First subsidy-free projects raise pressure to expand grid, highest bid at 6.0 cent€/kWh
The Bundesnetzagentur published last 13 April 2017, the results of its first auction for offshore wind energy projects. The average weighted award price of 0.44 cent€/kWh is far below expectations. The dramatically reduced prices of these bids, maxing at 6 cent€/kWh, primarily reflect the rapidly falling costs in the industry, resulting from industrialization and a steeper learning curve. A majority of the projects chosen are to be realized with no financial support at all; the lowest bid selected came in at 0 cent€/kWh.
The first auction covered a total capacity of 1,550 MW for offshore wind farms in the German Baltic and North Seas. These are to be put into service between 2021 and 2025, with grid connections for North Sea wind farms only available starting 2023. A total of 23 projects were eligible to take part in this auction round. In distinction to other EU countries, where different companies submit bids for a project at a given site, the German federal government has introduced an interim system where several pre-developed projects at different are competing with one another. Under this system, which functions as an interim step towards a central auction model with its first auction planned for 2021, a number of different-priced bids are chosen within one auction round.
In contrast to the procedure applied for other renewable energy technologies, the federal government has introduced this interim system in order to account for the large-scale upfront investments and long-term planning horizons required for offshore wind farms. This interim system was meant to avoid completely disincentivizing a multi-year and cost-intensive development process.
Second auction in 2018
The second auction for existing offshore wind farm projects will take place on 1 April 2018. The volume for auction will again be 1,550 MW, plus the 60 MW not awarded in the first auction. The total volume available in the second auction will therefore be 1,610 MW. This includes a minimum of 500 MW to be awarded as required by the Offshore Wind Energy Act for offshore wind farms in the Baltic Sea. Bids can be placed in the second auction again for projects that were not awarded funding in the first auction.
DONG Energy awarded three projects
In the first of two German auction rounds, the Bundesnetzagentur has awarded DONG Energy the right to build three offshore wind projects in the German North Sea. DONG Energy submitted six projects in the bid and won with the following three projects which have a total capacity of 590 MW: OWP West (240 MW), Borkum Riffgrund West 2 (240 MW) and Gode Wind 3 (110 MW). The three projects are planned to be commissioned in 2024, subject to Final Investment Decision by DONG Energy in 2021.
DONG Energy will be responsible for the turbines, array cables and offshore substation, while grid operator TenneT will be responsible for construction, operation and ownership of the onshore substation and the export cable.
For two of the projects – OWP West and Borkum Riffgrund West 2 – DONG Energy made bids at zero EUR per MWh, i.e. these projects will not receive a subsidy on top of the wholesale electricity price. The Gode Wind 3 project was awarded based on a bid price of EUR 60 per MWh.
Cost-drivers enabling the zero subsidy bid
• Platform change: Significantly bigger turbines – probably 13-15MW – will be on the market by 2024. With bigger turbines, the developer can increase electricity production while at the same time reduce the number of turbine positions. This contributes significantly to cost reductions during construction (fewer towers and array cables, and lower costs for installation vessels and manpower) as well as during a lifetime of operations and maintenance.
• Scale: OWP West and Borkum Riffgrund West 2 will be combined into one large-scale project with the option of adding additional volume in next year’s auction to further increase the total size of the project.
• Location: The projects benefit from average wind speeds of more than 10 m/s, which is among the highest wind speeds measured across DONG Energy’s portfolio of wind farms. Also, the projects are located next to DONG Energy’s Borkum Riffgrund 1&2 which means that operations and maintenance can be done from DONG Energy’s existing O&M hub in Norddeich.
• Extended lifetime: The German authorities have approved the possibility to extend the operational lifetime of the asset from 25 to 30 years.
• Not full scope: Developers were not bidding for the grid connection in the German auction, which means that grid connection is not included in the bid price.
Source: Bundesnetzagentur & DONG Energy