(Montel) Germany’s move to largely eliminate subsidies in auctions for some offshore wind power farms is prompting backlash from industry, which says the policy could scupper needed investment in the sector.
The new bidding system works with a two-step approach. If several companies offer to build offshore capacity without governmental financial support, they must outcompete each other in a bidding process to win the right to develop the location.
That is what happened last month when BP and TotalEnergies split the rights to develop 7 GW in offshore wind capacity, the largest such auction in Germany to date and the first under the new system. The tender brings EUR 12.6bn into German state coffers.
Under the new system, which only applies to auctions of sites not pre-developed by the government, Berlin will use 90% of the profits to fund grid connection costs, with the rest earmarked for maritime biodiversity and environmentally friendly fishing programmes.
Germany’s approach is not unique, but carries weight because of its outsized economic role, its plans to massively expand wind power operations and the need to keep power flowing to its industrial sector.
By comparison, the US, the world’s biggest economy, is spending hundreds of billions on subsidies for green technologies.
Forgone investments?
WindEurope, a Brussels-based lobby for the sector, reckons the German government windfall will come at the cost of future investment.
“These costs must be passed on. Either to the supply chain which is already struggling with inflation and surging input costs. Or to the consumers who already face higher electricity prices and costs of living,” it said in a recent statement.
Companies that failed to make winning bids said the price was simply too high.
“The current auction design for non pre-developed sites is not focused on qualitative criteria. The only criterion to secure access to the site is the willingness of the bidder to pay,” said EnBW, a German utility that made a bid in the latest auction.
It argued the government should also focus on making sure bids were won by a variety of investors, in the interest of competition.
Dominik Huebler, a director at economic consultancy Nera, told Montel that other countries use similar models, but said he has concerns the scope of Germany’s wind power goals might not mesh with a system that requires payment to the government, diverting money that could be used for reinvestment into research or new projects.
Germany aims to nearly quadruple its offshore wind power capacity to 30 GW by 2030, with a further goal of reaching 70 GW by 2045.
The wrong focus?
The focus on price might cause potential bidders with promising techniques to get overlooked or not even bid in the first place, Huebler said. He said he would prefer a system that put more emphasis on qualitative factors, such as making use of new technology or implementing new procedures.
Allocating proceeds from a bid, primarily to household customers, might work well politically, he said, but if it slows down investment in innovative new technology in the longer term, it could hurt German industry, which is already nervous about its power supply following more than a year of above-normal prices.
Huebler said the government’s goal of subsidising energy-intensive industry seems out of step with the current auction scheme. “That money you’ve extracted on behalf of the household customer can no longer go to the industrial customer as part of PPA negotiations.”
Outside of the tender scheme, companies can secure power purchase agreements in advance to raise funds for new renewable energy projects, as is often the case with onshore wind and solar power farms spreading across Europe.
The economy ministry says there are no plans to rework the law. Huebler fears that Berlin will eventually be forced to change the law, but only after a winning bidder abandons a site because it does not have the money for investment.
That is what happened last month when BP and TotalEnergies split the rights to develop 7 GW in offshore wind capacity, the largest such auction in Germany to date and the first under the new system. The tender brings EUR 12.6bn into German state coffers.
Under the new system, which only applies to auctions of sites not pre-developed by the government, Berlin will use 90% of the profits to fund grid connection costs, with the rest earmarked for maritime biodiversity and environmentally friendly fishing programmes.
Germany’s approach is not unique, but carries weight because of its outsized economic role, its plans to massively expand wind power operations and the need to keep power flowing to its industrial sector.
By comparison, the US, the world’s biggest economy, is spending hundreds of billions on subsidies for green technologies.
Forgone investments?
WindEurope, a Brussels-based lobby for the sector, reckons the German government windfall will come at the cost of future investment.
“These costs must be passed on. Either to the supply chain which is already struggling with inflation and surging input costs. Or to the consumers who already face higher electricity prices and costs of living,” it said in a recent statement.
Companies that failed to make winning bids said the price was simply too high.
“The current auction design for non pre-developed sites is not focused on qualitative criteria. The only criterion to secure access to the site is the willingness of the bidder to pay,” said EnBW, a German utility that made a bid in the latest auction.
It argued the government should also focus on making sure bids were won by a variety of investors, in the interest of competition.
Dominik Huebler, a director at economic consultancy Nera, told Montel that other countries use similar models, but said he has concerns the scope of Germany’s wind power goals might not mesh with a system that requires payment to the government, diverting money that could be used for reinvestment into research or new projects.
Germany aims to nearly quadruple its offshore wind power capacity to 30 GW by 2030, with a further goal of reaching 70 GW by 2045.
The wrong focus?
The focus on price might cause potential bidders with promising techniques to get overlooked or not even bid in the first place, Huebler said. He said he would prefer a system that put more emphasis on qualitative factors, such as making use of new technology or implementing new procedures.
Allocating proceeds from a bid, primarily to household customers, might work well politically, he said, but if it slows down investment in innovative new technology in the longer term, it could hurt German industry, which is already nervous about its power supply following more than a year of above-normal prices.
Huebler said the government’s goal of subsidising energy-intensive industry seems out of step with the current auction scheme. “That money you’ve extracted on behalf of the household customer can no longer go to the industrial customer as part of PPA negotiations.”
Outside of the tender scheme, companies can secure power purchase agreements in advance to raise funds for new renewable energy projects, as is often the case with onshore wind and solar power farms spreading across Europe.
The economy ministry says there are no plans to rework the law. Huebler fears that Berlin will eventually be forced to change the law, but only after a winning bidder abandons a site because it does not have the money for investment.
