A Turning Point for Offshore Wind Tender Signaled by Zero BidsDenmark Exploring the Redesign of the Tender Scheme

in Japanese

(originally published in Japanese on 8 May 2025)

While the discussions regarding the design of the tender scheme for offshore wind are actively underway in Japan, at the end of 2024, the offshore wind industry was shaken by the unprecedented outcome that no bids were submitted for a 3 GW commercial offshore wind tender conducted in Denmark, the birthplace of commercial offshore wind power.

The tender, which closed on 5 December 2024, covered three areas—A1, A2, and A3 of North Sea I—with a total capacity of 3 GW. This tender constituted the first phase of the Danish government’s plan to introduce at least 6 GW of offshore wind capacity by 2030. In response to the zero-bid outcome, Mr. Lars Aagaard, Minister for Climate, Energy and Utilities, instructed the Danish Energy Agency to engage in dialogue with the market, including interviews with the market players, to clarify the reasons why no bids were submitted.

This column will explore the characteristics of the tender announced in 2024, which incorporated numerous new elements compared with previous Danish offshore wind tenders, as well as the issues identified by the Danish Energy Agency following the zero-bid result through hearings with the market players and an analysis conducted by a private consulting firm commissioned by the Danish Energy Agency.

Offshore Wind in Denmark: the Background

In 1991, Denmark became the first country in the world to develop a commercial offshore wind farm at Vindeby (decommissioned in 2017). By 2023, approximately 90% of domestic power generation (including waste-to-energy generation) was supplied by renewable energy sources, with 2.7 GW of offshore wind capacity in operation¹. The Danish government has set a target of expanding total installed offshore wind capacity to 12.9 GW by 2030².

Figure 1: Composition of Domestic Power Generation in 2023¹

In Denmark, developers seeking to construct and operate offshore wind farms are required to obtain three licenses from the ministers³:

1. - License to carry out preliminary investigations
2. - License to establish the offshore wind turbines (only given if preliminary investigations show that the project is compatible with the relevant interests at sea)
3. - License to exploit wind power for a certain number of years, and an approval for electricity production (given if conditions in license to establish project are kept).

Successful bidders are granted a license to carry out preliminary investigations to supplement preliminary surveys conducted by Energinet, the Danish Transmission System Operator (TSO); however, winning the tender does not automatically guarantee the issuance of the other two licenses noted above. In the tender announced in 2024, the winning bidder was required to bear various costs, including costs related to preventive measures for military radio communications and radar surveillance, preliminary surveys conducted by Energinet, facility decommissioning, grid connection works, and development of the onshore Point of Connection (POC). Penalties are imposed in the event of project delays or non-compliance.

Track-record of Awarded Prices 2013-2021

The tenders conducted up to 2021 adopted a Contracts for Difference (CfD) scheme, under which the government compensates the difference between the awarded strike price and the market electricity price. The trend in awarded prices since 2013 is shown in Table 1, and in the most recent tender for the Thor offshore wind project in 2021, the project was effectively awarded at a zero premium. As a two-way CfD mechanism was applied—under which developers are required to pay the government when market prices exceed the strike price—the successful bidder ultimately is to pay DKK 2.8 billion (approximately JPY 68.75 billion, assuming DKK 1 = JPY 24.5) to the Danish government⁴.

Table 1: Awarded Prices Since 2013⁴

Tender Announced in April 2024

The new 6 GW-scale offshore wind public tender, announced in April 2024, was implemented under the following conditions⁵:

•  A minimum total capacity of 6 GW across six sea areas (three areas in North Sea I, Kattegat, Kriegers Flak II, and Hesselø)
• A maximum capacity of 1.2 GW for Hesselø; for other areas, a minimum of 1 GW, with no upper limit
• Tender deadlines of 5 December 2024 for the three North Sea I areas, and April 2025 for the remaining three areas
• An occupancy period of 30 years, extendable up to 10 years • No financial support or subsidies from the government; bidders were required to submit bids specifying the concession fee for the 30-year period
• The Danish state to retain a 20% co-ownership interest
• Requirements to ensure project sustainability and social responsibility, including the use of recycled materials in wind turbine blades and Life Cycle Assessment (LCA) of supplied electricity

As a result of the tender, no bids were submitted, and the initial 3 GW was effectively suspended. Consequently, the tenders for the remaining three sea areas, originally scheduled to close in April 2025, were also postponed. While awarded prices had steadily declined since 2013 in Denmark—reaching a zero-premium outcome and even resulting in payments to the government in 2021—the complete absence of bids in this tender highlighted the rapid and significant changes in the offshore wind business environment, raising fundamental concerns regarding the design of the tender scheme itself.

