Denmark’s Offshore Wind Tender Challenges and Success Stories from Other Countries

Denmark’s recent offshore wind tender, which aimed to add 3 GW of capacity, ended without a single bid. This outcome is surprising given Denmark’s leadership in wind energy. Several factors contributed to this unexpected result, and contrasting these with successful approaches in other countries provides a clearer picture of what works and what doesn’t in the offshore wind sector.

Auction Design:

• Denmark: The Danish auction system does not include state support or revenue stabilisation models like Contracts for Difference (CfD), which are common in other European countries. This lack of financial security makes it risky for developers to invest.
• United Kingdom: The UK has successfully implemented CfDs, providing a stable revenue stream for developers. This model reduces financial risk and encourages investment, ensuring that projects are financially viable from the outset. The UK’s CfD scheme has been instrumental in making it a global leader in offshore wind capacity.

Uncapped Negative Bidding:

• Denmark: The Danish system allows for uncapped negative bidding, creating a “race to the bottom” where developers undercut each other to win contracts. This increases financial risks and can lead to unsustainable project economics.
• Germany: Germany avoids this pitfall by setting realistic and sustainable bidding parameters. This approach ensures that bids are competitive yet financially sound, fostering a healthier market environment. Germany’s structured bidding process has led to successful tenders and robust offshore wind development.

Grid Connection Costs:

• Denmark: Unlike other countries, Denmark does not cover the costs of connecting offshore wind farms to the grid. This additional financial burden deters potential bidders, as the high upfront costs can be prohibitive.
• France: France, on the other hand, often includes grid connection costs in its project planning and funding. This reduces the financial burden on developers and makes projects more attractive and feasible. France’s recent successful tender for its first large-scale floating offshore wind farm is a testament to this approach.

Market Uncertainty:

• Denmark: Denmark’s electricity demand from sectors like mobility, heating, and industry is not growing fast enough to ensure a stable market for the electricity generated. This market uncertainty makes it difficult for developers to justify large investments.
• Netherlands: The Netherlands benefits from a growing and stable electricity demand, driven by robust policies supporting renewable energy adoption across various sectors. This stable market provides confidence to developers that there will be a consistent demand for their electricity. The Netherlands has seen significant success in its offshore wind tenders, contributing to its ambitious renewable energy targets.

Keeping Momentum in Scotland’s Offshore Wind Sector

Scotland has been a frontrunner in offshore wind development, and maintaining this momentum is crucial. Here are some strategies that companies in Scotland can adopt:

1. Government Support and Investment: Continued government investment is vital. The Scottish Government’s recent budget includes £150 million for the offshore wind sector, which will help support the energy transition and create jobs.
2. Innovative Projects and Collaboration: Scotland is leading in floating wind technology, which is crucial for areas with deeper waters. Collaborative efforts between the government, industry, and certification bodies can help standardise and scale up these technologies.
3. Supply Chain Development: Investing in the local supply chain ensures that Scotland can meet the demands of new projects. This includes developing manufacturing facilities and key ports for building and servicing offshore wind farms.
4. Environmental and Engineering Assessments: Conducting thorough assessments and planning for new projects can help mitigate risks and ensure smooth project execution. This includes environmental impact assessments and cost studies for potential sites.
5. Public-Private Partnerships: Strengthening partnerships between the public sector and private companies can drive innovation and efficiency. These partnerships can help align goals and resources, ensuring that projects are completed on time and within budget.

By addressing these areas, Scotland can continue to lead in the offshore wind sector, ensuring a sustainable and prosperous future for its energy industry. 

FI Grants Service

At FI Group, we specialise in helping businesses secure funding for innovation and R&D projects. Our expertise spans across various national and European grants, including the various Innovate UK grant schemes. We provide comprehensive support throughout the grant application process, ensuring that your projects receive the necessary funding to thrive. For more information on how FI Group can assist you with your grant applications, please use the below form to get in touch.