As one of the eight signatories of last year’s Ostend declaration, pledging a target of 300 GW of offshore wind by 2050, the Netherlands plays a crucial role in the EU’s ambition to transform the North Sea into a renewable powerhouse for Europe. With 1.9 GW of offshore wind installations last year – more than any other European country – the Netherlands has tremendous potential to continue leading Europe’s offshore wind expansion journey. Fully unlocking this potential, however, is contingent on the country’s ability to pivot current offshore wind tenders into realised projects.
By Nils de Baar, Regional President NCE, Vestas
Last year, we saw several offshore wind projects delayed or even cancelled in countries such as the USA and the UK. This could be a warning for the Dutch market too. Earlier this year, we have already seen Eneco and Equinor withdraw from the 4 GW tender in the Dutch North Sea, citing challenged business cases due to electricity market uncertainty and increasing costs in their reasoning. And we risk seeing more of these headlines unless we rethink how offshore wind tenders are designed in the Netherlands.
Current state of affairs
Credited for pioneering the use of non-price criteria in offshore wind tenders, the Netherlands is often heralded as a good example for Europe. Leveraging this position, we can ensure that Dutch offshore projects create even more value for society and veer away from the mistakes we have seen in other markets.
Let’s look at the ongoing 4 GW IJmuiden tender as an example. While the tender includes non-price criteria, it also utilises a negative bidding financial component, limiting the potential positive effects of non-price criteria.
Negative bidding refers to the practice of governments facilitating dynamic bidding rounds where developers compete on their ability to pay for the right to develop projects. Negative bidding is used without limit, or in the case of the Netherlands, with a very high cap of EUR 210 million / GW, for the 40-year project lifetime. The mechanism creates a market environment that increases risk and leads to unrealistic project economics, preventing projects from being built on time, if at all.
An opportunity for the Netherlands to rise to the occasion
The good news is that the Netherlands can still rise to the occasion by moving away from its exorbitantly capped negative bidding mechanism. Instead, they can look at ways to de-risk projects and promote project realisation by adopting revenue-sharing mechanisms. This could be in the form of a double-sided Contract for Difference (CfD) that removes risk or through a mechanism that connects payment for the right to build with revenue generated by a project.
Furthermore, we should continue to focus on creating value via qualitative criteria. We’ve seen recent tenders in the Netherlands using qualitative criteria, such as ecology, which ensure that projects also support a thriving ecosystem. The Netherlands’ newly adjusted offshore wind targets highlight that the government is working to ensure realistic timelines and project deliveries. Applying this mindset to improving offshore tender design can accelerate this effort.
We have the solutions we need to incentivise project completion and support healthier project economics. Let’s make sure to implement them while we can and ensure that our tenders raise the most turbines, and the most societal value. Not the most capital.
