Germany received no bids in its latest 2.5GW offshore wind tender this month in what the industry sees as a high-profile rejection of negative bidding. This is likely to trigger a move towards UK-style Contracts for Difference (CfDs).
There’s nothing like a hotly-contested offshore wind tender – and this was nothing like a hotly-contested offshore wind tender. In fact, it couldn’t have been colder.
This month (6th August), the German government revealed the result of its latest tender for two sites in the North Sea with the potential for a combined 2.5GW of capacity. But it did not secure a single bid for either the N-10.1 or N-10.2 site, which means Germany is now part of an illustrious club with the UK and Denmark to run a bidless offshore tender.
This is the second offshore wind tender to conclude in Germany this year. The country’s Federal Network Agency awarded TotalEnergies subsidiary Offshore Wind One GmbH the right to develop up to 1.2GW capacity on the N-9.4 site in the North Sea in June. It also follows the award of three sites for projects totalling 5.5GW on 12th August 2024.
However, the structural weakness in the German regime that led to this month’s failure has been evident to those in the market for the last 12 months.
In the August 2024 tender, the Federal Network Agency received only five bids across the three sites, which led to industry warnings about the use of negative bidding where the winner has to pay for the right to develop sites. The approach has gained criticism because of the high prices that developers have had to pay for seabed leases, which is driving up development costs and compounding issues with the supply chain.
Competition was also low in the N-9.4 tender in June, when the government attracted just two bids and WindEurope warned about the “additional costs” of negative bidding. But Germany chose not to change tack then. Now it will have to.
Contracts for Difference
Common criticisms of negative bidding are that it doesn’t provide developers with any sort of revenue stabilisation that gives them certainty and also exposes them to more risk in the changing market. Uncapped negative bidding also risks forcing developers to pay high prices to develop offshore wind farms, assuming there are any bids of course.
As a result, Germany is under pressure to adopt Contracts for Difference (CfDs) of the kind already used in countries including the UK. Denmark has moved to CfDs after the the failure in December 2024 of its tender that was also based on negative bidding.
The use of CfDs does not completely remove the risk of tender failures. In September 2023, the UK failed to receive any bids in its fifth CfD allocation round, but that failure was because the strike price for offshore wind projects was set too low rather than any fundamental problem with the attraction of CfDs. When the strike price was raised, the UK gave support for 5.3GW of offshore wind in September 2024 in allocation round six.
It also does not guarantee projects will happen. In May, Danish utility Ørsted cancelled its 2.4GW Hornsea 4 in UK waters because of rising supply chain costs, higher interest rates and increased construction risks despite winning support in September 2024; and other UK projects have faced difficulties, including the 4.2GW Norfolk cluster of three projects that was previously owned by Vattenfall and bought by RWE in March 2024.
However, the UK is looking to provide more certainty with tweaks to the CfD regime – and Germany could get a head-start in its move to CfDs by learning from this example.
But will it? Katharina Reiche, Germany’s economy minister, agreed that German needs to move closer to the UK system, but she added that negative bidding was not the sole reason for the failure. Rather, she blamed difficult market dynamics and the fact that the sites were riskier than those in previous tenders due to their deeper waters.
The German Association of Energy & Water Industries (BDEW) said rising project costs and supply chain bottlenecks had also put off developers from bidding. Germany has a target to triple installed offshore wind capacity from 9.2GW in 2024 to 30GW in 2031, and then 40GW by 2035. It will need to regain momentum in the months ahead.
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