award under the Offshore Wind Energy Act (WindSeeG). There is no provision for this in the draft legislation.

The BWO highlighted the fact that projects representing a combined volume of 16 GW and €50Bn of investment need to be quickly re-tendered once they are returned. Under the BWO’s proposal, payments already made would not be refunded, and parties returning awards would be barred from participating in the re-tender for the same site.

“An orderly return mechanism creates clarity and opens up the opportunity to realize these sites with new investors,” said Mr Thimm. “Uncertainty around them harms the entire supply chain.”