Final week noticed WindEurope in Bilbao ending on a debate round offshore public sale design, with each political and business leaders weighing in. However what does offshore public sale presently appear like out there? And what does it imply for an business wanting to plan for scale?
Europe has bold plans for offshore wind. This yr, there may be 50GW of offshore quantity up for public sale, and theoretically, an encouraging pipeline of potential tasks for the worth chain to start gearing up for.
And this pipeline is shifting ahead. At current, Germany has open auctions masking a complete of 5.5GW, along with the two.5GW introduced earlier this yr. A number of different markets, together with The Netherlands and Denmark, are following go well with. On the floor, it seems as if our European transition to inexperienced power is accelerating.
A more in-depth look nevertheless reveals some main issues. A number of European markets – Germany’s present tender included – are progressing offshore wind quantity by public sale mechanisms designed to minimise price, and seemingly, threat. In an effort to generate upfront income, many governments make use of uncapped or exorbitantly capped damaging bidding, excessive concession funds, or lease charges from builders.
This squeezes worth from the business, somewhat than investing in it. And in doing so, many offshore auctions spur unworkable undertaking economics, and conversely, improve threat. With out sustainable undertaking economics, we threat that lots of our deliberate offshore tasks is not going to attain monetary shut, or probably be delayed or cancelled.
Germany’s ongoing tender spherical, which employed uncapped damaging bidding, could also be liable to by no means delivering a accomplished undertaking. The identical holds true for all different markets trying to utilise uncapped damaging bidding of their upcoming offshore wind auctions.
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Undelivered offshore tasks pose a critical menace to the power transition. By specializing in maintaining the price of offshore tasks as little as attainable, governments are risking that their plans by no means materialise into precise tasks.
And with each undelivered undertaking, we improve market volatility for the offshore worth chain. With out realizing what number of tasks will come to fruition, if any in any respect, planning for scale turns into guess work, and investor confidence is shook. Final yr, the EU constructed 17GW of wind power, and to achieve 2030 local weather targets, we have to 30GW of recent wind capability yearly. Delivering on this ramp up will name for an expanded business footprint, and accelerated deployment. For this, market certainty is a prerequisite.
When governments demand upfront charges from uncapped and exorbitantly capped bids, excessive concession funds, or lease charges from builders, they gamble with undertaking realisation. Final yr, we noticed a number of offshore wind tasks delayed and even cancelled, as an final result of unviable undertaking economics. By persevering with to make use of mechanisms similar to uncapped damaging bidding, we threat repeating the errors of the previous.
These errors signify a missed alternative.
These errors signify a missed alternative. The European wind business has great potential to drive power safety, decarbonisation, and decrease energy costs. Wind Europe and Rystad Power’s new report has indicated that in a 2030 Targets situation, wind power will likely be chargeable for about 564,000 full-time staff by the top of the last decade, a big potential improve from round 300,000 in 2023.
Moreover, extra wind power within the European system has steadily pushed down the worth of electrical energy in energy markets since 2021. Following 2022’s historic highs, the typical worth of electrical energy in Europe has been pushed down by 8% – all because of the displacement of dearer energy sources. What’s extra, a scaled-up wind business contains an enhanced provide chain, which spurs additional funding and financial affect. If allowed to scale, wind power can, and can ship.
Expanded line of sight
For offshore wind, notably, an expanded line of sight can form a extra sure enterprise setting for the worth chain. Rethinking auctions to maneuver away from producing income, and in the direction of unlocking quantity and realising tasks is a important step on this journey.
Rather than uncapped damaging bidding, many European governments might undertake revenue-sharing mechanisms, securing a return on funding later within the undertaking’s lifetime. These can hyperlink seabed lease funds or concession charges, on to the income derived from tasks, and would promote each undertaking profitability and the utilisation of seabed. This strategy can incentivise undertaking completion and assist more healthy undertaking economics. Moreover, it might assist take away the market volatility presently standing in the way in which of our business.
We have to see a departure from bold plans, and a extra tangible dedication to realising tasks. Throughout Europe, this implies prioritising the unlocking of permitted quantity, and supporting a sustainable worth chain by a dedication to market certainty. If we succeed right here, the result will be vital: a job-creating business, that reliably provides tens of millions of households with inexpensive, inexperienced electrical energy.
- Javier Rodriguez Diez is chief gross sales officer for Vestas
