With its ambition to boost its renewable power share to 80% by 2030, Germany this year is tendering off more offshore wind capacity than it has currently operating.
Two auctions for areas with a combined 8.8GW are meant to help Europe’s largest economy to reach 20GW of wind spinning off its North and Baltic Sea coasts by the end of the decade, and 70GW by 2045.
Germany is not alone in its ambition, as shown by the North Sea Summit held this week where it and other nations set a goal to have at least 120GW of wind at sea by 2030, turning the region into "the world's biggest power plant."
Most of Germany's neighbours have set massive new targets to wean themselves off energy imports from an aggressive Russia and at the same time meet climate targets: to name just a few, the Netherlands want to reach 70GW by 2050, Norway targets 30GW by 2040, and Europe’s current offshore wind leader, the UK, aims at having 50GW up and running as soon as 2030.
But there are serious doubts over whether all these countries – and the industry – can pull it off.
“The sum of all the goals of all of the European governments is far greater than the supply available,” Nigel Slater, managing director for Europe at Canadian developer Northland Power, told Recharge.
“We all know you can’t just build a factory overnight, you can’t build a ship overnight,” he said in an interview.
“The ambition of any given country is more than what Europe in total was building five years ago. It obviously takes time for the supply chain to be able to catch up.”
Add to that an increasing lack of specialised staff.
“One of the other challenges [to reach the targets] is personnel, finding enough people with the right experience and knowledge,” Slater said.
“If you are building five projects a year, that means there are five people employed as project directors of something that is being built. If you need to build 25 a year, you need 25 project directors. And people need years of experience to get up to that level.”
Slater knows what he is talking about. Northland is one of the most experienced developers in Europe. The Canadian company currently has three major active projects off the continent; one is the 1.6GW Nordsee Cluster in Germany’s North Sea it is developing together with local partner RWE.
The duo has already secured 658MW in the planned cluster area in last year’s German offshore auction and hopes to win another 900MW (divided into two sites) when winners are declared in the summer for this year’s mega tenders.
Even if Northland and RWE don’t win, they will still get to develop those sites if they really want to by matching the winner’s bid – as the companies have so-called pre-entry rights for sites they had developed previously, before Germany switched the allocation of offshore wind zones to tenders.
The pre-entry rule is one of several features in the country’s offshore wind tendering scheme that are considered far from ideal because companies in auctions as a result can’t be certain they can actually keep areas won at tender.
Even more insecurity among investors is caused by the possibility of negative bidding both in this year’s 1.8GW auction for pre-developed sites and a 7GW auction of sites that haven’t been pre-developed but are usually further offshore.
“I think the majority of market participants, and this includes Northland, are against uncapped negative bidding,” Slater said.
“There are lots of reasons simply not to have negative bidding. If you want to have it, I think it works better if it’s capped.”
That is what the neighbouring Netherlands did, which in the case of zero subsidy outcomes in its latest tender for 1.4GW Hollandse Kust West twin-zone had allowed companies to bid by up to €50m just to secure development rights in each zone.
Consortia led by oil giant Shell and large German utility RWE each won one zone in that tender, and it can be assumed that a €50m entry fee for the relatively large areas can be stomached by the heavy weight companies.
But Germany has settled for a complicated possible second round of bidding that is uncapped, pushing the tenders into unchartered territory.
Uncapped negative bidding a problem
The procedure may yet prove to be an obstacle to Germany’s ambitious offshore wind expansion plans, Slater reckons, as the country needs to compete for scarce turbines and other components in an ever-tighter market.
“I know one or two quite big developers who are saying their focus is more on the Netherlands than Germany. And one of the main reasons is, because the Netherlands have capped their negative bid fees,” Slater said.
He is not alone in his criticism of uncapped negative bidding.
“Uncapped bid components are a problem because they increase the capital cost of financing offshore wind farms and thus the cost of generating electricity from renewable sources,” Stefan Thimm, managing director at Germany’s offshore wind operators’ federation (BWO), told Recharge.
Thimm also stressed that the unfavourable tendering conditions come at a time the industry faces major supply chain challenges in coming years.
“Everywhere in Europe and outside of Europe, the demand for offshore components is increasing. There is also a lack of installation ships and ports and all types of infrastructure have to be upgraded,” he said.
“In the future, therefore, industrial policy instruments must accompany and facilitate the expansion.”
