German wind auction flop sparks fears for Miliband's UK sale

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4 days ago

A German offshore wind auction has received no bids after developers baulked at the low subsidies, just as Ed Miliband prepares to offer lucrative taxpayer support in Britain to avoid a similar flop.
The Federal Network Agency offered up plots in two areas of the North Sea, which authorities were hoping could host wind farms that would have opened in the early 2030s.
But the competition was snubbed by developers, with an industry association claiming the result was a 'clear message' that Germany's government needed to stump up more cash.
Stefan Thimm, of the German Offshore Wind Energy Association, said: 'The German offshore wind market is currently not attractive to investors. The federal government is thus missing the opportunity for significant value creation and employment in Germany and Europe.'
The failed auction came as Britain quietly launched its own similar auction on Thursday, with Mr Miliband, the Energy Secretary, expected to offer bumper subsidies to attract enough wind farm capacity to meet his clean power targets.
The German results underscored the difficulties being experienced by Europe's offshore wind industry, which has been buffeted by rising costs and interest rates in recent years. That has squeezed the profitability of projects, making them more reliant on top-ups from government subsidies.
However, the precise level of state support has proved a sticking point. Britain's own wind auction received no bids in 2023 after ministers initially refused to raise the subsidies on offer. They later backed down, with Mr Miliband overseeing a record £3bn of contract for difference (CfD) awards last year.
He has since reformed CfDs, which guarantee wind farm revenues, so that they last 20 years instead of 15. The costs are added to the bills of consumers, who will end up paying them until the 2040s.
This year's auction round in the UK, known as AR7 to the industry, is viewed as critical because it is the last time the Government can realistically attract new capacity in time for the 2030 clean power targets, given the time it takes to construct a wind farm.
Analysts at Bernstein said the auction held 'existential' importance for Mr Miliband's flagship policy and estimated that winning bids could pay at least £85 ($114) a megawatt-hour, up from £82 last year.
That is higher than wholesale power prices last year, which averaged £74 per megawatt-hour, and would mark the second time in a year that the price for offshore wind has risen.
Andy Mayer, an energy expert at the Institute of Economic Affairs, said he expected the British auction to 'go the other way' to its German equivalent.
He said: 'The straightforward reality for the wind market at the moment is that costs are rising – they are as affected by rising inflation as any other industry.
'So the myth that the price of renewables would always get cheaper, which existed between 2015 and 2022, has been blown apart.
'But in Britain's auction, I expect developers will fill their boots, because the politicians have decided that we must roll out a certain amount of wind power per year at all costs.'
Under Mr Miliband's clean power action plan, the Government is targeting 43 to 50 gigawatts of offshore wind capacity compared to about 15 gigawatts today.
However, the plans are opposed by Reform UK – led by Nigel Farage – which has threatened to scrap any contracts awarded to wind farm developers and slash net zero-related expenditure across Whitehall.
Richard Tice, the party's energy spokesman, wrote to energy companies last month to warn them of the Reform plan. He said: 'You should treat any long-term revenue streams as politically and commercially unsafe.'
Mr Mayer said reneging on the contracts would be hugely risky and might cause a collapse of business confidence in Britain.
However, he suggested the party may avoid the need to do this by simply introducing a windfall tax to claw back the revenues, something Mr Tice has also threatened in the past.
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