Confusing times

One can understand that policy makers finds it hard to grasp the ups and downs of the offshore wind industry. At the last Inter-parliamentary meeting organised by EUFORES (this time in the prestigious Belgian Parliament), I tried to explain why there were zero bids in the recent DK 3 GW tender, while only 1.5 years earlier a similar offshore wind auction in Germany for nearby sites landed the German state with 12.8 Bn € in concession payments (so payments to have the right to build merchant offshore wind) for 7 GW. What makes it all the more confusing is that due to heavy wake losses at the German sites (the sites are too close to each other), our engineers have calculated that the same turbines placed on the 3 GW Danish site would have yielded around 30% more electricity - which converts to a 30% lower levelized cost of electricity. So how come that the worse sites attracted such a high willingness to pay? There are obviously different strategic and subjective reasons for why a developer might have a higher willingness to pay for a given site - this factor is impossible to dissect. But underneath there are a couple of main factors linked to the revenue side of these projects (costs also increased in the meantime); the reduced outlook on electricity demand development and which bidding zone one would connect to. DK1 is compared to Germany, a tiny bidding zone with limited amount of demand, and one could not take for granted that the consumption would increase as stipulated. A more detailed assessment is provided by the Danish Energy Agency (in Danish - link in comments).

So what could one learn? First: The German and Danish sites are close to each other - but the wind conditions far apart - simply because of the wake losses caused by the density of wind farms in the German sea-bed. So the first thing would be to improve the cross-border collaboration between DK and DE, and move some of the planned projects in Germany to Denmark to get higher output and more value. My colleague Josche Muth writes more about that (links in comments)

Second: Deeper regional cooperation would not only benefit Denmark and Germany. The imbalance of energy consumption and access to renewable energy sources is widening if every country plans by itself. Europe needs more European and regional approaches to investments in new capacity.

Third: "Boom and bust" cycles are expensive: The uncertain times and the speed of the energy transition means high volatility and increased risks. Placing that risk solely with developers implies high risk premiums which eventually shows up as higher energy costs for consumers and more energy imports. Both undesired when we want a secure and cost competitive Europe that also strives towards climate neutrality. A limited amount of risk-sharing with the state, e.g. through contracts for difference, would therefore be necessary. A more robust pipeline of projects would result and this would help the supply chain to make the right investments and thereby also reduce costs of energy for consumers.

Thanks for great discussions, Christian Pilgaard Zinglersen, Bruno Tobback, Dr. Jan Geiss, Christelle Verstraeten, Ola Elvestuen, Heymi Bahar, Michael Villa, Jana Simanovska, Rene Tammist, Claude Turmes and many more.