Analysis: Why did private investors stay away from Lithuania’s first offshore wind tender?

Renewable energy majors expressed their interest in Lithuanian offshore wind before the market newcomer held its first tenders, but only two bidders entered the first round. Windpower Monthly spoke to two experts, one of whom branded the auction a “joke”.

The 700MW wind project is due to built off Palanga, in Lithuania (Image credit: Gediminas Medziausis, via Getty Images)

A series of challenges minimised competition by deterring developers from Lithuania’s first offshore wind tender and has left the winners with a lot to do on the project development front, analysts and industry observers told Windpower Monthly.

Despite a field of renewable energy majors – including Ørsted and RWE – expressing interest in Lithuanian offshore wind prior to the tender, there were only two bidders in the round, which was concluded earlier this month.

A joint venture between state-owned utility Ignitis Group and offshore wind developer Ocean Winds – itself a joint venture of France’s Engie and Portugal’s EDP Renewables – declared itself to be the provisional winner ahead of any announcement from the government but is yet to be formally confirmed as the winner. 

In January, energy minister Dainius Kreivys said that the state expected Ignitis to win the auction, according to Lithuanian business newspaper Verslo žinios.

If the Ignitis-Ocean Winds venture’s victory is confirmed, it will secure the rights to build a 700MW wind farm in the Lithuanian Baltic Sea and for the rights to use the sea area for 41 years.

‘Bidding blindly’

The winners receive no subsidy or guaranteed power deal for output from the project.

This was one reason why the tender only received two bids – the minimum requirement for the auction regulator to deem it “competitive” - industry observers said.

A Lithuanian renewable energy expert with inside knowledge of the sector’s offshore wind plans – who spoke to Windpower Monthly on condition of anonymity – added that, with no environmental surveys or wind speed measurements being carried out prior to the site being awarded, developers were “bidding blindly” for the site.

The auction winners will also have to carry out their own environmental surveys – adding about two years to the project development timeline. This means that the 2030 deadline for commissioning the project remains “feasible, but everything has to be very smooth”, the expert said.

The Lithuanian energy ministry did not respond to questions about why environmental assessments and site surveys were not carried out prior to the tender taking place.

Change of plans

The Lithuanian renewables expert argued that the government had also launched the tender abruptly, giving developers little time to prepare their bids. 

Energy ministers had long-flagged plans for an offshore wind tender using a contracts for difference (CfD) mechanism in press releases, presentations and conference speeches, the source explained. 

Lithuania plans to hold a CfD tender later this year, but is yet to receive approval from the European Commission.

However, Lithuania’s energy ministry only announced plans for the recent subsidy-free tender in late 2022. Lithuania also allowed developers to submit documentation for the auction between the end of March and late May – a time period the industry source described as too short.

“It scared away all of the investors. Everyone from the private sector backed down,” they said. “It’s been done so hastily that normal developers just can’t do it.”

RWE told Windpower Monthly it did not enter the auction as the tender was “not attractive”. 

A better deal?

The fact that only two bidders – including Polish state-owned PKN Orlen, according to local media reports - competed in the auction explains the low development fee being paid for the site, off the coast of Palanga.

The Ignitis-Ocean Winds joint venture is due to pay €20 million for the rights to use the site. Though this sum is four times higher than the €5 million losing bid – the minimum bid price in the auction – it still pales by comparison with eye-watering sums paid by offshore wind developers elsewhere.

While direct comparisons between markets are difficult, the winning bids in recent seabed leasing rounds were proportionately much higher than the Lithuanian tender, according to analysis by Rytis Kėvelaitis, CEO of Baltic energy advisory firm Energy Unlimited. 

The Ignitis-Ocean Winds bid was equivalent to €166,666/km2. 

But winners in the UK’s fourth seabed leasing round secured the rights to areas with bids five times higher per square kilometre, while winners in last year’s California’s auction won with bids which were more than three times higher.

Kėvelaitis argued that the Lithuanian offshore wind tender “did not bring similar benefits to the taxpayers as the seabed tenders in other countries”. He said this was down to “extremely short deadlines [and] no data about the site”, which minimised competition to just two participants. 

Kėvelaitis also argued that minimal competition reduced the amount contributed to the public.

Asked to respond to the criticisms of the tender, the Lithuanian energy ministry highlighted a press release in which energy minister Kreivys emphasised that the auction was organised to attract investors to bid for the “most advantageous financial offer and [to] pay a development fee”, rather than award them state support and subsidies to deliver the project.

Kreivys added: “With the capital borrowing costs and equipment prices rising and electricity prices almost back to pre-crisis levels, the situation has become less attractive for renewable energy development. Nevertheless, we have managed to convince developers to invest in Lithuania, which I think is a great success.”

But the unnamed Lithuanian renewable energy expert disagreed and added: “It’s very disappointing that we didn't have a competitive tender. We don’t know what the other competitors might have offered, but it might have been a better deal for the country. This was a joke [of a] tender.”

Ignitis declined to comment on the tender process and Ocean Winds did not respond to a request for comment.