WindEurope Warns Against Negative Bidding (Again) as Germany, Netherlands Bag EUR 4 Billion Through Offshore Wind Tenders

Business & Finance

June 27, 2024, by Adrijana Buljan

European wind energy industry organisation, WindEurope, has warned that the negative bidding approach will lead to the bid costs falling onto the supply chain and/or electricity consumers after Germany and the Netherlands closed their latest offshore wind tenders, securing nearly EUR 4 billion in total through winning bids.

“The negative bidding amounts are a straight add-on to the costs of developing an offshore wind farm.” – WindEurope

In both countries, the offshore wind projects awarded through the tenders this year will be built without subsidies.

However, the bidding costs will become part of the project costs and the consumers could end up paying these. Developers will have to pass on these either to the supply chain which is still recovering from disruptions and cost increases, and/or to electricity consumers in the form of higher electricity prices, WindEurope says.

This is the second time WindEurope has voiced its concerns over negative bidding. Almost a year ago, the organisation called on the German government to avoid this approach in future auctions after BP and TotalEnergies secured four sites offshore Germany last summer by offering a total of EUR 12.6 billion in bids.

This was a result of the “dynamic bidding” round of the auction through which the developers competed only in financial bids after each of the four sites had more than one developer proposing to build a wind farm without subsidies.

This year’s offshore wind tender in Germany wound up with a dynamic bidding round too since nine bids with a bid value of zero cents per kilowatt hour were submitted for area N-11.2 and seven for area N-12.3 by the bidding deadline.

A project company called Offshore Wind One GmbH, owned by TotalEnergies, secured rights for the 1.5 GW site N-11.2 with a bid of approximately EUR 1.96 billion and EnBW secured the 1 GW area N-12.3 at a price of EUR 1.065 billion.

In the Netherlands, the winning bids in the IJmuiden Ver Alpha and Beta tender were filed by the Noordzeker consortium (SSE Renewables and AGP, asset manager for Dutch pension fund ABP) and the Zeevonk joint venture (Vattenfall and Copenhagen Infrastructure Partners).

The two developers are set to pay a total of EUR 21 million per year for 40 years and also cover the environmental impact assessment costs. Noordzeker will pay EUR 1 million a year and Zeevonk EUR 20 million a year for their sites which totals EUR 840 million for the State.

WindEurope pointed out that both Germany and the Netherlands already used negative bidding in their previous offshore wind auctions, with the Netherlands previously having a cap on the bids which equated to EUR 70,000/MW but which is higher now, while Germany does not apply a cap.

“Negative bidding increases the costs of offshore wind. Costs that 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,” said Giles Dickson, WindEurope’s CEO.

For the Dutch tender, WindEurope noted that it made “extensive use of non-price criteria” as the Dutch qualitative criteria included biodiversity solutions for the IJmuiden Alpha site and system integration proposals for IJmuiden Beta.

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

In Germany, 90 per cent of the money raised from negative bidding will be used to reduce the grid levies and 10 per cent is earmarked to support maritime biodiversity and sustainable fishing practices.

“OK. But building these wind farms requires 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,” WindEurope stated in a press release on 25 June.

The industry organisation emphasised that most other countries in Europe use Contract for Difference (CfD) auctions.

With negative bidding, the owner/developer’s revenue will be whatever is the wholesale market price of electricity and the revenue with CfDs will be whatever the developer bid in the auction, and if the market prices are higher than the agreed strike price, the difference is paid to the State.

“The negative bidding amounts are a straight add-on to the costs of developing an offshore wind farm. It’s extra money the developer has 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,” WindEurope said.