Denmark's recent auction for 3 GW of offshore wind capacity ended without any bids. The auction offered three offshore wind sites of 1 GW each and allowed developers to overbuild by an additional 1 GW. On 5 December, the results came in and not a single bid was submitted for any of the sites.
The primary reason for the lack of industry interest lies in the design of Denmark’s auction system. Unlike similar auctions in Poland, the Netherlands, and the UK, the Danish system does not offer any state support or revenue stabilisation models, such as Contracts for Difference (CfD). Instead, developers are required to pay for the right to build a wind farm. Denmark’s uncapped negative bidding system creates a race to the bottom, significantly increasing the upfront costs for developers. Additionally, developers must bear the costs of connecting their wind farms to the grid, further increasing financial burdens.
The auction design is not the only issue. Denmark's electricity demand from mobility, heating, hydrogen producers, and industry is not growing quickly enough to support the new capacity. The country already frequently covers its electricity demand with 100% renewable energy. This creates uncertainty for developers about the future price of electricity.
Moreover, the costs associated with developing an offshore wind farm have risen significantly due to inflation, rising commodity prices, and higher interest rates. These economic pressures are making it more challenging for developers to justify the investment.
Denmark plans to hold a similar 3 GW offshore wind auction on 1 April 2025. The government must ensure that the volume not awarded in the recent auction is re-tendered. Additionally, it should reconsider the current auction design and consider adapting it to make it more attractive to developers.
As of now, Denmark has 3 GW of offshore wind capacity, which generates 24% of the country’s electricity demand. When combined with onshore wind, wind energy accounts for 55% of all electricity consumed in Denmark.
(source WindEurope)
