Out-Law News 3 min. read

Germany commences auction for a further 7 GW offshore wind capacity

Germany’s Federal Network Agency has put out to tender four sites in the North Sea and Baltic Sea with a total capacity of 7,000 megawatts for offshore wind installations.

Three of the four sites are located in the North Sea, about 120 km northwest of Helgoland. A fourth site is located in the Baltic Sea about 25 km off the island of Rügen. The wind turbines are scheduled for commissioning in 2030.

The areas put out to tender are not centrally pre-investigated. This means that the companies that are awarded the development rights will have to carry out the necessary preliminary investigations themselves - for example on the marine environment or the subsoil conditions - before they can start building the wind farms.

Bids for the sites can be submitted to the Federal Network Agency until 1 June 2023. The contract is awarded to the bidder who registers the lowest state support requirement. In addition, the "dynamic bidding procedure" is also possible for the first time: The dynamic bidding procedure requires zero-cent bidders to not only waive the state support, but to also offer an additional payment for grid expansion in a second step bid. This second bid will then be disclosed to the other bidders in the respective tender to avoid tenderers making unnecessarily high bids. The process is therefore also referred to as dynamic open bidding. 90 % of the proceeds from the dynamic bidding procedure are to go towards reducing electricity costs, 5% is earmarked for marine nature conservation and another 5% for the promotion of environmentally friendly fishing.

About one and a half weeks before the call for tenders, on 20 January, the Federal Maritime and Hydrographic Agency (BSH) had published the new site development plan 2023. It specifies which areas in the exclusive economic zone (EEZ) of the North Sea and Baltic Sea are to be used for the construction of new offshore wind farms so that the expansion target of 30 gigawatts (GW) of installed capacity can be achieved by 2030.

Wind farms with a total capacity of eight GW are currently installed off the German coast. This means that 22 GW must be added by 2030. The new site development plan thus paves the way for achieving the new expansion target, as stipulated in the amended Wind Energy at Sea Act, which came into force on 1 January.

"It is certainly a good step forward that the framework conditions for achieving the government's ambitious expansion targets have now been established," Alice Boldis, an expert on large-scale projects in the energy sector at Pinsent Masons, said. "However, it remains difficult to assess how the further obstacles, in particular the shrunk German supply chain as well as international materials shortages, are to be overcome. This will largely depend on further appropriate political as well as legal measures."

The site development plan also determines when and how the new sites for offshore wind farms are to be tendered and when the wind farms are to be connected to the electricity grid. The plan also regulates technical principles for the connection lines. Further, it specifies an additional test site to promote research and development.

Since green hydrogen can be produced with electricity from offshore wind turbines, the site development plan also designates a larger area in the North Sea that can be connected with hydrogen pipelines. The area, on which the electrolysis process is to be tested on an industrial scale, allows for an electrolysis capacity of up to one GW.

In addition, the site development plan lays the foundation for an European offshore electricity grid in which the individual wind farms of the countries bordering the North Sea and the Baltic Sea can be interconnected, and describes the cable routes required for this.

The site development plan also provides an outlook on how the expansion of offshore wind energy is to continue after 2030. For example, the annex to the plan contains a diagram with possible further sites where an additional 10GW of capacity could be installed. The Federal Ministry for Economic Affairs and Climate Protection announced that the further revision of the site development plan will begin this spring so that areas for the period after 2030 can also be defined in a binding manner.

Christian Lütkehaus, an expert on large-scale projects in the energy sector at Pinsent Masons, said: "The outlook in the site development plan beyond 2030 is logical because, after all, Germany’s amended Wind Energy at Sea Act provides for further increases to a total of at least 40 gigawatts by 2035 and to a total of at least 70 gigawatts by 2045. Whether this is achieved, however, depends not only on the availability of sufficient sites, but above all on corresponding interest on the part of developers and investors."

Germany is not alone with its offshore wind goals and is competing with a steadily increasing number of other countries for the favour of developers and investors, warns Lütkehaus. "In order to be able to compete sufficiently in this international arena, it will be crucial that Germany creates an attractive investment climate. Here in particular, recent decisions by the German government on relevant economic framework conditions, such as those against a broad introduction of so-called Contracts for Difference, have tended to create doubts."

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