HomeNewsBP and Orsted Quit German Offshore Wind Auction on Price Concerns

BP and Orsted Quit German Offshore Wind Auction on Price Concerns

Energy giants BP and TotalEnergies will spend an unprecedented 12.6 billion euros ($14.1 billion) to secure the right to build 7 gigawatts of offshore wind capacity at German sites due to go online by 2030, equivalent to two new nuclear reactors in Germany. The auction marks the first time guaranteed grid connection rights are a key requirement of winning lease, enabling investors to bid without needing to partner with developers; potentially benefitting RWE and Orsted which already have projects underway.

Industry and environmentalist critics alike have voiced concerns that this auction could increase consumer electricity costs. Utilizing a “dynamic bidding process”, multiple companies can submit offers to forgo government subsidies in exchange for lease agreements from Bloomberg New Energy Finance – likely leading to an average capture price for power of Eur38/MWh by 2024 and negating efforts made by German authorities to cut industrial electricity costs in order to stimulate exports.

Germany’s ambitious plan to increase renewable energy usage by 2030 requires massive expansion in offshore wind capacity. At present, 8.2 gigawatts (GW) of wind turbines exist within its borders. To reach their goal, three locations in the North Sea and one location in the Baltic Sea will see additional capacity added.

BNetzA, Germany’s transmission system operator (TSO), held an auction in February with a deadline set for August to finalise contracts and conclude contracts. The auction was the largest ever held by any European nation and represents an essential step toward reaching their target of 30 GW of additional capacity by 2030.

At the auction, a fixed price of Eur30,000 per MWh was applied during initial rounds, rising by increments of 10,000 euros thereafter until all bidders remained present and active in bidding. Six projects that won the auction will use revenues from their site licenses to upgrade grid infrastructure or invest in environmental initiatives with revenues from site license revenues.

BP and TotalEnergies secured all available sites with an aggregate capacity of 4.7 GW. Their successful projects included two sites in the North Sea off Helgoland and one site in the Baltic Sea near Rugen; these mark BP’s inaugural wind projects in Germany that will double its global offshore pipeline capacity; each winning site boasting capacities of 3GW and 1GW respectively.

Equinor was awarded 2.6 GW and Macquarie two. The auction’s maximum capacity is 7 GW; therefore, any additional capacity (3.7 GW) will be offered during an autumn auction round for pre-developed projects under different criteria and open to developers who have reached advanced development stages but were unsuccessful in winning concessions at previous auctions.

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