Belgium – WindEurope reports that a number of governments are considering using ‘negative bidding’ in their wind energy auctions to force companies to pay them for the right to develop a new wind farm.
When renewable energy auctions first began, the idea was that governments would provide some form of financial assistance to project developers. The Contract for Difference is the most common type of support now, in which governments pay developers when the market price is lower than the auction price, but developers pay governments when the market price is higher. That is a good system: it is cheap for governments – and cheap for society because it ensures stable revenues and thus reduces finance costs.
Some governments have begun to use “zero-bid” auctions, in which wind farms earn only the market price of electricity. It sounds cheap, but it means higher financing costs because banks are less willing to lend when revenues are not stable. The same issue exists with “negative bidding.” It imposes additional costs on wind farms, which must then be borne by society.
Negative bidding in Europe
Negative bidding was used in Denmark’s most recent offshore wind auction for the Thor wind farm. The winner will pay the government €375 million to develop the project. In their current offshore wind auction, the Netherlands is inviting bidders to pay €50 million – failure to do so will result in a lower score. Germany, inspired by Denmark, is now considering implementing negative bidding for some of its new offshore wind auctions.
Governments may be tempted to profit in this manner. However, they must keep in mind that negative bidding imposes additional costs on those developing wind farms, which must be passed on to someone. They either pass them on to customers as higher energy bills. They may also pass them on to their suppliers because they have less money to pay for the turbines.
Reasonable lease
Higher energy bills are the last thing that consumers want. Or at any time, not least when they’ve been told renewables are inexpensive and will help them save money. And more cost pressure is the last thing Europe’s turbine manufacturers want: all five are currently operating at a loss, owing to rising input costs and supply chain disruptions. Governments should support Europe’s wind energy supply chain rather than adding to its woes.
It’s one thing for governments to charge wind farm developers a reasonable lease for the seabed space they use once the wind farm is operational and profitable. However, negative bidding imposes immediate costs on developers while they are building the wind farm, sinking money and earning nothing.
