Negative bidding of the type approved under new German rules governing turbine development at sea “is the worst possible outcome for the industry”, Catrin Jung, offshore wind chief executive of Swedish utility Vattenfall told Recharge.
The German government in its recently amended Offshore Wind Act (WindSeeG) approved by parliament in July introduced a dynamic procedure with “unlimited negative bidding” in auctions that “continues until there is only one left,” Jung explained in an interview as she highlighted the downsides of asking developers to pay for acreage won during tenders.
The legislation stipulates that in an element of future auctions for non-pre-developed sites, instead of being awarded according to the lowest cost to build and operate an offshore wind farm – which in recent tenders often meant zero – developers would also need to bid for the rights to use the seabed.
“Negative bidding will take money out of the market that we could otherwise use to secure capacity with suppliers,” Jung warned.
“It will also mean that prices for offtakers will increase, because the ones that will get awarded will need to finance the projects – they will need to get their money back.”
In the end operators will need to claw that money back from power consumers, leading to the higher energy prices the government actually wanted to avoid.
Berlin currently plans to auction off 7GW of undeveloped sites next year, Jung said.
“At this moment, one party alone can take [it] all away. And then there is not a tight pre-qualification either.
“So for me, from a German perspective that is gambling, because you don’t know who opens their pockets in the auction and maybe takes 7GW away.”
The government is under pressure to meet its self-set target of 30GW of wind at sea by 2030, up from a mere 7.8GW in operation in operation at the end of last year. Germany has also set an even higher ambition of 40GW by 2035, and 70GW by 2045.
The neighbouring Netherlands have already implemented a negative bidding mechanism in their latest offshore wind tender, but had set a €50m ($49.46m) limit for bidders to get full scores.
“Then you win on basis of innovation criteria. That was the system we also proposed for Germany,” Jung said.
“There is a value in the sites, it makes sense to ask a certain amount from developers to contribute also to grid connection. Then do the award on basis of innovation criteria.”
Negative bidding could add €21 ($20.2) per megawatt hour to industrial electricity prices, according to NERA Economic Consulting.