Eneco and Equinor decide not to participate in IJmuiden Ver tenders – wish for new contract for offshore wind

Eneco and Equinor have announced that they have had to decide not to bid for the most recent Dutch offshore wind tenders, IJmuiden Ver (alpha and beta). Due to deteriorating market conditions, the current approach to offshore wind is said not be future-proof. Eneco is calling for a “new contract for offshore wind”.

Eneco explains in a statement document why the partners are not participating in the tenders. Eneco says it is convinced that increased production of renewable electricity, including offshore, is essential for a successful energy transition. However, it identifies structural flaws in the current design of tenders for offshore wind. Eneco therefore calls for “a new contract for offshore wind” so that offshore wind development remains feasible in future tenders.

Problems with current situation

The tender process for permits to build and operate offshore wind farms in the Netherlands has two characteristics. First, the principle of ‘one stop shop’, where on the one hand the government commissions studies on wind and soil conditions, among other things, before the tender starts and makes these available to the bidding parties, and where, on the other hand, TenneT is responsible for the construction of the ‘sockets at sea’ and the transport of the electricity to land. Second, the tenders are designed as ‘comparative tests with qualitative criteria’ (e.g. ecology, system integration, circularity, innovation, IMVO, etc.), with the tender being won by the party with the best qualitative bid.

This approach has brought much to the Netherland. Besides high-quality wind farms, it involves innovation from which society also benefits, restoration of the seabed and other ecological improvements. Nevertheless, the industry is still at the beginning of the innovation curve, there is still much innovation to be expected in the coming years, says Eneco. But in the most recent tenders, IJmuiden Ver (alpha and beta) the emphasis has shifted. The qualitative criteria are still there, but they are less distinctive in practice. At the same time, the government has offered the option to win the tender by making a significantly higher financial bid. Not a relatively low fixed amount, but a maximum amount of 420 million euros per year for 40 years. The higher the amount a party bids, the more points are awarded for it in evaluating their bid (up to a maximum of 15% of the score). If the financial component becomes even larger, the tenders will become much more like an auction than they have been so far. These additional costs will ultimately have to be recovered through energy bills. This is an undesirable development, according to Eneco, because it makes social goals less prominent and raises the cost price of the wind farm.

At the same time, Eneco states, market conditions for offshore wind energy have deteriorated significantly. These include general cost increases throughout the supply chain, as well as uncertainty in electricity prices and potential sales volumes. The cost increases are caused by high steel and copper prices, tightness in suppliers and increased interest rates higher capital costs. Furthermore, there is no certainty that electricity can be sold at the right volumes and price. In addition, lack of capacity in the supply chain is a global problem. There is increased ambition for offshore wind farm construction. This is positive, but at the same time it creates greater demand, which is now running into a lack of production capacity. That also creates a higher cost price.

New contract for offshore wind

To improve the balance between social goals and development opportunities for companies, Eneco believes it is important not to continue on the path of competition on finance. The energy company opt for a new contract for offshore wind.

The new contract for offshore wind includes the following elements: reducing the comparative test to the core of the tender, replacing the financial bid with a two-sided Contract for Difference (CfD) and issuing a combined tender for wind and hydrogen at a number of locations (without CfD).

This proposal, according to Eneco, is in line with plans already on the table, such as the European Commission’s wind energy package and the “EU Wind Energy Charter” signed by 26 member states last December that call for improved wind tenders with indexed prices and the use of qualitative criteria.

Other improvements

There are also other possible improvements to be made, according to Eneco. The success of the tenders for Hollandse Kust (west) has proven the usefulness and importance of inserting innovation criteria. Even more ecology gains can be achieved through innovation and investment projects in upcoming tenders. Furthermore, it is better to make the lots that are being tendered smaller. In addition, more flexibility is desired in the timing of Tennet’s construction of connections to the high-voltage offshore grid.

Eneco concludes its statement with the suggestion that pursuing structural and clear policies for electrification and green hydrogen is necessary to guarantee the construction of offshore wind farms. The more clearly the demand for green hydrogen norms the market and sets the pace for electrification in the industry, the better wind farm developers can respond to the electricity market. In doing so, the government must also not lose sight of uncertainties and labor market conditions so as not to drive up costs unnecessarily. Read the entire Statement here (in Dutch).

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