Following this outcome, under the direction of the Minister, the Danish Energy Agency conducted individual hearings with 17 developers and supply-chain companies. In parallel, the Agency commissioned a private consulting firm to analyze the reasons bidders refrained from participating, focusing on factors that negatively affected project feasibility. The results were compiled into a report and made public.

Why No Bid: Understanding Based on the Dialogue with the Market and an Analysis

All 17 companies interviewed assessed the wind conditions and seabed conditions of the three sea areas as favorable. However, they addressed that project realization was challenging due to increases in capital expenditure (CAPEX), operating expenditure (OPEX), and financing costs, as well as declining electricity prices in western Denmark (DK1)—where renewable energy penetration is already high—and uncertainty regarding the securing of offtake for electricity and hydrogen. Several stated that they had initially planned to submit bids but ultimately decided not to do so after considering these combined changes⁶. The consulting firm’s report estimated that these factors reduced project internal rates of return (IRR) by 3.1 percentage points⁷.

The increase in CAPEX was attributed primarily to cost inflation and tightening supply-chain conditions, particularly shortages of wind turbines, cables, and installation vessels due to many countries and regions setting offshore wind deployment targets toward 2030. The rise in financing costs was largely driven by higher interest rates⁶.

According to the report, compared with 2022 levels, costs at the time of the 2024 tender had increased by 40–45% overall, 35% for wind turbines, 40–45% for foundations and grid connection, and 30–40% for cables⁷.

Hearings also revealed that many developers regarded securing hydrogen offtake, in addition to electricity sales, as an important element for ensuring project feasibility. In addition to declining electricity prices, reduced profitability was attributed to slower-than-expected development of hydrogen demand not only in Denmark but also in Germany. Furthermore, in countries such as Denmark, where there are relatively few energy-intensive industries, it is difficult to hedge revenue risk through Corporate Power Purchase Agreements (CPPAs), which was identified as another negative factor for project bankability.

Moreover, the planned introduction of 6 GW of offshore wind capacity within a short period heightened concerns regarding future electricity price declines and uncertainty in price forecasts, making business planning more difficult. Such uncertainty was further exacerbated by the newly introduced over-planting scheme, which allows installation beyond the nominal capacity limit⁶.

The report noted that, in response to rising costs and deteriorating revenue outlooks, many developers raised the required IRR for investment decisions by approximately two percentage points. For example, RWE increased its required IRR from 5–9% in 2022 to 7–11% in 2024. In addition, with approximately 65 GW of offshore wind public tenders conducted globally in 2024, and with improved investment conditions in other sectors such as solar power generation and oil and gas development, alternative investment opportunities emerged, contributing to a decline in investment appetite for offshore wind⁷.

The market players interviewed proposed several measures to improve project feasibility, including increasing domestic electricity demand in Denmark in the short term, and many called for the reintroduction of Contract-for-Difference (CfD) scheme. With respect to project schedules, developers requested greater flexibility, suggesting that future tenders should set construction deadlines no earlier than 2032, and in some cases 2033 or 2034⁶.

Even Denmark—having introduced the world’s first commercial offshore wind farm in 1991, implemented tender scheme for many years, and successfully reduced awarded prices over the past decade—was unable to fully adapt its tender design to recent global changes in the business environment.

In Japan, work is also underway to revise the public tender guidelines for the future rounds of tenders. The developments observed in Denmark’s offshore wind tenders are likely to provide valuable insights for Japan’s future offshore wind policy design.