Denmark’s Offshore Wind Tender Failure and Its Implications
December 15, 2024
Denmark, a global leader in wind energy and home to the world’s first offshore wind farm, Vindeby (built in 1991), is facing a major setback in its offshore wind expansion efforts. The country's latest offshore wind auction, offering 3 GW of capacity in the North Sea, ended in December 2024 with no bids submitted—a significant blow to Denmark's energy ambitions and the European Union's broader renewable energy goals. This failure reflects challenges in Denmark's auction design, market conditions, and the evolving economics of offshore wind development.
Denmark’s Role in Offshore Wind Energy
Denmark is a pioneer in offshore wind energy, with a total installed capacity of 3 GW, providing 24% of the country’s electricity demand. When combined with onshore wind, wind energy contributes 55% of Denmark’s total electricity consumption. The EU, meanwhile, aims to expand offshore wind capacity from 20 GW today to at least 88 GW by 2030, making Denmark’s leadership in this sector crucial. As a member of the North Seas Energy Cooperation, Denmark has committed to achieving 7.7 GW of offshore wind capacity by 2030 and 35 GW by 2050.
In 2024, Denmark launched its largest offshore wind auction to date, offering three sites of 1 GW each in the North Sea, with the option to expand capacity by another 1 GW. These projects were expected to help Denmark meet its renewable energy goals and bolster its green electricity exports. However, the lack of bids in the auction represents a critical failure, with wide-reaching implications for Denmark and Europe’s renewable energy landscape.
Why Did Denmark’s Auction Fail?
1. Auction Design Flaws
The primary reason for the failed auction is Denmark’s unfavorable auction design, which differs significantly from systems used in other successful European offshore wind auctions in countries like Poland, the Netherlands, and the UK.
Uncapped Negative Bidding: The auction required developers to bid for the right to build wind farms, with no cap on how low the bids could go. This creates a “race to the bottom,” inflating upfront costs and making projects financially unviable.
Lack of Revenue Stabilization: Unlike other countries that use Contracts for Difference (CfDs)—a system that guarantees stable revenue for developers—Denmark provides no state support or revenue stabilization mechanisms.
Grid Connection Costs: Developers are required to cover the cost of connecting their offshore wind farms to the grid, further increasing financial burdens.
According to WindEurope CEO Giles Dickson, uncapped negative bidding raises costs and risks, discouraging developers. Dickson emphasized the importance of revenue certainty and fair risk allocation, both of which were absent in Denmark’s auction design.
2. Economic and Market Pressures
The auction failure also reflects broader economic pressures:
Inflation and Rising Commodity Prices: The costs of materials and labor for offshore wind projects have risen sharply in recent years, eroding profit margins.
Higher Interest Rates: Increased interest rates have made financing large-scale infrastructure projects more expensive, further complicating the economics of offshore wind development.
3. Uncertain Electricity Demand
Denmark already frequently generates 100% of its electricity demand from renewables, leading to uncertainty for developers about who will buy the energy produced by new wind farms. The slow uptake of electricity demand from mobility, heating, hydrogen production, and industry has made it difficult for developers to predict future electricity prices and revenue streams.
Implications of the Auction Failure For Denmark
The failed auction jeopardizes Denmark’s ability to meet its renewable energy targets, including its commitments under the North Seas Energy Cooperation. If unresolved, this could delay the country’s green electricity exports and renewable hydrogen production potential.
Denmark also risks losing its leadership position in offshore wind, a sector it has historically dominated. A second failed auction, such as the one planned for April 2025, would further weaken Denmark’s role in Europe’s renewable energy transition.
Implications of the Auction Failure For Denmark For Europe
The EU’s ambitious offshore wind targets depend on Denmark and other leading nations successfully expanding their capacity. A failure to meet these targets could hinder Europe’s efforts to enhance energy security, reduce reliance on fossil fuels, and achieve its climate goals.
Next Steps: Retendering and Reform
Denmark is planning a second 3 GW offshore wind auction in April 2025. To avoid another failure, the Danish government must make significant changes to its auction design. These include:
Introducing Revenue Stabilization Models: Adopting two-sided CfDs, as used in the UK and other European countries, would provide developers with guaranteed revenue, reducing financial risks.
Capping Negative Bidding: Establishing limits on how low bids can go would prevent developers from taking on unsustainable upfront costs.
Sharing Grid Connection Costs: Shifting the cost of grid connection from developers to the state could make projects more attractive and financially viable.
The Danish Energy Agency plans to consult with market participants to understand the reasons behind the lack of interest and explore potential improvements to the auction system.
Broader Market Challenges
The failed auction also highlights structural challenges facing the offshore wind industry, including rising costs and changing economic conditions. Developers across Europe are grappling with inflation, high
interest rates, and supply chain disruptions, all of which are putting pressure on project economics.
Conclusion
Denmark’s latest offshore wind auction represents a major disappointment for the country and the broader offshore wind industry. The failure to attract bids reflects flaws in Denmark’s auction design, broader economic pressures, and uncertain electricity demand. To regain its position as a leader in offshore wind and contribute to Europe’s energy security and climate goals, Denmark must act quickly to retender the lost volumes and reform its auction system. By addressing these challenges and adopting more developer-friendly policies, Denmark can restore confidence in its offshore wind market, attract investment, and continue to play a central role in Europe’s renewable energy transition.