New auction designs
The new Offshore Wind Act distinguishes between two different types of auction designs. One for pre-investigated sites and another one for non-pre-investigates sites that will put up for auction under the amended regulatory framework.
Tenders for pre-investigated sites
The previous system of a central pre-investigation and subsequent auctioning of potential sites remains in place. There will be, however, certain adjustments to the current legal framework. It will no longer be the bid alone that determines success or failure of the bidder. Going forward, qualitative criteria such as the use of green electricity and green hydrogen in the production of the turbines, the conclusion of a power purchase agreement (PPA), compliance with nature conservation and species protection, as well as measures to train and secure skilled workers will become decisive. These qualitative criteria will already apply to the upcoming auctions in June and August 2023.
Non-investigated sites opened for developers
In order to satisfy the demand for further offshore development sites, bids will also be possible for areas that have not been pre-investigated.
In its first draft bill, the Government proposed to base the awards not only on the bidding value but also on other elements and a scoring system based on qualitative criteria. These criteria would’ve included factors like energy yield, PPA structure, the sound impact associated with the foundation technologies used, as well as the sealing of the seabed, and the recyclability of the rotor blades.
Dynamic tenders for non-investigated sites
However, this scoring system did not make it into the final bill. In contrast, the Offshore Wind Act will provide for a dynamic tender procedure and a so-called "second bid component". If more than one bidder has submitted bids for an area with a bid value of 0 cents per kilowatt hour, the Federal Network Agency will conduct another bidding round for this area.
In this dynamic tender procedure, bidders will be requested to show their willingness to pay for the award. It will consist of several bidding rounds with ascending bidding levels. In order to advance to the next bidding round, bidders must, within the bid submission deadline, agree to a set bid value by submitting a bid for the payment of a second bid component in the amount of the bid value. If several bidders agree to the bidding stage, a new bidding round begins in which only these bidders participate. This procedure will be continued until only one bidder remains which will be awarded.
Changes to Easter Package: No CfD
In the initial draft proposed by the German Government (the so called Easter Package), it was intended to introduce Contracts for Difference (CfD) in Germany. In many other countries, this principle has already been successfully applied. The CfD system has been dropped late in the legislative process.
Adjustment of planning and approval procedures
The legislator also implemented changes in order to streamline the planning and approval procedure for new offshore wind farms. For pre-investigated sites, the planning approval procedure (Planfeststellungsverfahren) shall be replaced by the faster planning permit procedure (Plangenehmigungsverfahren). Environmental impact assessment and participation rights of the public will be bundled to a greater extent. Once granted, the permit will be temporarily limited to 25 years. Unlike in the past, it cannot only be extended by five years but also by ten years.
Safeguarding German security interests
In recent years, the legislator has already tightened foreign investment rules in order to safeguard German interests against potentially threatening acquisitions of undertakings. The Offshore Wind Act further tightens the authorities' opportunity to intervene: In agreement with the Federal Ministry of Economics and Climate Protection, the Federal Network Agency (being responsible for the auction) may exclude a non-EU bidder or a bidder with direct or indirect non-EU shareholders if its award or the operation of the offshore wind farm is likely to endanger German security interests.
Implementation of the amendments depends on approval by the EU Commission
The recent changes are subject to state aid approval of the EU Commission. If clearance is obtained, the changes shall enter into force on 1 January 2023.
Authored by Alexander Koch and Malte Neumann.
