Offshore Wind Has No Future Without Massive Subsidies and, Therefore, It Has No Future at All
Guest Post from the Institute for Energy Research.
Denmark’s decision to forgo subsidies for offshore wind has led to a lack of interest in its recent lease auction. In the latest tender, which opened in April 2024, there were no bids received.
The auction offered six sites in total, with a combined potential capacity of up to 10 gigawatts—three located in the North Sea and three in the Baltic and Kattegat Seas (the body of water between Norway, Denmark, and Sweden). The deadline for bids on the North Sea sites was December 5, 2024, while proposals for the Baltic and Kattegat sites are due by April 1, 2025.
Although there is still time for submissions for the Baltic Sea sites, the situation is clear—without subsidies, there is little interest. Offshore wind projects are financially unfeasible without substantial government support, especially given the increased costs driven by inflation, rising interest rates, and supply chain disruptions following the COVID-19 pandemic. According to Danish offshore wind developer Ørsted, offshore wind has an “unfavorable risk-reward balance.”
Analysts attribute Denmark’s lack of bids in its recent offshore wind energy to a rigid auction system, an inability to adjust to shifting economic conditions, and heightened competition. Without subsidies or guaranteed revenue, Denmark’s auction is less appealing to developers compared to similar offshore projects in Poland, the Netherlands, and the United Kingdom, where generous government support is available.
Denmark recently launched bidding for three sites in the North Sea, collectively known as North Sea I, located more than 12 miles off the Jutland coast and covering an area of over 53,000 acres. These wind farms were intended to be operational by 2030, contributing to Denmark’s goal of reducing carbon dioxide emissions by approximately 70% from 1990 levels by the end of the decade.
Bidders are required to propose the price they will pay the state for the right to develop the wind farms, with the agreement lasting for over 30 years. Denmark will hold a 20 percent co-ownership stake in the awarded projects.
The 10 gigawatts of offshore wind power from this initiative are expected to more than meet Denmark’s domestic energy needs, with surplus power either exported or used to produce hydrogen. According to the Danish government, the cost of building one gigawatt of offshore wind capacity is around 16 billion Danish crowns (approximately $2.27 billion).
As a pioneer in offshore wind, Denmark has a long history of harnessing its favorable wind conditions, launching its first offshore wind farm in 1991. The country currently operates 2.7 gigawatts of offshore wind power. Notably, RWE is in the process of building Denmark’s largest offshore wind farm, Thor, which will have a capacity exceeding one gigawatt and is expected to be operational by the end of 2027.
Denmark was also one of eight North Sea nations that reaffirmed a commitment to generate 120 gigawatts of offshore wind power by 2030, with a longer-term target of at least 300 gigawatts by 2050. Denmark’s own target is to reach 14 gigawatts of offshore wind capacity by 2030.
Denmark’s disappointing outcome in its offshore wind lease auction is part of a wider trend of setbacks in Europe’s offshore wind bidding. In early December 2024, a consortium of Shell and Norwegian energy companies Lyse and Eviny pulled out of Norway’s deferred floating wind auction for the 1.5 gigawatt Utsira Nord project.
Additionally, Mainstream Renewable Power and Ocean Winds withdrew from a partnership with the state-owned utility Statkraft for the same tender. Shell, once an enthusiastic supporter of offshore wind as a key investment area in the energy transition, also announced it would scale back its involvement in new offshore wind ventures.
Meanwhile, in Sweden, the government blocked the development of 13 offshore wind farms in the Baltic Sea and halted another project off the island of Gotland, citing concerns from the military about national security. The Swedish Armed Forces argued that offshore wind turbines in the Baltic Sea would interfere with the country’s defense capabilities.
The rotating blades and tower structures of wind turbines generate radar interference, potentially delaying the detection of incoming threats like cruise missiles. Specifically, the blocked wind farms were near the Russian exclave of Kaliningrad, a region heavily militarized and located between Poland and Lithuania. According to the military, the presence of these wind farms would reduce the warning time for potential missile strikes from several minutes to just 60 seconds.
Conclusion
Denmark’s recent tender outcome underscores the difficulties in achieving ambitious targets set by governments in the United States, Europe, and elsewhere for expensive offshore wind. President Biden has a goal for 30 gigawatts of offshore wind by 2030, but has had to cancel bids for a floating offshore wind tender in Oregon and received just one bid in the Gulf of Mexico for an offshore wind lease.
In Denmark’s recent tender offering in the North Sea, no companies offered bids, despite expressing interest initially.
It appears that high inflationary costs and high interest rates have caused companies to be wary, particularly when Denmark offered no subsidies.
The Danish government had hoped to build on its offshore wind success by offering sites without subsidies, encouraging competition, and lowering energy costs. Warren Buffett has famously pointed out that wind energy would not exist without tax credits, many of which his company benefits from using.
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Fiscal responsibility starts at the top. No more subsidies for any type of electricity production. None, zero, zip, nada!!!!
Do you have anything more to say other than the headline. All I can say is “ I hope you are right “ !!
However , ALL “ renewables “ require massive subsidies both to produce power and stop putting excess and unnecessary electricity into the grid.
It really is utter madness.
In Australia they get at least 4 sources of funding. And even our coal fired power stations have to be funded to stay operative and producing. However repairs are delayed due to the threat of shutdown. And those same power plants are owned by foreign owners and State governments who contract foreign players to maintain them.
It is such a hotch potch that it is a wonder it works. But it renders power to pull the plug at their ( foreign interest ) discretion whose motive is power and control.