Successful Danish offshore wind tender proves that CfDs deliver competitive bids

Denmark held a successful offshore wind auction for two sites with a total capacity of 1.8 GW. It shows that auction design matters. The last Danish offshore auction came with uncapped negative bidding. It failed to attract any bidders. This auction round had an improved auction design, offering two-sided Contracts for Difference. It provided developers with the visibility and risk allocation they need to invest in offshore wind.

The Danish Energy Agency has announced the results of Denmark's latest offshore wind auction. Two sites were up for tender: the 1 GW Nordsøen Midt site and the 800 MW Hesselø site. Together they will provide enough green electricity to power 1.8 million Danish homes. Denmark already covers 24% of its electricity demand with offshore wind.

Delivering on the North Sea Summit

"At the North Sea Summit in January, Governments firmly committed to de-risk offshore wind projects and to provide more investment security. Contracts for Difference deliver just that. They reduce financing costs and realisation risks. They help Governments to get competitive offshore wind bids - at a time when homegrown electricity is urgently needed to strengthen energy security, boost electrification and ensure industrial competitiveness", says WindEurope CEO Tinne van der Straeten.

But Europe is not doing enough to deliver on the North Sea Summit. Europe's wind energy value chain has sufficient manufacturing capacity to ramp up the build-out of offshore wind today. It urgently needs more auctions as well as improved visibility on future volumes.

Comeback after failed auction in 2024

The last Danish offshore wind auction in December 2024 had failed to attract any bidders. This had been the result of poor auction design: no form of state support or revenue stabilisation paired with uncapped negative bidding, which creates an unhealthy race to the bottom and unnecessarily increases upfront costs for offshore wind developers.

The Danish Government has since adapted its offshore wind auction design to market realities. For this auction round, they introduced two-sided Contracts for Difference (CfDs). CfDs provide developers with the risk allocation and visibility on returns they need to invest in offshore wind.

The improved auction design led to two oversubscribed auction rounds: Nordsøen Midt received two bids, while Hesselø attracted five. Swedish offshore wind developer Vattenfall won both sites, with bids of €67.42/MWh for Nordsøen Midt and €72.50/MWh for Hesselø, respectively. They will receive capability-based CfDs for 20 years.

"The results add to a long list of examples that prove: CfDs deliver competitive, homegrown electricity at very low prices. Denmark should make CfDs the standard for all future auctions. And they should critically review their current auction schedule. Denmark's industry is getting ready to electrify. And neighbouring countries crave Danish electricity exports. There's plenty of merit in bringing their 2028 auction round forward.", says Tinne van der Straeten.

Background:

At the North Sea Summit in Hamburg, Governments committed to a coordinated and steady buildout of offshore wind across the North Seas, collectively deploying 15 GW of offshore wind annually over 2031-2040. The wind industry, in return, pledged to drive down the costs of offshore wind by 30% towards 2040 compared to 2025 levels. This cost reduction will be driven by scale effects, lower costs of capital and further industrialisation underpinned by clarity and visibility on the project pipeline. Transmission system operators, among other things, pledged to identify the potential for cross-border projects in the North Seas.

Denmark can become the global frontrunner for cross-border projects. These projects connect wind farms to more than one country and act as interconnectors as well as wind farms. To deliver on this promise, Denmark needs to offer more long-term visibility. The Danish Government has not committed to making CfDs a permanent feature of upcoming offshore wind auctions. And its next offshore wind auction is only planned for 2028, threatening the ramp-up of its local offshore wind supply chain.