WindEurope: Germany is swimming against the tide and must reform offshore wind auctions

Germany’s second offshore wind support auction this year, for 2.5 GW, ended in failure, with not a single bid submitted. According to the WindEurope association, the result is a clear signal that the auction design is unattractive to investors and needs to change.

Germany’s offshore wind auction system, in which developers compete to pay the state more for the right to build and operate an offshore wind farm instead of receiving operating support, has long been criticised by local associations. They point to declining investor interest, which culminated in the latest auction, where not a single bid was submitted.

The German auction system is also criticised by the European association WindEurope, which says investors are exposed to disproportionate risk, adding further financial pressure.

“The auction result must be a wake-up call for the German government. Negative bidding increases costs, making offshore wind farms more expensive and reducing the number of companies willing or able to participate in auctions. It is time to adjust the auction model so that Germany can meet its offshore wind and industrial competitiveness targets,” said Viktoriya Kerelska of WindEurope.

Two-way contracts for difference are standard practice

WindEurope noted that most European countries have introduced two-way contracts for difference (CfDs) to support the development of offshore wind farms. These provide investors with revenue stability, thereby reducing financing costs.

The latest country to switch to two-way contracts for difference was Denmark. Until last year, it had a similar model to Germany’s. In auctions, developers did not compete for guaranteed purchase prices for their projects, but instead competed to offer the state the most for the right to develop them.

Denmark’s latest auction in 2024 nevertheless failed completely, attracting not a single bid. Denmark, one of Europe’s leaders in wind energy, therefore decided to change the model and return to auctions providing support for the construction of offshore wind farms.

“Germany is swimming against the tide. CfDs have proven to be the right model for financing offshore wind farm development. They reduce financing costs and ensure competitive electricity prices for society,” the WindEurope association added.