German government under industry’s criticism over Offshore Wind Act amendment

A new draft bill proposing to amend Germany’s Offshore Wind Act (WindSeeG) has caused a backlash from the industry, as it proposes to change the tendering process which would, according to the industry, raise project and electricity costs, and slow down the development of offshore wind in Germany.

The bill, introduced by the Federal Ministry for Economic Affairs and Energy at the end of May and passed by the Federal Cabinet on 3 June, will now go before the Federal Council, whose decision is anticipated to be announced in July.

The proposed tendering process could hamper future development of offshore wind in Germany, as it brings in “negative bidding”, or concession-fee-based auction, as the industry calls it, where bidders who are “willing to pay” to build an offshore wind farm are favoured.

“If two or more companies bid to build a wind farm purely on income from the electricity market, then Berlin thinks whoever offers to pay the government more should build it”, said Giles Dickson, CEO of WindEurope.

This would hinder realisation of offshore wind projects and slow down the country on its path to reaching offshore wind targets, which are now proposed to be raised by the same bill.

The 2030 offshore wind capacity target would be raised from 15 GW to 20 GW, and the one for 2040 would be set at 40 GW, which the industry generally hailed as a positive move from the government.

“You want to build more offshore wind – great! But the industry and banks are not going to want to build it for you if you allow negative bidding”, Dickson said.

Wind Energy Agency (WAB) also said the tendering process proposed by the new bill could “considerably slow down the exploitation of Germany’s offshore wind potential” in its press release from 29 May, following the introduction of the new bill.

Earlier the same month, WAB and the Offshore Wind Operator Association (BWO), which have been advocating Contracts for Difference (CfD) setup in Germany, sent a joint letter to the Federal Ministry for Economic Affairs and Energy, urging the government to introduce CfD and to raise long-term offshore wind targets.

And while WAB now welcomed the new 2040 target and the flexibility of the 2030 target, it expressed its concern over how the proposed tendering process would affect Germany’s road to more offshore wind in the future.

“In order for us to achieve the new expansion targets set by the Federal Government, policymakers should reduce the risks of implementing wind farms at sea and discuss the proposed tender model with the industry”, WAB’s Managing Director Heike Winkler said in a statement on 3 June.

“In recent years, the industry has succeeded in significantly reducing the costs of offshore wind. The German government’s model would make offshore wind power unnecessarily more expensive again. We need Contracts for Difference”.

WindEurope’s Giles Dickson also pointed to CfD as a way to go for Germany, highlighting the UK, Denmark, France, and Poland as the countries already having this approach.

“Germany already allows ‘zero bidding’ where you earn the market price. And that’s bad enough. The costs of financing ‘zero bid’ wind farms is 250 basis points higher than those that have a ‘Contract for Difference’ (CfD). Because the banks prefer the revenue stability you get with a CfD”, Giles Dickson said.

Even the zero-subsidy projects add 25 per cent to the total cost of a wind farm, as they require higher finance costs, according to WindEurope’s CEO.

“Many companies don’t like bidding at zero. Even fewer would want to pay. And who knows what interest the banks would charge”.

Speaking of offshore wind companies, the industry seems to have received the proposed bill with a feedback deadline set to less than 48 hours.  

According to an article in Ørsted’s EnergieWinde publication, the Federal Ministry for Economic Affairs and Energy sent out the draft amendment to the Offshore Wind Act in the evening of 26 May, with responses required to be delivered by 3 p.m. on 28 May.

This has been taken as the government’s disinterest in what the industry has to say, or what it could suggest as an alternative.

Industry associations have, nevertheless, sent their feedback within this short window.

The new tendering process would drive up the costs of building and operating offshore wind farms, which would then result in approximately 30 per cent higher electricity prices, BWO communicated to the government in its response.

Furthermore, the risks of offshore wind projects that won at the auctions not being built increases, according to BWO, and if that would be the case, a contractual penalty would be due. However, if the general conditions in offshore wind show to be deteriorating, this could still be cheaper than actually building the wind farm, the association said.

BWO also argued that the introduction of a concession fee would constitute an infringement on property rights of the developers that already have the so-called entry rights for wind farm areas.

These rights are guaranteed by the law, and legal disputes would be inevitable, according to the Offshore Wind Operator Association (BWO).