Solar Energy Cost Challenges

Denmark & Norway announce new rules for forthcoming #wind #offshore #auctions, taking lessons from previous auction rounds into account. 🇩🇰 𝐃𝐞𝐧𝐦𝐚𝐫𝐤 Denmark‘s historically large 3 GW auction in December ended without any bids. With comparably low (wind-capture) electricity prices in Denmark, significant cost increases and supply chain challenges, project developers were not willing to pay money to the government for the right to building a wind park (that didn't have grid connection). See this December post for more explanation: https://lnkd.in/eXWBJrND. Now on Monday the government and a broad political group of parties have entered into an agreement on re-tendering of 3 GW of offshore wind, explicitly addressing some of the key previous issues (with thanks to Jonas Hannane): 🔸 Most importantly, project developers will be able to bid for government support in the form of a 20-year two-sided Contract for Differences (#CfD), guaranteeing a stable revenue stream that make investors return largely independent from future electricity price risks. Denmark foresees a capability-based CfD that pays the premium per MWh electricity that could have been produced, rather than for actually produced electricity as in energy-based CfDs such as in Belgium, Norway or the UK (we explained the difference in this webinar: https://lnkd.in/eZSRzuAM). 🔸 Three sites with 1 GW each in North Sea Mid, North Sea South and Hesselø to increase competition, plus the opportunity of overplanting e.g. with #hydrogen or PtX. Costs for site investigations & surveys are borne by the Danish state. 🔸 More flexibility on timelines to achieve min capacity (North Sea Mid & Hesselø: 2032; North Sea South: 2033), acknowledging supply chain challenges. Relaxed penalties for delays and exit, reducing risks for investors (but possibly also realisation probability). 🔸 Sustainability & EU supply chain conditions, but auction awarded on a price-only basis. 🔸 No more requirement of state ownership that may have shied away investors in the previous round. 🇳🇴 𝐍𝐨𝐫𝐰𝐚𝐲 Equally on Monday, the Norwegian government launched another offshore tender with significant changes: 🔹 Focus on floating offshore wind (Utsira Nord site with up to 500 MW), acknowledging Norway's deep waters being tricky for fix-bottom wind parks. 🔹 Two-step process, similar to the UK: Step 1 selecting project developers on qualitative criteria that get the right to develop the site and to compete for government support in the form of a direct grant (rather than a CfD as in the previous auction) in Step 2. So two very different approaches to the current challenges in wind offshore development...

Offshore wind is a cornerstone of the energy transition. And in Germany, it is critical. Without an efficient expansion at sea, the country risks missing its climate targets and losing grip on affordable, clean power.   But the current German auction model is under strain. A recent study by Stiftung OFFSHORE-WINDENERGIE highlights what many in the sector already know: the auction design is flawed.   The most troubling feature is negative bidding. It pushes project costs up, distorts the market and opens the door to the dreaded “winner’s curse”, where developers commit to prices that are simply not sustainable. What is needed now is a change in mindset. We must redesign auctions to move away from short-term revenue chasing and focus on long-term system value.   An important lever are two-sided Contracts for Difference (CfDs). These reduce financing risks, lower costs for consumers, and offer price stability, while options for merchant build-out should be maintained to provide for system flexibility.   And perhaps it’s time to rethink how we measure success. Moving from gigawatt targets to terawatt-hour goals would better reflect real system value. Cross-border coordination, smarter grid usage and expansion, and prioritising the most efficient sites can make the offshore buildout more cost-efficient and help Europe to make best use of its limited sea space.   That is how offshore wind can scale – reliably, affordably, and sustainably. Not just for Germany, but for Europe as a whole.

Europe’s offshore wind challenge is no longer technological. It is organizational. As the industry enters its steepest growth phase, delivery experience has become a critical and increasingly scarce asset. Under sustained cost and LCOE pressure, many developers have prioritized low cost office based hiring, often remote from project reality, placing inexperienced and insufficiently skilled resources in strategic decision making roles. The result has been weakened execution capability, higher project risk and declining investor confidence. This article argues that treating hard won offshore wind delivery experience as strategic infrastructure is essential to restoring capital confidence and delivering Europe’s offshore wind ambitions at scale.

