Proposed offshore wind auction entry fee to delay energy transition in Germany

The German economy ministry recently proposed an amendment to the offshore wind law to introduce a second bid component, which will evaluate competing players offering to construct subsidy-free offshore wind projects and encourage them to contribute to an ‘entrance fee’ for participating in the auction. This move will eliminate small players from the auction such as the local municipal utilities and considerably reduce the attractiveness of the German offshore wind market in comparison to other European countries, says GlobalData, a leading data and analytics company.

Somik Das, Senior Power Analyst at GlobalData, comments: “Germany was the largest offshore wind market in the world in terms of capacity additions between 2015 and 2019 and the third largest offshore wind market behind China and the UK in terms of annual additions in 2019, according to GlobalData. The introduction of an entry fee could hinder further expansion of Germany’s offshore wind segment.”

The economy ministry claims that the dynamic bid mechanism implies that financially the strongest bid wins the tender. The government anticipates that this would offer assistance identifying additional willingness to pay on the part of the operator, which can then be utilized to expand offshore transmission and, eventually, lower the price for consumers.

Das adds: “As higher risk is involved, this means that only bigger players with greater risk-bearing capacities will remain prominent in the sector. Investors would not be able to anticipate the nature of the market beforehand, and therefore they would not manage to rightly predict the market prices. As the risk is being passed on to the investors, only those with large risk appetite would be willing to participate. This could result in reduced investor interest and may delay the achievement of offshore wind targets.”

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