As nations will increasingly compete for wind turbine and other components, particularly later this decade, countries with schemes providing revenue stability through two-sided contract for difference (CfD) tenders and no negative bidding at all are likely to be at an advantage.
In a tight market, suppliers don’t want to waste their time on projects that may eventually be axed as their economics are less certain, Slater pointed out.
“Or if they have got limited time, they want to spend their time on something which will happen sooner rather than later,” Slater said.
“We know that from talking to them. [Suppliers] are very interested in our Polish project, because in Poland we got a 25-year CfD.”
Northland and its local partner PKN Orlen in 2021 had won a CfD for its 1.2GW Baltic Power offshore wind project by the eastern European country’s energy regulator, at a price slightly above $85 per megawatt hour.
Chinese threat?
As developers are facing increasing costs not only due to possible negative bidding, but also due to massive price increases in raw materials such as steel that translate into higher costs for turbines, foundations of cables – and at the same time may be challenged by supply chain bottlenecks – some may look beyond European or Western manufacturers.
Sector fears have lingered on for some time now that Chinese OEMs could increasingly push into Europe and repeat in wind manufacturing what they have done in solar panel making a decade earlier, when they pushed European competitors out of business, helped by generous state aid and financing at home, and sometimes dumping practices.
So far, Chinese inroads in European offshore wind have been minor.
MingYang in 2021 had won the deal to supply Italy’s 30M Taranto offshore pilot wind farm with 10 of its MySE3.0-135 turbines, taking over the order from insolvent German manufacturer Senvion.
But the smallish track record by Chinese turbine makers in Europe so far doesn’t mean developers aren’t looking at possible alternatives.
RWE CEO Markus Krebber in March said that without a rapid expansion in production facilities, the EU’s own manufacturers would be unable to deliver the turbines and other equipment needed to meet the continent's goals.
“Currently 3GW per year is being built. That’s to increase to more than 20GW from 2027 on every year,” said Krebber, saying without a matching EU supply chain the only alternative would be to “resort to other non-European suppliers”.
“If we don’t ramp up the supply chain here in Europe you in the end face the question [to] either delay the energy transition or buy, in the case of wind turbines, Chinese turbines,” Krebber said in response to a question from Recharge.
“We so far have no plans to build offshore wind parks with Chinese equipment,” the RWE chief added, however, and said the company is involved in “very intensive discussions” with western suppliers over how they can meet future demand.
Iberdrola offshore wind business director Javier Garcia last year also acknowledged the renewables giant is talking to Chinese wind turbine manufacturers over possibly supplying a European offshore project.
A more recent advantage of Chinese OEMs is that they increasingly are launching larger models than their European peers – with Goldwind, Mingyang Smart Energy, or CSSC all presenting turbines in the 16 to 18MW range.
Northland’s Slater acknowledges his company has looked at Chinese turbines, but so far hasn’t opted for them.
“We have had Chinese suppliers in RFPs but not ultimately selected them,” he said, adding that it is a difficult question to answer whether Europe may have to turn to Chinese products.
“Obviously there are geopolitical concerns with being over-reliant on someone like China. But the market will have to look more and more towards Chinese suppliers if there is not sufficient capacity in Europe,” he confirmed.
“To add to that, I suspect people will go for other parts of the supply chain from China maybe before turbines,” Slater said, mentioning foundations or cables to be components that could more easily be sourced from Asia.
Onshore also a challenge
The CEO of German onshore wind turbine maker Enercon, Jürgen Zeschky, in an interview to Recharge said while high transport costs from Asia currently still offer a limited protection to European OEMs on their home turf, the same cannot be said for other world regions.
“I know that some competitors lost big orders to Chinese competitors in Latin America,” Zeschky said, explaining that higher transport costs there would affect all OEMs, not just the Chinese, unless they have local factories.
In the longer term, Chinese competitors could increasingly come to Europe.
“Sure, it will happen if we just sit and do nothing. At the end of day, it is a business,” Zeschky said, pointing to “significantly lower” steel prices in China. “The same is true for wind turbines.”
Part of the advantage for Chinese OEMs comes from “a lot of state support for the wind industry in China,” Zeschky said.
“And we see a lot of different state support for the wind industry in the US,” he warned. “Now, if we do nothing in Europe, it is very obvious what is going to happen.”