#netzero #offshorewind bids in UK’s #AR5. Not the outcome governments wanted but perhaps the one the sector needed? Today it was announced that no offshore wind projects bid in #UK’s #CfD Auction round 5 (#AR5). This is a major blow, as it will be cited by many in the coming hours and days, as the UK is the largest offshore wind market outside China, accounting for 42% of the operational fleet by the end of 2022 and awarded 7 GW in last year’s tender. The key reason for the lack of bidders was the low administrative strike price (bidding ceiling) in the tender. But the contextual factors played an important role too – a) there was a limited number of eligible bidders and they were all experienced. b) Limited upside on the revenue side compared with the #AR4 projects as the CfD locks in revenues for 15 years. Secondly, the declining #captureprices combined with the new #EGL limits upsides from the merchant nose. C) For projects to be built 2026-2028, developers would need to sign new supply contracts at elevated prices due to the tightening of supply/demand. D) Governments have already announced changes to the structure of the upcoming #AR6 so bidders are expecting more favourable conditions for in this round. Hattrick. This is not the first time we have heard about challenges in the offshore wind sector. #Suppliers have felt these challenges since 2016. #Developers have seen it coming and have now started to feel it – most notably through Orsted’s recent impairments of its US pipeline. Now, following seven years of falling subsidies, #governments are feeling it as they see offtakes being cancelled in US and UK and now a tender has been undersubscribed. This escalation is not benefiting anyone today, but it might just be that spark that can catalyse the change that sector is needing to get back on a more sustainable course. Read more about this Wood Mackenzie's recent #wmhorizons article: https://lnkd.in/eBmwdmfx. Considering the high demand in the 2028-2032 period for offshore wind, I would argue that the most beneficial action the UK government could take for the sector and the #energytransition is to accelerate the deployment. UK is one of the markets that is best positioned to do that because they have a large fleet of projects that are either permitted or in advanced stages of their permitting. To be concrete, the UK government should increase the ceiling prices, accelerate the permitting of the remainder of the fleet and introduce non-price criteria (see https://lnkd.in/esH5cKYn to learn more) where developers are being rewarded for getting their projects online earlier. Doing this would not just help the UK getting closer to its 2030 targets for #renewables, #jobs, and #energysecurity but also other markets as it would free up supply capacity in the 2028-2030 period.

The failed offshore wind auction in Germany underlines that Germany and the European offshore wind industry need a sustainable market framework that reliably guarantees project implementation and investment security through the introduction of contracts for difference (CfDs) which the EU has called for anyhow. Germany can learn from the auction failure fast and change the design with the upcoming amendment of the German offshore wind act (WindSeeG) in autumn 2025 for the 2026 auctions including the announced repetition of the 2.5GW volume that just failed. As in Denmark last year for 3 gigawatts, there were no bidders for the two projects in the August 2.5-gigawatt offshore wind energy auction in Germany. And as in Denmark, the dynamic negative bidding as well as complex and bureaucratic criteria must now be abandoned also in Germany. Vestas and the whole industry have been advocating for this for years, and the government can act now. The mandatory implementation of 132 kV intra-array voltage for all new offshore wind projects from the 2026 auction onward, as currently foreseen by German regulation would even increase the risk of auction or project realization failure. Without technical and commercial readiness across the OEM, supplier, and testing landscape, enforcing 132 kV prematurely would create even more risks to the roll-out of offshore wind in Germany or other markets, and should therefore be avoided.

