Germany Onshore Wind Auction Fetches ‘Unexpected Low’ Price

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Germany’s first competitive wind power auction under its new feed-in tariff regime has defied expectations by delivering an average bid price of just 5.71 Euro cents.

The country’s Federal Energy Network Agency – or Bundesnetzagentur – announced on Friday it has accepted 70 bids totalling 807MW from onshore wind projects, ranging from €0.042 to as high as €0.0578 per KWh.

The auction had attracted as many as 256 bids totalling more than 2GW of installations, with a significant proportion coming from civil society energy companies, the Agency said.

“The first tender for wind farms was successful, with a pleasingly high level of competition allowing an average surcharge of 5.71 cents”, said Jochen Homann, president of the Federal Network Agency.

It follows Germany’s first offshore wind auction last month, which also fetched an average bid price far below expectations at €0.44 per KWh, with experts suggesting at least one of the succesful projects could deliver subsidy-free power.

Klaus Baderhead, head of European energy at law firm Norton Rose Fulbright, said that while onshore wind bidders would have planned for significant pressure on the auction price, few expected an average bid price below six Euro cents.

He said the resulting average price would have “an enormous impact on the economics of a wind farm”, potentially giving impetus for project takeovers from manufacturers, developers and investors.

“For an investor to achieve the same equity internal rate of return level of say five per cent, the total price of a standard German onshore wind farm will need to be reduced by about a third,” explained Baderhead. “This difference has to be shaved off somewhere, whether that is through a reduction of the developer margin, turbine price, cost of operation or financing costs. Otherwise an investor fundamentally has to accept lower returns on their investment.”

The auction provides the latest evidence that onshore wind farm costs are continuing to fall and are frequently able to undercut the cost of building new gas power capacity.

The news came in the same week as Spain’s first renewable energy auction in three years delivered 3GW of projects at a new European record low price of €43/MWh.