SPOTLIGHT | Denmark bids for ‘society-minded’ offshore wind with new-look leasing model

July 7, 2023
5 min read
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After months of turmoil following the government's controversial decision to end its 'open door' auctions, Copenhagen has taken a new tack to build up to 14GW of sea-based wind plant – but not everyone is convinced of the strategy, writes Maria Holm Bohsen

By Maria Holm Bohsen

These are tumultuous times for offshore wind players in Denmark. Four months ago, the Danish Energy Agency (DEA) announced the country’s much-vaunted ‘open door’ scheme was being shut down due to fears of a possible breach of EU rules, stranding some 15GW of projects, and prompting Orsted CEO Mads Nipper to entreat the Danish climate and energy minister to make sure Brussels didn’t “stand in the way for accelerating green power in Denmark and Europe”.  

Within weeks, the Danish government had unveiled plans for new auctions totaling 9GW in five areas to help dampen the impact of the pivot away from the 'old' model, which was as credited with speeding up the pace of build-out off Denmark by allowing subsidy-free offshore wind farms to be constructed without waiting on government auctions.  

By May it was revealed that overall design of the coming auctions would have a new-look framework that was lease-based rather than underwritten by government subsidy, but fresh crosswinds blew up last month when an updated marine spatial plan (MSP) was published that put a halt to some 20GW of offshore wind projects already underway.  

TOWERS OF POWER: Turbines at the 400MW Anholt, until 2019 Denmark's largest wind farm (FOTO: Orsted)

Developers including Orsted, Vattenfall, European Energy and Copenhagen Energy, were quick to give voice to the belief that the change would be “a significant setback” for expansion of offshore renewables in Denmark, particularly power-to-X projects.  

The new framework is expressly designed with an eye on “the financial benefit of Danish society”, with the Danish state taking a 20% stake in four zones: Nordsøen 1, Kattegat 2, Kriegers Flak 2 and Hesselø, and a subsidy position the 3GW Bornholm energy island (BEI), a two wind-farm complex with built-in substation and hydrogen production that will feature a ‘hybrid’ transmission link connecting it to both Denmark and German grids.  

'Denmark’s phase-out of a subsidy-based auction should come as no great shock, but the government's taking up part-ownership of future offshore wind farms is more surprising'

Aegir Insights Head of Research Maria Bohsen

The BEI wind farms are the only ones that could land subsidies. However, this will be in a ‘dynamic’ auction set-up that raises the specter of negative bidding, with acreage going to the ‘lowest subsidy’ bid unless zero-subsidy bids are made, in which case the winners would be the highest bidders by year concession fee over a 30-year tenancy.  

The auctions could in the end add as much as some 14GW of capacity to the Danish offshore wind fleet through ‘overplanting’ of turbines, the DEA notes. 

Nine ‘open door’ projects survive

Nine ‘open door’ developments totalling as much as 1.2GW of new plant off Denmark survived the framework remodelling. Six of these – European Energy’s Frederikshavn Havvindmøllepark, Lillebælt Syd, Omø, and Jammerlandbugt, and Hofor’s Aflandshage and Nordre Flint – had already been given investigation or construction permits, plus three new projects – CIP-Orsted’s gigascale Vikinge Banke and Wind Estates’ Kadet Banke and Paludan Flak, were left to proceed as they are on offshore acreage unimpacted by the alterations to the country’s MSP. 

HIGH FIVE: Denmark's Nordsøen 1, Kattegatt2, Kriegers Flak 2 and Hesselø zones and the Bornholm energy island will be basis for 9-14GW in offshore wind auctions (IMAGE: Aegir Insights)
HIGH FIVE: Denmark's Nordsøen 1, Kattegatt2, Kriegers Flak 2 and Hesselø zones and the Bornholm energy island will be basis for 9-14GW in offshore wind auctions (IMAGE: Aegir Insights)

Denmark’s phase-out of a subsidy-based auction should come as no great shock, as Aegir notes in a recent flashnote on the news, given that the auction for the 1GW Thor back in 2021 was ultimately won by RWE by ‘lottery’ after several zero-subsidy bids were placed, an outcome ultimately deemed untenable for bidders or the authorities going forward.

But Denmark taking up part-ownership of future offshore wind farms is more surprising, clearly signalling a shift in attitude toward the industry as now ‘established’ rather than ‘maturing’.  The gigawattage on offer – though too little to completely offset the projects that will be cancelled as a result of the framework switch – is expected to keep Denmark within reach of its climate target of 70% emissions reduction by the end of the decade.  

There are also the wider economic development benefits to be had from this change of tack. Denmark, which currently has over 2GW of offshore wind online, already has a well-oiled sector supply chain that will be provided stability to grow with these coming new-model projects, and revenue from the first 20 years of power from the 9-14GW of plant will be used to underpin development of the Bornholm energy island, with the latter 10 years funneled into state coffers.  

This novel state-ownership element could serve as a model for other nations aiming to make sure offshore wind projects contribute positively to society, an ethos reflected in new sustainability criteria for coming Danish auctions that set out ultimata for project life-cycle environmental impact assessments covering foundations, cables, towers and nacelles and make it a requirement the recycled blades be used for all developments.  

The government’s original ambition to launch the first of the new-model auctions later this year is looking like long odds, with indications early-2024 is likelier bet.  

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Tagged: Beaufort · Europe · North Sea

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CVR no.: 39104792

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