'Back to boring' is cure for battered European offshore wind market: panel

Greater visibility on offshore wind buildout schedules and a broadening of revenue stabilization mechanisms will enable the industry to bring down prices in the long term, market players said April 9-10 at trade group WindEurope's annual conference in Copenhagen, Denmark.

"The world is completely changing, which is why the call for predictability is not a small ask," Rasmus Errboe, CEO of Danish developer Orsted, said during a panel discussion at the event.

A 10-year buildout perspective and the introduction of more two-way contracts for difference (CFDs) to stabilize revenues would allow the offshore wind industry to cut costs by 30% by 2030, Errboe argued.

The figures are part of a wider appeal by wind industry players calling on European governments to auction at least 100 GW of new offshore wind between 2031 and 2040 using two-way CFDs.

To meet Europe's growing demand, annual offshore wind installations must reach 15 GW by the 2030s, WindEurope said in its April 10 policy appeal.

"But increased investment uncertainty, insufficient levels of electrification and high-risk auction frameworks put the commercial viability of projects at risk," the lobby group said. "Investor confidence is declining."

Capital shifting from US to Europe

The appeal is based in particular on arguments around energy security, something that EU Energy and Housing Commissioner Dan Jorgensen said is a key motivator.

At this point, EU buyers have spent more money on Russian energy since the beginning of the invasion of Ukraine than on support for Ukraine itself, Jorgensen said in Copenhagen, adding that energy independence remains a key focus of the commission.

"The best way to do this is fast deployment of new renewables," Jorgensen said.

In this, a US retreat from offshore wind under President Donald Trump presents opportunities for Europe, the commissioner argued.

"We would have preferred the US not to step back on offshore wind, but they are," Jorgensen said.

European offshore developers such as Orsted, RWE and Iberdrola were among the pioneers of the US offshore wind market, and have taken hundreds of millions of euros of impairments on their projects in recent months.

"A lot of money is coming back to Europe, so let's exploit that possibility," Jorgensen said.

'Challenging environment'

Orsted's Errboe noted that taking final investment decisions on new projects continues to be challenging due to higher costs, resulting in a growing need for CFDs to shore up visibility.

CFDs have become less widely used in auctioning offshore wind in Europe, but a growing number of unsuccessful bidding rounds -- most recently in Denmark in late 2024 -- have placed a renewed emphasis on such frameworks.

The Danish auction, which failed in part due to a lack of a support mechanism, "clearly showcased what a challenging environment we are taking decisions in," Danish Energy Minister Lars Aagaard said at the conference.

In a matter of two years, offshore wind has moved from being a "money tree" to a case for government support, Aagaard said, adding that in Denmark's next attempt at holding an auction round, the government "needs to take on some of the financial risk."

In Germany, which has an ambitious offshore wind auction schedule for the coming years, changes to the existing auction design are up for discussion as the new coalition government enters office, according to Volker Oschmann, director general for electricity at the German Ministry of Economic Affairs and Climate Action.

The German government will decide whether to introduce CFDs.

However, Oschmann noted that Germany had obligations to implement EU rules, such as those around electricity market design that focus on increased use of CFDs.

The department will start discussions about changes to Germany's offshore wind law in the coming year, Oschmann said in Copenhagen.

'Super profits' not the aim

In the absence of CFDs, developers of certain offshore wind projects in Europe have sought to sign private power purchase agreements, often with corporate or industrial offtakers.

Jerome Guillet, managing director at financial advisory firm Snow, described PPAs as a "regulatory failure."

Compared to state-backed CFDs, PPA counterparties offer weaker creditworthiness and deals result in slightly more expensive electricity, Guillet said during an April 9 panel discussion.

Meanwhile, penalties for non-delivery of projects should be higher, Guillet argued.

"You make a one-sided bet. If you win, you take it, and if you lose, you go cry to governments," Guillet said.

In 2023, Vattenfall canceled its plans to develop the 1.4-GW Norfolk Boreas offshore wind farm in the UK, reneging on a CFD contract awarded in 2022. The project, now owned by RWE, will be eligible to rebid in the UK's upcoming CFD round after being banned from the last two iterations.

CFDs should be seen as an enabler of cheap power for much longer than the duration of the revenue stabilization itself, according to Kevin O'Donovan, senior vice president and head of the UK and Ireland at Norwegian state-owned power producer Statkraft.

O'Donovan noted that the asset life of wind farms is stretching to 35 years and more, while CFD tenors tend to be less than half that.

As part of this, developers should be more transparent about the profit margins they are generating under CFDs. "It's not like people are trying to make super profits," O'Donovan said.

"We need to go back to boring," added Dominic Szanto, head of investment management at Canadian developer Northland Power Inc. "We need sensible, long-term returns."