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Negative bidding continues to challenge offshore wind development in Germany and the Netherlands

By: Chloe Emanuel 25/06/2024 Wind Europe

General Windfarms

Germany and the Netherlands have awarded a combined 6.5 GW of new offshore wind projects in their latest auctions, contributing significantly to Europe's energy transition. Germany awarded 2.5 GW and the Netherlands 4 GW, enhancing the current EU offshore wind capacity of 19 GW. However, both countries employed negative bidding in these auctions, a practice that could strain developers and impact the broader wind energy supply chain and electricity consumers.

Negative bidding, where developers pay for the right to build a wind farm, contrasts with the more common Contract for Difference (CfD) auctions. In negative bidding, developers’ revenue depends on the wholesale market price of electricity, unlike CfD where revenue is based on the bid price, offering more financial stability.

The recent auction results illustrate the financial burden of negative bidding. In Germany, TotalEnergies will pay €1.958 billion for the 1.5 GW N-11.2 site, and EnBW will pay €1.065 billion for the 1 GW N12.3 site. In the Netherlands, SSE Renewables and partners will pay €40 million for the 2 GW IJmuiden Ver Alpha site, and Vattenfall and partners will pay €800 million for the 2 GW IJmuiden Ver Beta site.

These additional costs are likely to be passed on to the wind energy supply chain, which is still recovering from recent disruptions, or to electricity consumers through higher prices. Negative bidding also results in higher financing costs due to the variable revenue, unlike the fixed revenue in CfD auctions which makes debt financing more accessible.

“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 WindEurope CEO Giles Dickson.

The Dutch auction also emphasized non-price criteria such as biodiversity protection and system integration. Vattenfall and partners committed to building a 1 GW electrolyser in Rotterdam, and the Alpha site will feature artificial reefs to support marine life. In contrast, the German auction focused solely on price criteria.

Funds raised from negative bidding in Germany will largely be used to reduce grid levies, with a portion allocated to maritime biodiversity and sustainable fishing practices. However, there are calls for some of this money to be invested in strengthening the offshore wind supply chain and expanding port capacity.

Despite the immediate financial gains for governments, the long-term implications of negative bidding pose significant challenges for the offshore wind sector and its stakeholders.

For more information about offshore wind farm projects across the globe, click here.

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Negative bidding continues to challenge offshore wind development in Germany and the Netherlands

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