Vil zey do it again? - Is Germany gearing up for another record-breaking offshore wind auction?

Germany has recently opened two offshore wind auctions totaling 8 GW of capacity to be put into operation in the late 2020s / early 2030s. This auction follows hot on the heels of Germany’s multi-billion 8.8 GW auction that concluded in two phases in summer last year and set records at a headline level while projects in other parts of the world were being cancelled.

At a headline level, the first of the two 2023 auctions for 7 GW of non-pre-developed sites reaped in lease fees per MW (~1.8m/MW, see here for more details) roughly 4x those paid in the second auction (0.44m/MW, see here for more details) for 1.8 GW of pre-developed sites that closed in August. With the 2024 auctions now focusing mostly on pre-developed sites, should we expect German auction results to drop away from their 2023 record levels?

Some indicators haven’t necessarily moved very much, e.g. German long-dated government bond rates have stayed largely unchanged since the beginning of last year. Short-term power prices are down but several elements of German energy and climate policy with implications for long-term power prices remain clouded in uncertainty as of now. E.g. the back-up “power plant strategy” and carbon contracts for difference that should create demand for green electricity haven’t advanced much relative to last year (yet). With that much uncertainty to be resolved, “option-based bidding” (see here for more details) will almost certainly come to the fore again, especially as once again 90% of the lease fee will not have to be paid until after FID has taken place and therefore won’t be “sunk” when a go / no-go decision will be taken. ????

One big change to the previous auction will be that there are no “step-in rights” on any of this year’s sites, which will allow for open competition for all sites rather than just the non-pre-developed sites. Developing a strategy that targets both pre-developed and non-pre-developed sites comes with the challenge that once again these will not be offered in the same auction. Instead, two sites of 1 GW and 1.5 GW will come under the hammer in separate but parallel dynamic auction processes starting in June. The regulator (BNetzA) has increased transparency and speed of these auctions by shortening round times and providing information about bidding behaviour on all sites to everyone active on at least one site. However, switching between sites will once again not be possible. However, 5.5 GW will not partake in the dynamic auctions at all but rather will be allocated by sealed bid after the end of the dynamic auction creating an interesting conundrum of when to drop out of the first auction to focus on the latter ones.

Will the qualitative criteria that notionally make up 40% of the score for the 5.5 GW second auction play a bigger role this time? We shall see. At the moment it is certainly creating work for the regulator and bid teams with the Q&A count already up to 40 at the time of writing.

Another factor that may have more influence on German results than the qualitative criteria could be the results and attractiveness of other auctions around Germany this year. While last year Germany largely shared the stage only with the flopped UK AR5 auction, there will be several auctions to parse for clues on bidder interest and willingness to pay this year. ??