Germany has been a front runner in the offshore wind sector, pioneering “zero subsidy” bids in 2017 and running a 2023 auction that generated world-record seabed fees, as well as setting itself ambitious targets. Besides the “traditional” developer countries like Germany and the UK, an increasing number of countries in Europe and globally are contemplating offshore wind. While interest in the German and European offshore wind sectors continues to be strong, the market conditions for investments have become more difficult, especially due to supply chain bottlenecks and increased project cost.

Consequently, public and private sector actors are facing a variety of risks and challenges for achieving the intended offshore wind expansion targets in the near- to long-term. In a report for Agora Energiewende, NERA breaks down key issues the sector is facing and analyzes the current challenges and the state of debate regarding possible solutions.

• The German auction design encourages option-based bidding, which increases the risk of project termination before the final investment decision (FID) and thus threatens the achievement of the expansion targets and increases uncertainties for the supply chain.
• In connection with option-based bidding, the uncapped negative bid component in the German tender regime has the potential to increase green PPA prices for the industry.
• The expansion of the supply chain for both offshore wind and grid connections, as well as port capacities necessary for the offshore wind expansion until 2030, is not (yet) gaining sufficient momentum across Europe, necessitating further instruments.
• The implementation of EU provisions on electricity market design and renewable energy subsidies (NZIA) is an opportunity to review whether the current system provides the right trade-off between financing cost and market integration. It is also an opportunity to review the design of non-price criteria and their ability to provide incentives for innovation, local supply chains, and deliverability.
• The political and regulatory framework for an international meshing and cross-country offshore wind connections (including hybrid interconnectors) is in the early stages and in need of development in a way that works for grid operators, offshore wind developers, and other stakeholders.
• A consistent regulatory framework and long-term, strategic perspective for offshore hydrogen production is currently missing, reducing options for alternative usage of offshore wind energy.

In the final chapter, Agora Energiewende presents various short-, mid-, and long-term measures to mitigate and overcome these challenges.

The full report (published in German) is accessible here.