Wind

Billion-dollar danger to energy island dream after Danish wind tender flop

Concession payments from offshore wind tenders were supposed to part-finance transmission link from planned Bornholm energy island to Denmark's main power grid

Denmark's Bornholm Island.
Denmark's Bornholm Island.Photo: NurPhoto/Corbis via Getty Images/Corbis via Getty Images
European Editor, Recharge
The flop last week of a 3GW Danish offshore wind tender and doubts about the next auctioning round could endanger the financing of another huge Danish infrastructure project, the Bornholm energy island, Recharge has learned.
Denmark’s parliament in 2020 decided that the Baltic Sea island of Bornholm would be turned into an ‘energy island’ linked to two offshore wind farms with a joint capacity of 3GW or more, which Orsted and Copenhagen Infrastructure Partners (CIP) have already said they plan to build.
The power should then be transported via high-voltage direct current (HVDC) cables to the Danish island of Zealand, where the capital Copenhagen is located, and Germany, two of the countries’ transmission system operators – Energinet and 50Hertz – agreed the next year.

The energy island is also supposed to host innovative energy storage and power-to-x facilities, as well as act as a hub for green fuels in the Baltic Sea.

As part of a broader agreement on additional offshore wind, the Danish government and opposition parties last year decided to hold tenders for a next batch of 6GW of new wind capacity at sea, to be built by 2030. The political agreement included a stipulation that receipts from concession payments from the offshore wind tenders would part-finance the energy island.
“The contracting parties agree that the total expected revenues from the tenders of the 6GW will be used to finance any support for Energiø Bornholm during the 20-year support period. The revenues from the tenders for the 6GW that are paid in for the remaining 10 years will then go to the future margin,” the 2023 agreement seen by Recharge stated.

The sum of DKr17.6bn ($2.48bn) would need to be set aside for the transmission link of Bornholm to Zealand, it was said at the time (Germany will have to pay for its own power link to the German mainland).

Out of the total support budget DKr8.7bn, or roughly half, was supposed to be financed through the expected concession payments from the six offshore wind sites auctioned in 2024 and 2025.

But the flop of last week’s 3GW tender of North Sea wind power sites now puts Denmark’s financing plans for the Bornholm energy island on shaky grounds, even more so as there seems to be a common consensus that the second part of the 6GW tender will likely also fail.

Denmark has already started the auction for 2.8GW of Kattegat Strait and Baltic Sea offshore wind sites which will close on April 1, 2025. The three sites on offer are seen as less attractive than the flopped North Sea sites, while tendering conditions that have been deemed unattractive by the sector, remain the same. Even if there will be bids in the currently ongoing auction, getting €1.2bn in concessions seems very high, experts have said.

The 2023 political agreement also states that in case of a financing gap, alternative financing needs to be found. But it is unclear at this point what that may look like, and it would likely once more involve a lengthy political process of negotiation between the government and the opposition.

Asked by Recharge how alternative financing for the energy island could look like, a Danish energy ministry official said: “It was expected that the North Sea wind farms could contribute to the financing of the Bornholm Energy Island.

“However, as a consequence of the result of the tender, this will not be the case,” the official said.

“The way forward, including the question of financing, will be a part of the process to come with the political parties behind the political agreement."

The financing is likely complicated further by the fact that support estimates have gone up as a revised profitability assessment performed by the Danish Energy Agency recently showed a need DKr31.5bn in support as part of a central scenario – almost double the sum that was still expected in 2023.

Denmark earlier this year due to problems in obtaining financing had already postponed plans for another energy island, an artificial one in the North Sea, pushing its expected completion date by three years to 2036.
(Copyright)

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Published 16 December 2024, 10:23Updated 16 December 2024, 10:23
EuropeDenmarkGermanyOffshore windTechnology