With a positive final investment decision in hand, utility EnBW Energie Baden-Württemberg AG's He Dreiht offshore wind farm in Germany illustrates the industry's transformational shift from government support to a complex blend of corporate offtakers and market exposure.

Six years have passed since EnBW secured the rights to the 960-MW offshore wind farm in a government auction that defied expectations at the time but has since become the market norm.

That offshore wind auction, Germany's first, selected four projects representing 1,490 MW of capacity, with EnBW winning its bid for He Dreiht on a zero-subsidy basis. Several subsequent German offshore wind auctions have also resulted in projects not requiring subsidies, as have auctions in markets like the Netherlands and Denmark. In some cases, bidders have had to draw lots to determine an ultimate winner, including in Germany.

Industrial giants

In 2017, EnBW said its decision to submit a zero-subsidy bid on He Dreiht took into account synergies with the company's nearby Hohe See and Albatros wind farms, technological advancements in the wind sector, and the project's economies of scale.

Completed in 2020, the 497-MW Hohe See and 112-MW Albatros projects feature 7-MW turbines. In contrast, He Dreiht will be among the first in the world to deploy a new 15-MW turbine developed by Vestas Wind Systems A/S, allowing EnBW to increase the project's capacity to 960 MW and ensuring it can fulfill its entire 900-MW grid connection.

Companies working to install He Dreiht will also be able to utilize a service hub in Emden, northern Germany, that was developed for Hohe See and Albatros.

The other major factor behind the project's viability is the suite of long-term power purchase agreements (PPAs) that EnBW has secured with several German industrial giants.

The company so far signed 335 MW of PPAs for He Dreiht with Frankfurt Airport operator Fraport AG, specialty chemicals company Evonik Industries AG, engineering and technology company Robert Bosch GmbH, and steel maker Salzgitter AG.

EnBW plans to gradually increase He Dreiht's contracted volume over the next couple of years, potentially going beyond 450 MW, but it "would like [He Dreiht] to have some exposure to the market, even in the mid and long term," company CFO Thomas Kusterer told analysts March 27 as EnBW reported its 2022 earnings.

In fact, the company made a "deliberate decision not to increase [this 335 MW] further at this point in time because our trading [division] is convinced that there will be ... even better times compared to what we were able actually to close the PPAs [at] in the near future," Kusterer said.

A spokesperson for EnBW said the marketing process for PPAs is "strongly opportunity-driven," but that the company is continuously looking for further sales opportunities.

Multiparty power deals

For now, PPAs account for just over one-third of He Dreiht's total capacity. Given the sheer size of offshore wind projects, such structures are increasingly common in the sector.

Ørsted A/S, for instance, plans to sell power from its 900-MW Borkum Riffgrund 3 wind farm in Germany to a host of corporates such as Amazon.com Inc., BASF SE and Alphabet Inc.'s Google LLC. Swedish utility Vattenfall AB also sold power from its 1,540-MW Hollandse Kust Zuid wind farm in the Netherlands to gas company L'Air Liquide SA and BASF.

But for sellers, more counterparties also mean more effort.

"Multiparty PPAs require a high need for coordination between the involved parties and represent a complex process," the EnBW spokesperson said in an email. "As the PPA market is not a liquid market and transactions are structured individually we believe that in the near future the market will increasingly develop via single-party PPAs."

As it stands, the market is not seeing limited liquidity for large PPA deals, according to analysts at market analytics firm Pexapark. "If anything, we are seeing characteristics of a sellers' market where corporate demand for PPA is larger than the availability of projects," the analysts said in a March 28 email.

Stake sale not too soon, company says

In tandem with the final investment decision March 23, EnBW agreed to sell a 49.9% stake in He Dreiht to a consortium of financial investors.

Under a deal expected to close in the third quarter, Allianz Capital Partners GmbH, Norges Bank Investment Management and AIP Management will each own an approximately 16.6% stake in the wind farm. While all three have stakes in other offshore wind farms in Europe, some analysts questioned the timing of EnBW's sale.

"We are not convinced that now is the best time to sell a stake in the project, with the buyer taking construction risk and price risk on the part of the output that it not covered by the PPAs," analysts at CreditSights said in a March 28 note to clients.

When questioned on this point, Kusterer said the timing of the sale is "perfect" from EnBW's perspective.

"Yes ... the investors are going to take the investment and construction risk. However, the market has evolved over the last couple of years and matured," the CFO said. "And we do not see a significant premium between today and the end of construction."

Therefore, having partners on board to share the capital expenditure during construction "made every sense in the world," Kusterer said.

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