The lesson Germany must learn from failed offshore wind tender

In a capital-intensive industry where costs are front-loaded, any uncertainty in revenue directly drives up financing costs and can make projects unviable. Even in a market with strong corporate interest and technological capabilities, developers will hesitate if revenue certainty is insufficient.

That risk became evident in Germany's latest offshore wind auction round, which relied on negative bidding, where developers pay the government for the right to build and operate a wind farm, rather than receiving subsidies. This differs from traditional auctions, where developers compete for the lowest subsidy or the most favorable revenue terms. In essence, the developer ends up paying the government for the privilege of developing the project.

Investors don’t care about privileges; they care about returns, a reality underscored by the zero bids received in the auction. Beyond the drag of negative bidding, the real sticking point lies in the difference between contracts for difference (CfDs) and power purchase agreements (PPAs).

CfDs offer a state-backed minimum price over roughly 15 years, giving lenders the confidence to provide cheaper debt at higher leverage. PPAs, even with reliable buyers, leave developers exposed to counterparty risk. While a 15-year deal with a triple-A–rated buyer would be nearly risk-free, such deals are rare. Without government backing, revenue confidence falls short of what CfDs provide.

Germany’s auction amplified this risk by partly evaluating bids based on the share of electricity sold through PPAs, supported by non-binding memorandums of understanding.

Developers now face the dual challenge of securing buyers years in advance while navigating volatile power prices and increasingly selective offtakers. Large corporate buyers can pick and choose among multiple projects, often pushing for shorter tenors, stricter delivery obligations, or terms that shift risk onto developers. The result is a more complex and costly process, which may deter even experienced developers from bidding.

CfDs also offer a simplicity advantage. In an auction, the strike price is set: If developers can deliver at that level, their bid stands. PPAs require months of negotiations with a shrinking pool of potential buyers, while market and cost conditions continue to fluctuate. Developers must invest significant time and resources securing contracts that may ultimately fail to deliver the anticipated revenue, creating friction and delaying project timelines.

Chinese turbine uncertainty likely put off bidders

Site quality added another layer of hesitation. The auctioned locations had lower generation potential due to wake effects from nearby wind farms, which can reduce wind speeds and energy production. Weaker wind speeds have already affected revenues for developers like RWE and Orsted, signaling that low-yield sites carry higher financial risk.

For companies with large existing portfolios in Germany, the limited upside may have outweighed the effort of bidding. Legacy oil and gas players with offshore wind positions, such as TotalEnergies and BP, may have also prioritised shareholder returns in their core business over low-potential sites, while utilities like RWE, Vattenfall and EnBW may have hesitated due to site limitations and portfolio management considerations.

These concerns, coupled with tighter financing conditions for smaller players, illustrate how regulatory ambiguity can have outsized effects on developers with less capital flexibility.

Developers who might otherwise have bid in Germany may have shifted focus to the UK, prioritising lower-risk projects over uncertain returns in Germany. The commissioning timelines of UK AR7 and the two German sites that failed to attract bidders – N-10.1 and N-10.2 – overlap, further encouraging companies to choose the safer, more lucrative UK market over German projects with uncertain returns.

Beyond individual project economics, the auction underscores a broader lesson for policymakers: Revenue risk matters as much as turbine technology or site quality. If Germany wants competitive auctions with multiple bidders, it must address this risk directly.

CfDs are not a cure-all, but they reduce uncertainty, broaden the financing pool and allow developers to focus on building turbines rather than chasing elusive contracts. In contrast, over-reliance on PPAs, without state-backed guarantees, shifts risk to developers and may inadvertently stifle market participation.

The recent German auction is a case in point. It is not merely a story of low participation; it is a reminder that even in a technically mature market, perceived financial risk can determine whether projects get built.

For Germany to maintain its offshore wind ambitions, policymakers must ensure that revenue mechanisms are robust, clear and aligned with market realities. Only then can offshore wind continue to expand efficiently, attracting both large and medium-scale developers and supporting Europe’s broader energy transition.