Negative bidding ‘continues to burden offshore wind development’

The results of the latest German auction were that TotalEnergies will pay €1.958Bn to develop the N-11.2 site which has a capacity of around 1.5 GW. So they are paying €1.3M (US$1.4M) per MW. EnBW will pay €1.065Bn to develop the roughly 1 GW N12.3 site. That’s €1.1M per MW. The results of the latest Dutch auction were that UK-based SSE Renewables and the Dutch state pension fund APG and ABP will pay €40M to develop the 2-GW IJmuiden Ver Alpha site. That equates to €20,000 per MW. Vattenfall and Copenhagen Infrastructure Partners will pay €800M to develop the 2-GW IJmuiden Ver Beta site. That’s €400,000 per MW. 

As WindEurope notes, Germany and the Netherlands have used negative bidding before. The Netherlands previously applied a cap on the bids which equated to €70,000 per MW – their cap is higher now. Germany does not apply a cap. The winners of their previous auction, BP and Total Energies, are paying €12.600Bn for the right to develop 7 GW – which equates to €1.8M per MW.

Negative bidding also means higher financing costs than those for windfarms 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, although they can mitigate this by signing power purchase agreements with offtakers.

WindEurope chief executive Giles Dickson said, “Negative bidding increases the cost of offshore wind. Costs have to be passed on to consumers and the wind energy supply chain. It may be a short-term gain for finance ministries, but it’s a long-term cost for society."

He noted the Dutch auction 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 windfarm is designed as a ‘living laboratory’ – more than 75% of the wind turbines in the windfarm will have artificial reefs for mussels and other maritime animals.

“The Dutch auction shows the European wind industry has a great offering on ecology and system integration. We are building new windfarms and creating lasting value for Europe’s environment and energy system,” said Mr Dickson. “The German auction used price criteria only.

“In Germany 90% of the money raised from negative bidding will be used to reduce the grid levies. The other 10% is used to support maritime biodiversity and sustainable fishing practices. 

“But building these windfarms require a strengthening of Germany’s offshore wind supply chain and an expansion of port capacity. The German government should consider putting some of the money into that as well,” Mr Dickson concluded.

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