Berlin The most recent auction of licenses for the operation of offshore wind farms ended with a small sensation: the successful bidders were willing to pay a total of 12.6 billion euros to get the bid for fields in the German part of the North Sea and Baltic Sea.
This is not good news for the future customers of the wind farm operators. According to experts, they will have to pay a lot more: “The individual customer from industry who concludes a contract with one of the operators of the wind farms from this auction round is likely to be confronted with significantly higher electricity prices,” Dominik Hübler from Nera Economic Consulting told the Handelsblatt . This is “in stark contrast to the efforts of the federal government to give industry access to cheap electricity from renewable sources,” he added.
In fact, the Federal Ministry of Economics is working on models that are intended to give large industrial electricity consumers access to electricity from offshore wind farms at low prices. Such models are part of the ministry’s industrial electricity price concept, which Minister Robert Habeck (Greens) has been campaigning for for weeks. However, the current auction result leads in the opposite direction.
“According to our calculations, a megawatt hour of electricity from one of the wind farms will be between 24 euros and 31.50 euros more expensive if the 12.6 billion that the successful bidders have to raise additionally is spread over a period of 20 years,” said hubler. If one assumes that the pure electricity generation costs in the new offshore wind farms are between 50 and 80 euros, these are “relevant additional costs”. To put this in context: Before the energy price crisis, wholesale electricity was available for 30 or 40 euros per megawatt hour for many years.
The fact that bidders for areas in the North and Baltic Seas in Germany have to pay money in order to be awarded an area is a novelty. The auction of four offshore wind power sites in the North and Baltic Seas with a potential of seven gigawatts (GW) of installed capacity ended in mid-July. This corresponds to the output of seven nuclear power plants. The areas are around 120 kilometers northwest of Helgoland and 25 kilometers north of Rügen. A call for tenders of this magnitude is globally unprecedented.
BP and Total prevailed
A first bidding round with bids at zero cents per kilowatt hour had previously been completed in the auction. This means that in the first round of bidding, all bidders were willing to forego a legally guaranteed payment per kilowatt hour of electricity produced. A second round then started for the first time, the so-called “dynamic bidding process”: The bidders with the highest willingness to pay for an area were awarded the contract.
The oil companies BP and Total were successful bidders. According to information from the Handelsblatt, RWE, Orsted, EnBW, together with Equinor and Baywa, had also bid with the French energy group EdF. However, they were unable to assert themselves against the solvent oil multinationals.
The electricity produced in the parks yet to be built from the latest round of tenders will not be sold on the electricity market, but via direct purchase agreements between wind farm operators and individual companies. In technical jargon, these contracts are called “Purchase Power Agreements” (PPA). Such contracts are popular in industry because they pave the way for decarbonization.
criticism of the process
The auction procedure is regulated in the Offshore Wind Energy Act (WindSeeG), which was reformed last year. There is resistance to the second part of the process, the “dynamic bid component”, for example from the SPD parliamentary group: “Exactly what we wanted to prevent happened. There has been an overbidding competition that will lead to electricity production costs being higher than necessary,” said Bengt Bergt, deputy energy policy spokesman for the SPD parliamentary group, to the Handelsblatt.
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The dynamic bidding component has also led to players coming onto the market “that we don’t know”. Unfortunately, there was no majority to prevent the negative bid component.
His colleague Bernd Westphal, economic policy spokesman for the SPD parliamentary group, shares the criticism. Mineral oil companies would have pushed up the prices. This makes electricity generation from offshore wind power unnecessarily expensive. “This development must not continue,” said Westphal.
A few days ago, Total rejected the criticism that the bid had been bought at a high price. CEO Patrick Pouyanné said that you are moving exactly within the framework of your own goals.
The industry had already criticized the dynamic bidding process during the legislative process for the new WindSeeG last year. Christian Hartel, CEO of the Wacker Group, told Handelsblatt: “The unlimited bid component will increase the capital costs for financing offshore wind farms. And higher capital costs lead to higher electricity generation costs and thus to higher prices of this CO2-free electricity for the energy-intensive, transformation-willing industry.”
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From the point of view of the industry, it is little comfort that 90 percent of the auction proceeds of 12.6 billion euros are to be used to reduce the offshore grid surcharge. Because this relief will be passed on to all electricity customers, the price-dampening effects for individual electricity customers should therefore remain manageable.
It is still unclear how high they are: “It is not yet possible to estimate how the auction proceeds will actually affect the amount of the offshore grid levy,” says the transmission system operator 50Hertz. The offshore grid levy is part of the electricity bill and is used to finance the offshore grid connections.
In addition, Nera expert Hübler sees better uses for the auction income: “One may ask whether the money with the relief of the transmission network fees is well invested,” he says. The entire supply chain for the politically desired expansion of offshore wind power is groaning under the enormous challenges. For example, there is a lack of port capacity. “There would be sensible uses for the money,” said Hübler.
More: BP and Total are paying tens of billions for offshore wind farm licenses