Germany's recent offshore wind auction saw no bidders for two development zones in the North Sea, totaling 2.5 GW, signaling another pivotal moment in the industry. Following unsuccessful auctions in Denmark and the Netherlands scaling back, the lack of bids in Germany comes as no surprise, impacting not just Germany but the broader European Offshore Wind sector. This outcome underscores the need for policymakers to shift focus from upfront concession payments to ensuring certainty for both governments and developers. For governments that is certainty that the windfarms actually get build in line with ambitious build out targets. For developers it is certainty on primarily grid connection, both in terms of cost and timing, as well as a path for offtake, aka revenue. Denmark has responded quickly after the failed auction last December and has presented a overhauled draft auction design a few weeks ago, just months after the failed auction. At its core it now includes a two sided Contracts for difference (CfD), addressing the certainty for offtake and an instrument that has made the UK the biggest Offshore Wind market in Europe in terms of operating – no just awarded - projects. If Germany wants to remain attractive for investments in offshore wind, it needs to press the reset button, too, and rework the auction design towards a two sided Contract for Difference. These enable economically viable investments and provide certainty to governments as well. The Offshore wind industry has made further proposals as to how the offshore wind expansion and the necessary grid connections can be orchestrated cost-efficiently and providing certainty of delivery. Offshore wind plays a crucial role in Germany's energy transition, supporting energy security for industries and society. #TeamRWE remains committed with six operational assets, gigawatt age construction and development projects. The unbid sites will be up for reauction already next year, prompting a call to action for governments and industry stakeholders alike to adapt to the evolving landscape. Time for decisive steps forward! #OffshoreWind #OffshoreWindDeutschland #TeamRWE

What does it take to get a Floating Offshore Wind Project over the line for investment? Yesterday, in a Board Room looking out over Canary Wharf, Xodus and EY-Parthenon brought together a group of Industry experts from across developers, investors, finance and supply chain communities simulated a FOW investment case. Using a test case of an example floating offshore wind acquisition in Scotland the team played the role of an Investment Committee, bringing their real life experience and expertise to evaluate the opportunities, risks and blockers we find as investment decisions are made.    The goal? To stress-test the investment case and spark an open, practical discussion around the challenges and risks across four themes: Regulatory | Technical | Supply Chain | Financial Key insights from the day: • Investment appetite for floating wind remains cautious • Substantial cost reductions will come post 2030, given global deployment delay • Bankability will depend on early supply chain commitment and the right contractual structures • Limited European capacity means international OEMs (including Chinese) are increasingly part of the mix • Investors are targeting equity IRRs around mid 10s % for early-stage floating projects • Phased project delivery for GW scale could help manage risk and unlock capital Our main takeaway? In floating wind, risk - both perceived and actual - is central to unlocking investment. Understanding where risk truly sits, and how to manage it proactively, is what makes the difference between stalled ambition and successful execution. In that context, having the right advisors around the table isn’t just helpful - it’s fundamental to making the numbers work and getting projects away. Shout out to Emily Phillips, Andrew Perkins, Sophie Xu-Tang from EY-Parthenon and my colleagues at Xodus Carla Riddell FEI, FGS, Rachel Mair and Sarah Butcher - great team effort! #FloatingWind #OffshoreWind #EnergyTransition #Renewables #InfrastructureInvestment #NetZero #ProjectFinance #SupplyChain

Offshore wind has its first hangover – now comes the cure. --- Zero-bid auctions, paused projects, and suppliers under pressure. The industry has been running too fast without ensuring that the value chain actually makes money. We have seen fossil-heavy energy companies rush into the sector to polish their ESG profiles, only to quickly disappear again when they realised that building a profitable business from offshore wind is a completely different challenge. Offshore wind is large-scale infrastructure, and uncertainty is poison for projects of that size. The industry has developed faster than standards and frameworks could keep pace. When major shifts in economics and geopolitics hit at the same time, as we have seen in the past five years, imbalances emerge. That is why I do not see the lack of bids as a showstopper, but as a clear signal that tender design needs to change. Faster. Smarter. More flexible. For ports, the risk is the same. It is tempting to build big and expensive. But without a strong pipeline potential, it ends in overinvestment. And when some ports are subsidised while others must operate on commercial terms, the market gets distorted. That undermines the mechanisms that drive innovation and strengthen the best solutions. On Bornholm, we have expanded our port, fully financed on commercial terms. It required courage, timing, and perhaps a bit of luck. Not every port can or should enter offshore wind. You need a strong business case and preferably a solid plan B. As an island, we do not have a hinterland to lean on. No possibility to create container terminals or large-scale Ro/Ro facilities. We had to bet on what made use of the island's history and natural strength: cruise and offshore wind. And we did it with a strategy where economics, potential, and ambition aligned. First pipeline, then construction, then sign more projects and construct again - 4 phases now. Sound, stable, and flexible towards market movements. Today, it is about consolidating and staying attractive for our customers and continuing to build the pipeline of future projects. The truth is simple: Offshore wind cannot live on megawatts alone. It must be a sound business all the way through the value chain. Before that becomes a reality, we will see insecurity and companies going in and out of the industry much faster than is healthy for maintaining sound and profitable companies in the supply chain. I wish you a great weekend - hopefully without a hangover - the future is bright and green. Photo: a view across the port from the new multipurpose quay ------------------------------ 💥 I am Jeppe.   ⚓ CCO at Port of Roenne   🔺Windfluencer sharing my views on the news I find relevant within renewable energy, offshore wind, the future, innovation, sustainability, technology and management   🔝 Follow me if you want to hear more

