2021 Offshore Wind Auction in Germany

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There have not been any auctions for offshore wind projects in Germany since 2018. Recently, the Federal Network Agency (Bundesnetzagentur) called for the 2021 auction round. It is the first of its kind auction based on the so-called "central model". This auction design has been implemented by the Offshore Wind Energy Act (Windenergie-auf-See-Gesetz - WindSeeG) in 2017. The agency launched 958 MW in grid connection capacity across three areas in the North and Baltic Seas, at a maximum bid value of EUR 73 per MWh.

These projects are scheduled to be commissioned in 2026 (at the earliest). The auction round will be completed by 1 September 2021. It is remarkable that for two out of three areas companies hold so called “legal entry rights”. This paper will outline the 2021 offshore auction round and the potential impact the legal entry rights may have. A detailed outline of the German funding system for offshore wind farms in Germany can be found here.

Auctions are the gateway for offshore wind farm developers

There is no offshore wind project in Germany without winning an auction. The central model provided for in the WindSeeG interlinks three vital topics for offshore wind farms in Germany with the successful participation in a tender procedure: the public-law permit, the public funding, as well as the grid connection of offshore wind projects. After an award, the respective project owner receives the exclusive right to undertake the procedure for the planning approval (Planfeststellungsbeschluss), which is the required form of permit for the construction and operation of offshore wind farms. Not only the exclusive right to develop the project but also the entitlement to receive funding (in the form of a so called market-premium) is conditional upon the successful participation in the tender procedure. Finally, the tender entitles project to be connected to the grid.

Pre-Investigation of potential project sites

As part of the central model, the state is responsible not only for the spatial planning but also for the pre-examination of potential project sites. In a first step, the Federal Maritime and Hydrographic Agency (Bundesamt für Seeschifffahrt und Hydrographie – BSH) publishes a Spatial Development Plan (Flächenentwicklungsplan) which includes potential project sites as well as target installation years for projects, locations of converter platforms etc. In a second step, a pre-examination of the sites is undertaken which will further assess the suitability of these areas. In case of a positive assessment, pre-investigated sites will be made available for tenders. In 2021, two areas in the North Sea (N-3.7 with a capacity of 225 MW and N-3.8 with a capacity of 433 MW) and one area in the Baltic Sea (O-1.3 with a capacity of 300 MW) will be awarded in the tender round.

Maximum Bid Value in 2021

The tender procedure follows a basic principle: The project owner offering the lowest bid value will be awarded. Initially, the WindSeeG intended to cap the maximum bid value based on a dynamic principle and linked the maximum bid value to the lowest successful bid in the 2018 tender rounds. However, since in the 2018 tender, zero cent bids were successful, future tenders would have been capped at zero cent bids. The legislator reacted and determined the maximum bid values for future tenders in order to ensure the future expansion of offshore wind energy. For the 2021 tenders, the maximum bid value is set at 7.3 cents/kWh.

Legal entry rights – competition by "Existing Projects"

Even if successful in the auction, bidders have to take into account the risk of losing the award due to legal entry rights (Eintrittsrecht) of certain older projects. This rule is designed as a special compensation for project owners that have invested in developing their projects in the relevant areas and which lost their projects with the implementation of the WindSeeG. For two out of three areas that a put out for auction in 2021, companies hold so called legal entry rights which they can enforce after the auction. This means that they can snap away the respective project from a successful bidder by matching the winning bid.

The legal entry rights have been granted to so-called existing projects that did not win in the 2017 or 2018 auctions. These auction rounds were designed for existing projects, which reached an advanced development status by 1 August 2016 and were located in designated areas in the North and Baltic Seas  and which were not grandfathered from the changes introduced by the WindSeeG. These projects had to be located in one of the clusters 1 to 8 (North Sea) or clusters 1 to 3 (Baltic Sea) of the Federal Sectoral Plan Offshore (Bundesfachplan Offshore) for the German Exclusive Economic Zone.

Project developers of existing projects are granted a second chance in the central tender procedure if they meet certain requirements. Not only must the projects participated in the 2017 and 2018 tender rounds without success, but also had the developers to follow the relevant procedure back in 2018 (i.e. transfer of relevant documents and information as well as waiver). If these requirements are fulfilled and if the areas, in which the existing projects were planned, are put out to tender the legal entry right can become relevant. The legal entry right is a comparative advantage for the beneficiary. Companies holding a legal entry right can enter the successful bid of third party and then realise their project in accordance with the conditions of the third party’s bid. In the 2021 tender, two of the offered areas (N-3.8 and O-1.3) can be dragged away by making use of an entry right. Legal entry rights can be used by notifying the Federal Network Agency at the latest by the end of the calendar month following the announcement of the awards. The award will the be transferred to the existing project – leaving the actual successful bidder empty-handed.

Outlook

Bids can be submitted by 1 September 2021. Bidders are obliged to use templates that have been published by the Federal Network Agency. The results of the tender round are expected to be announced within September. If not successful in 2021, project developers will have further chances over the next years. The BSH already published pre-investigated sites  to be opened for tenders between 2022 and 2025 which are all located in the North Sea. The maximum bid value will, however, decrease 6.4 cents/kWh in 2022 and 6.2 cents/kWh in 2023.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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