DONG Explains the Thinking Behind Subsidy-Free Bids

Source: DONG Energy

DONG Energy has revealed the factors behind the decision to place two zero subsidy bids in the first round of offshore wind auctions in Germany.

As reported earlier, the Bundesnetzagentur awarded DONG the right to build three offshore wind projects in the German North Sea with a combined capacity of 590MW.

For two of the projects – the 240MW OWP West and the 240MW Borkum Riffgrund West 2 – DONG made bids at zero EUR per MWh, meaning that these projects will not receive a subsidy on top of the wholesale electricity price.

DONG based the decision to submit the zero bids on several factors, including the ever-evolving technology, the location of the two wind farms, and certain changes in the German law.

When it comes to technology, DONG welcomed the extension of the project realisation window to 2024, the time by which the developer expects turbines with capacity of between 13MW and 15MW to be available on the market. With bigger turbines, the developer can increase electricity production while at the same time reduce the number of turbine positions.

The scale and the location of the two projects is also one of the factors behind the zero bids. OWP West and Borkum Riffgrund West 2 will be combined into one large-scale project with the option of adding additional volume in next year’s auction to further increase the total size of the project, DONG said.

When it comes to the location, DONG said that the projects benefit from average wind speeds of more than 10 m/s, which is among the highest wind speeds measured across the company’s portfolio of wind farms. Also, the projects are located next to DONG’s Borkum Riffgrund 1&2 which means that operations and maintenance can be done from the existing O&M hub in Norddeich.

When it comes to the operation of the wind farms, German authorities have approved the possibility to extend the operational lifetime of the assets from 25 to 30 years, DONG said. Also, developers were not bidding for the grid connection in the German auction, which means that grid connection is not included in the bid price.

DONG will be responsible for the turbines, array cables and offshore substation, while grid operator TenneT will be responsible for construction, operation and ownership of the onshore substation and the export cable.

The developer said that the above drivers deliver a cost-of-electricity below the company’s forecast wholesale power price and eliminate the need for subsidies.

The cost reductions required for German projects without subsidies are fully feasible, both technically and commercially, DONG said.

Towards a final investment decision in 2021, DONG will monitor the key factors which will determine long-term power prices in Germany. These factors include the impact of EU actions to reinvigorate the European carbon trading scheme; the phase-out of conventional and nuclear capacity; the future role of coal in Europe; and the build-out of onshore transmission grids.

DONG currently has 902MW of offshore wind in operation in German waters with Gode Wind 1&2 and Borkum Riffgrund 1 and another 450MW under construction at Borkum Riffgrund 2, which is expected to be commissioned in 2019. In total, DONG Energy operates 3,600MW offshore wind capacity across Germany, UK and Denmark and has further 3,800GW under construction.

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