📢 Offshore Wind: Strategies for Uncertain Times The offshore wind industry is at an inflection point. After a decade of strong growth and value creation, the industry is now facing macroeconomic pressures that are halting growth and profitability. This McKinsey & Company report identifies four key actions that developers can take to navigate this challenging environment: 1️⃣ Taking smart and controlled market bets with foresight, while investing in seed options to provide further opportunities in the case of an upswing. With the nature and size of offshore wind projects, efficient capital allocation is critical. This means focusing on investments in countries with inflation adjustments and low technology risk and investing in options for potential build-out in the case of a rapid change in the macroeconomic environment. 2️⃣ Developing an active stance on consolidation. Developers can carefully assess potential inorganic opportunities and, if possible, explore the feasibility of investing to rebalance growth. 3️⃣ Focusing on maximizing efficiency to prepare for a future horizon of lower structural profitability. Developers could explore new organizational structures to quickly adapt to the shifting circumstances of the offshore wind market and consider identifying opportunities to increase performance. 4️⃣ Establishing strategic supply chain collaborations, creating transparency and predictability. Developers could explore supply chain collaboration, including vertical integration of strategic suppliers and direct sourcing from tier two and tier three suppliers. The report also outlines three potential scenarios for the future of the offshore wind industry: 1️⃣ Structurally challenged: Developers and regulators cannot solve the current challenges and may gradually prioritize alternative sources of renewable energy. 2️⃣ Just for the heroes: Profitability will be structurally reset as the offshore wind margin premium evaporates compared to onshore renewables. Profitability restoration: Market forces help restore industry predictability and profitability. 3️⃣ The authors believe that the industry is likely facing a "just for the heroes" scenario, with capacity additions falling short of current expectations. This is based on the current macroeconomic environment, regulatory landscape, and market pull for clean energy. The report concludes by emphasizing that while the offshore wind industry is facing significant challenges, developers can take steps to navigate this changing landscape. The authors remain optimistic about the potential of offshore wind as a clean and renewable energy source. #offshorewind #renewables #energytransition #McKinsey #business #strategy #industry #futureofships #decarbonization #energy

Ørsted, the world’s largest offshore wind developer, has announced a DKr 60 billion (~$9.4 billion) rights issue (raising extra money by offering new shares to its existing shareholders). This sent its share price down nearly 30% in one day. The raise follows difficulties in selling a stake in its Sunrise Wind project off New York’s coast, a key part of its financing model. What are the triggers? •Market sensitivity: Offshore wind projects depend on stable investor sentiment. Increasing policy uncertainty isn't helpful for capital intensive renewables. •Compounding pressures: High interest rates, supply chain disruptions, and rising input costs are squeezing returns. •Funding model: With traditional “farm-down” deals are becoming harder to close. Developers are forced into larger equity raises to keep projects moving. Ørsted’s situation highlights a tough challenge. Building financing structures that can absorb market shocks and ensure profitability isn't an easy task. https://lnkd.in/ezNDN_YF