Danish offshore wind hits the doldrums with zero bids in latest tender

The Danish Energy Agency has announced that not a single bid was received for any of the three offshore wind farms in the North Sea put out to tender.

The deadline for bidding on the first 3GW of Denmark’s 6 GW offshore wind tendering procedure expired on Thursday 5 December.

Denmark’s Minister for Climate, Energy and Utilities, Lars Aagaard, has asked The Danish Energy Agency to liaise with the market to identify reasons for the lack of bids, especially since several companies expressed interest in participating in the tender initially.

Minister Aagaard commented in a statement: "This is a very disappointing result – and not at all what was expected when we entered into the offshore wind agreement. The circumstances for offshore wind in Europe have changed significantly in a relatively short time, including large price and interest rate increases. There could be many explanations for today's result, and I have therefore asked the Danish Energy Agency to engage in a thorough dialogue with market players. We need to know the exact reason why the market has not bid, so that we know how best to act politically.

"Today's result obviously does not give rise to great optimism for the next three parks, but there may be other players and business models at play, and we will not know the answer until April. Let me be very clear. More offshore wind must be built in Denmark. That was the government's objective yesterday, and it is still the case today," concluded Aagaard.

The 6GW tendering procedure was launched in April 2024 with the aim of significantly increasing Denmark's offshore wind capacity. The tender was launched with the possibility of overplanting, which means bidders had the option to erect more wind turbines, establishing up to10GW or more.

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The 6GW was divided into six farms, of which the three put out to tender in the first round, with a deadline of 5 December, are located in the North Sea (North Sea I A1, A2 and A3).

The three farms in the second round are located in Danish coastal waters (Hesselø, Kattegat and Kriegers Flak II). The deadline for submitting bids for these three farms is 1 April 2025.

According to the Danish Energy Agency, the 6GW offshore wind is offered without subsidies and with an annual concession payment.

The concession payment is combined with 20% state co-ownership, making the Danish state a minority owner in each project.

The problem with Denmark's auction design

Besides the increasing pressure on the project economics caused by inflation, rising commodity prices and higher interest rates, WindEurope suggests another reason the tender failed to attract bidders comes down to the Danish auction design.

Unlike with a Contracts for Difference scenario, Denmark's auction design does not provide any revenue stabilisation model or state support, which means developers are paying merely for the rights to build a wind farm.

The uncapped negative bidding process results in increased upfront costs for bidders, coupled with the grid connection costs which bidders also have to carry.

“The failed Danish offshore wind auction was disappointing but sadly not surprising. Uncapped negative bidding is not a good system. It raises costs and risk. And it’s even harder when the bidders don’t know who’s going to be buying the energy they produce and how it’ll get to them. The Danish Government have got to change their auction design. Most other countries in Europe use 2-sided CfDs in their offshore wind auctions,” said Giles Dickson, WindEurope CEO.

WindEurope recommends that the 3GW be re-tendered in the April 2025 auction and that the government re-evaluate and adapt the auction design before then.

Denmark currently has an installed capacity of 2.7GW offshore wind, providing nearly half of the country's power requirements. RWE is currently constructing Denmark's largest offshore wind farm, Thor, which will have a capacity of over 1GW and is planned to be operational end 2027.

This story was adapted from the original and commentary added on 11 December 2024.