Sites for next German offshore wind auction remain unviable: analysts

The sites offered in Germany’s upcoming auction for pre-examined sites most likely remain economically unviable for developers due to their continued merchant exposure and wake effects, analysts at intelligence company Aegir Insights said.

Low expected return

Aegir in a webinar Tuesday on upcoming European offshore wind auctions ranked countries according to the attractiveness of their tendering systems – with the main factor being the estimated equity IRR (internal rate of return).

The tender for the two German North Sea sites to be auctioned off fared worst in Aegir’s financial modelling, with a maximum IRR (base case) of just above 5% expected for the N-10.2 site and just below 5% for the N-10.1 site. In the case of low prices on power markets, the IRR for those sites would end up even far lower, and come in close to zero for the N-10.1 site.

“Germany shows much lower returns and some of the widest spreads [between a base case and a low case IRR] in the sample,” Aegir associate client engagement, Maria Ávalo Gadea, said, explaining that IRRs would struggle even in the base case.

The low attractiveness of the two sites is explained by the continued high merchant exposure and lack of support from the German government, she said.

To make matters worse, significant internal and external wake effects are expected at the two sites.

“That is, of course, discussed widely in Germany. This is by far one of the main reasons for the unattractiveness of the two sites that we have modelled,” said Thomas Hwan Jensen, who leads Aegir’s European research team.

An assessment Aegir did earlier this year on 20 German North Sea sites showed that external wake effects would result in an average production loss of 15% – the same as the output of several gigawatts of offshore wind.

“This will increase LCOE. Our model showed an increase of about 17%, or annual revenue losses in the billions,” Hwan Jensen said.

After the same sites flopped in a tender in August, the wind sector had asked for further tendering to be postponed until the back end of next year, with a new mechanism – preferably one based on contracts for difference (CfDs) – in place following the no-show by developers.

By postponing the tender for the up to 3.5GW originally foreseen for 2026 but holding a repeat auction for the 2.5GW that flopped this year, the German government has decided to take a “middle route”, Hwan Jensen said, “despite the likelihood of facing the same result we saw earlier this year”.

The economics and energy ministry is currently holding consultations with the wind sector as a first step towards a reform of the tendering framework, which will run through December 23. The focus is on cost efficiency, alignment of the offshore build-up with grid development, market integration, the role of offshore hydrogen, and the tendering design.

Given the usually lengthy German legislative process, it is “safe to say that the potential introduction of a CfD won’t happen before 2027 at the earliest,” Hwan Jensen reckoned.