The Netherlands changes the rules: new offshore wind farms need state support

Offshore wind farms, meaning wind turbines located at sea, are one of the key pillars of the energy transition in a number of European countries. While just a few years ago developers competed in auctions to see who would pay governments the most for the right to build a wind farm in their waters, the situation has shifted again in recent years. Rising costs and risks have repeatedly led to failed auctions, for example in the Netherlands and Germany. The Dutch government is now preparing to overhaul the auction system, and says that auctions cannot succeed without state support.

The offshore wind sector has been going through a turbulent period in recent years. Germany, for example, changed its auction model for offshore wind farms several years ago, requiring developers to pay rather than compete for support. In 2023, developers offered billions of euros for sites for offshore wind farms; the following year, they offered only hundreds of millions. Last year, this trend reached its peak when not a single bid was submitted in an auction.

A similar pattern can be seen in the Netherlands. Last year, the government decided to significantly cut the volume of upcoming auctions, from 3 GW to just 1 GW. But that is not the end of the planned changes. The Dutch government has also begun exploring ways to reintroduce operating support into the auctions. With costs rising and the offshore wind industry’s supply chain generally facing adverse developments, auctions without a guaranteed price for electricity are simply too risky for investors.

In addition to rising costs, revenues from electricity sales are also under threat, as prices on European markets increasingly fall to zero or turn negative. The Netherlands was Europe’s leader in this respect last year. Although this phenomenon occurs mainly in summer, when solar power generation is high, wind farm developers may still view it as a significant risk.

Operating support is essential for offshore wind farms

The Dutch government is therefore preparing new changes to this year’s auctions for offshore wind farms. According to Renews, the government said it could open an auction for just 1 GW if it is to have realistic prospects of success. Under the rules of the country’s support scheme, the auction should offer a maximum price of 104 EUR/MWh. The government says support at this level is necessary to keep the domestic market competitive. Otherwise, there is a risk that developers will favor auctions in countries with more attractive terms.

The auction is expected to offer two parallel tracks: one allowing bidders to compete for state support and another permitting bids without such requirements. Given market developments in recent years, however, the government does not expect any bids to be submitted without a request for operating support.

The first auction under the new terms is expected to open this September. It will be preceded by a public consultation process and, likely, the need for the European Commission to approve the support.