Wind tenders buffeted by inflationary headwinds in 2023

Windpower Monthly rounds up the most important wind energy auctions of 2023 – and looks at what went wrong in several key markets.

The year saw a range of successful wind energy auctions and the opening of new markets. But it was also beset by widespread issues, including inflation and supply chain bottlenecks that damaged the success of various large offshore wind auctions in particular. 

The US and UK’s offshore wind crisis

Among the most important themes in worldwide wind energy auctions this year was how prices offered for power purchase agreements (PPAs) and contracts for difference (CfDs) were outpaced by inflation, with devastating effects for projects and individual tenders. 

In the US, major offshore wind auctions failed to attract sufficient bidders to lease the maximum planned capacity out to developers. 

In the Gulf of Mexico tender, just one developer — German energy company RWE — won a lease area off Louisiana in an auction that attracted only one other bidder. 

Two other Gulf of Mexico tracts off Galveston, Texas, made available by the US Department of the Interior failed to attract any bidders at all. 

Meanwhile, Ørsted announced it was pulling out of its gigawatt-scale Ocean Winds 1 and 2 projects, off the coast of New England, amid soaring costs, which prompted a stern backlash from New Jersey state’s governor.

New Jersey coast (credit: Carolyn Cochrane/Getty Images)

In New York, the state was forced to launch a renewed offshore wind tender for developers to “backfill” more than 4GW of ongoing offshore wind projects that otherwise looked likely to be terminated without state intervention. 

There were signs that US states had heeded the concerns of developers however. Several, including Connecticut, Rhode Island, New Jersey and Massachusetts announced new wind tenders, which will include inflation protection mechanisms.

Across the Atlantic, developers shunned the UK government’s September 2023 offshore wind CfD tender and it failed to award any offshore wind seabed leases. 

Major industry players explained that the economics “did not stand up” in part because the maximum allowed strike prices for the tender of £44/MWh for offshore wind with fixed-bottom foundations and £116/MWh for floating offshore wind were not attractive enough to encourage developers to bid. But warnings that the auction would fail went unheeded.

(Credit: Orsted)

Speaking to the Wind Power podcast last month, Will Sheard, director of analysis and due diligence at consultancy firm K2 Management, said: “It was clear that the strike price was too low to support the economics of the projects...So in terms of incentivizing the industry, it failed.” 

In the wake of the failed auction, the UK government raised the maximum price available for offshore wind with fixed-bottom foundations by 66% – from £44/MWh (€50/MWh) to £73/MWh. It also raised the maximum price for floating offshore wind projects by 52% – from £116/MWh to £176/MWh. 

Europe forges ahead 

While notable large offshore wind tenders struggled in the US and UK, mainland Europe witnessed a range of highly subscribed new onshore and offshore wind tenders. 

Germany saw a contrast to the ailing offshore wind tenders in the US and UK by successfully awarding 7GW of offshore wind capacity in a “negative bidding” auction across four sites in the German Baltic and North Seas to oil majors BP and Total Energies. 

The country sought to auction 12.8GW of wind energy in similar tenders by the end of 2023 to keep pace with its target of 30GW of installed offshore wind capacity by 2030. 

(Credit: Iberdrola)

Onshore wind auctions in Germany presented more positive news in 2023, despite being undersubscribed. The country awarded 6.3GW of onshore wind over the course of the year, including 2GW in its final tender in December. Overall, this was almost double the capacity Germany awarded in 2022.

In France, 1.1GW of onshore wind was tendered in July, and an additional 931MW of onshore wind capacity was auctioned in November. The country is currently in the process of conducting a 1GW offshore wind auction off Oléron in the Bay of Biscay with a price target of around €60/MWh. It is also planning public consultations on new offshore wind tenders “by the end of 2024”, according to French president Emmanuel Macron, in an effort to reach its offshore wind target of 18GW by 2035.  

Relatively new players in wind energy development also emerged in Europe, including Albania, which held its first ever onshore wind CfD auction in July and successfully awarded offtake deals for more than 200MW of capacity. Serbia also awarded power deals in an onshore wind tender that saw 400MW of capacity secured by successful bidders. 

Portugal, meanwhile, called for expressions of interest in its much-anticipated offshore wind tender with 3.5GW on offer across three Atlantic coast locations.

Global tenders create new or expanded markets 

Tamil Nadu (Credit: Creative Touch Imaging Ltd NurPhoto via Getty Images)

This year also saw a number of new offshore wind markets opening for business with inaugural tenders. 

Among them was Colombia, which announced details of its inaugural offshore wind tender. The auction will encourage bidders to compete for 30-year seabed leases off the Caribbean coast of Atlantico province and the opening stages begin on 21 December. 

Australia’s first offshore wind tender – in the Bass Strait off the coast of Victoria officially – opened in December 2022 and moved forward this year with offshore wind giants announcing development plans for the auction. 

Meanwhile, India entered the global offshore wind market and announced plans to auction up to 7.2GW of offshore wind off the southern province of Tamil Nadu in a tender planned for February 2024. 

Other major Asian economies moved their own offshore wind development plans a step forward. Japan, which is targeting 10GW by the end of the decade, revealed German utility RWE as a major winner in its second offshore wind tender. Overall the rights to build around 1.4GW of capacity in various locations off the country’s coastline were handed out in the auction. 

Similarly South Korea launched a 1.5GW PPA auction, but whether the region can match the industrial-scale roll out of China remains to be seen.