Offshore renewable energy sources, in particular those based on wind technology, are currently recognized internationally as having the greatest untapped potential to reach ambitious climate goals and are expected to play a central role in the energy transition of Portugal in the years to come.
The Portuguese Government has approved the following instruments to enable the development of offshore technologies, one of the priorities of the country's strategy to decarbonise the economy
The year 2023 started with positive news, with January being the month where a preliminary proposal of the specialised areas for implementation of offshore wind renewable projects, prepared by the above-mentioned working group, was submitted to public consultation. However, it was in May that a decisive step was taken regarding offshore wind auctions, with the official announcement, by the Secretary of State of Energy, that the first offshore wind auction should be launched by the end of September this year.
It was also on the 31st May that the working group has published the report that should define the most important elements of the auction announced.
According to the information released so far, these are the main features of the Portuguese offshore wind auctions:
Several international market agents have already shown interest in developing offshore wind projects in Portugal, and some Portuguese companies have already signed partnership agreements to jointly explore potential opportunities in the context of the first auction to be launched by the Government.
The interest already shown is expected to increase as soon as the report of the working group, delivered to the Government on 31 May, is released.
In fact, this report should clarify crucial aspects of the auctions, such as the (i) auctions schedule and concrete date of launch, (ii) the way of awarding the titles and the design of the procedure, confirming whether an electronic bidding phase will be adopted, as in previous solar auctions, and if the winners will be required to conclude, with the port administrations, concession contracts, (iii) how the injection of the produced electricity into the grid will be remunerated by the government and its duration, (iv) the value of the guarantees to be provided to the Portuguese State, (v) how the port infrastructure will need to be reinforced to enable the production, storage, maintenance, and ultimately the decommissioning of the components necessary for the construction of the wind farms, and (vi) what environmental requirements will be imposed on the projects.
With the country eager for offshore wind energy, it is hoped that this report will not be late in coming out.
On 12 July 2023, the German regulator Bundesnetzagentur announced the outcome of its biggest offshore wind auction ever, where 7 GW of new capacity in the German North and Baltic Sea was awarded. The successful bidders paid an aggregate amount of EUR 12.6 billion for the entitlements to build the offshore wind farms. Furthermore, on 10 August 2023, the German regulator Bundesnetzagentur announced the outcome of the second offshore wind auction with a new capacity of 1.8 GW in the German North Sea. In this auction, the successful bidders paid an aggregate amount of EUR 784 million. The second auction adopted a different regime to the first auction, as it also comprised qualitative criteria such as the decarbonisation of offshore development and the use of environmentally friendly foundation technologies.
The outcome of both auctions shows the high level of interest in the market in offshore wind assets. However, the outcome is also highly disputed in Germany. Main concerns, especially with regard to the first auction, are that some bidders may have only reserved the sites and may come back to the German government asking for financial support should their financial expectations not be realised.
On 8 September 2023, the UK Government announced that zero offshore capacity was awarded in latest auction as no developers showed interest in the auction. The auction was based on a contract for difference (CfD) scheme including a price cap of GBP 44 per MWh. Developers were of the opinion that with this cap it was impossible to recover their investment costs and therefore no bids were submitted.
The Netherlands has a substantial history of tender processes for offshore wind parks, and it aims, with each tender round, to increase requirements such as ecology and system integration. It has recently issued a new tender round following which bids are expected at the latest by 28 March 2024.
Under the tender scheme, the Dutch government provides the bidders with information on the sites that are up for tender. The bidders have to submit a bid that contains qualitative requirements together with a financial bid. This allows the government to set minimum criteria that have to be met such as the above mentioned ecology and system integration requirements. One interesting difference with the previous tenders is that the amount of the financial bid is significantly increased, from EUR 50 million up to EUR 420 million. This amount is payable by the developer each annum.
Several developers have shown interest, 28 March 2024 will show whether the tender will be successful.
This article is a collaboration between Bird & Bird and Servulo and will be part of a series of informative pieces on the offshore wind sector in Portugal as it gears up for investment over the coming months. If you have any queries regarding your involvement in the offshore wind sector in Portugal, please get in touch with the authors: Sophie Dingenen and Lars Kyrberg at Bird & Bird and Mark Kirkby and Isabel Guimarães Salgado at Sérvulo.