Denmark Holds Lottery to Decide Largest Offshore Wind Farm Contract
The Danish Energy Agency took an unusual approach to award the contract for what is slated to be the country’s largest and furthest yet offshore wind farm. Under the terms of the original solicitation, the Agency said it would hold a lottery if it received multiple bids that largely met the same conditions and came from large wind developers. The completed process also set records as the first Danish project that will be built without state aid and where the developer will likely pay the government based on the price of electricity realized.
Denmark was selecting a developer for the Thor Offshore Wind Farm that will be located approximately 14 miles offshore. It is the first of three new offshore wind farms designated in the 2018 Danish Energy Agreement.
The tender process was unique in that it provided the ability to be flexible with a capacity between 800 MW and 1 GW and included the grid connection is included in the bid price. The contract was also offered with a fixed minimum price for electricity with the bidder agreeing to pay back the government to a total of $420 million when the wholesale price of electricity rises above the contract.
The Agency said that it had received multiple bids from majors in the industry believed to include Orsted, TotalEnergies, Vattenfall, Iberdrola, RWE, and others. According to the tender conditions, the concession was to be awarded to the bidder that offered the lowest bid price. If there were several bidders with the same low bids, the bidder with the largest wind farm capacity would win. If both bid price and wind farm capacity were equal, the tender would be decided by drawing lots.
In accordance with the tender conditions, the Danish Energy Agency determined that it must proceed with the lottery. The drawing of lots took place on December 1, 2021, with bidders invited to attend. The winner will receive a 30-year concession with the possibility of a five-year extension. The winner of the process was a company set up by Germany's RWE.
“The tendering for Thor Offshore Wind Farm is yet another milestone in the history of Danish offshore wind power. For the first time ever, the state must be paid for authorization to establish an offshore wind farm,” said the director general of the Danish Energy Agency, Kristoffer Böttzauw. “The competitive price in the tender is even more impressive because, for the first time, the winner bidder will also have to pay for the landing cables and grid connection. This is very promising for future tendering procedures for offshore wind energy and for the green transition.”
It is expected that Thor Offshore Wind Farm will produce electricity from about 2026. The wind farm must be completed under the terms of the contract by the end of 2027. The total investment for the development of this offshore wind farm is projected at more than $2.3 billion with the project slated to supply electricity to around 800,000 Danish households.