The failure of Denmark’s recent offshore wind tender has highlighted the economic challenges currently facing the offshore wind sector, according to Oskar Ernst, a consultant at Green Power Denmark, in an interview with Energía Estratégica España. The auction, which aimed to attract investment for 3-6 GW of capacity, received no bids, despite the positive track record of previous projects such as the Thor offshore wind farm in 2021.

“Developers cite macroeconomic factors as the main reason for this situation. Rising costs of components, materials like steel and cement, along with increasing inflation and higher interest rates, complicated the financial feasibility of these projects,” Ernst explains.

Economic and strategic hurdles: a perfect storm

Denmark, renowned for its leadership in renewable energy, is facing an uncertain landscape. Global demand for renewable energy components, particularly for wind farms, has surged, driving up costs due to limited supply. According to Ernst, other European markets, such as the UK, Belgium, and the Netherlands, have offered more favourable conditions for developers, diverting investment from Denmark.

Another significant challenge was the uncertainty surrounding demand and the framework for exporting surplus electricity generated by the new wind farms. Denmark, with limited domestic consumption capacity, plans to export this energy either as electricity or in the form of green hydrogen. However, the infrastructure to enable this export, such as the hydrogen backbone to Germany, was not fully ready before the tender deadline. “This created doubts among investors about the viability of their projects,” Ernst points out.

New models and lessons for the future

In response to recent challenges, Green Power Denmark is advocating for a phased approach to rethinking tender models for wind energy deployment post-2030. The first step involves re-tendering 1–3 sites with a revised risk allocation between developers and the state. Under this model, these sites are expected to supply electricity directly to the domestic grid, which justifies the state assuming a larger share of the associated risks. The specifics of this reallocation are being refined through ongoing market dialogue, set to conclude by January 2025.

The subsequent stage will focus on introducing entirely new tender models. One option under consideration is the direct connection of Danish wind farms to high-consumption markets, such as Germany, bypassing the Danish grid to lower costs and streamline timelines. Additionally, decentralised licensing models, inspired by practices in the oil and gas sector, could allow developers to conduct preliminary investigations and enjoy more flexibility in project design.

“What we need is a new allocation of risks between developers and the state, but this requires ongoing dialogue with the market,” Ernst explains. By carefully sequencing these steps, Green Power Denmark aims to create more competitive conditions for future tenders and lay a robust foundation for Denmark’s renewable energy ambitions.

Denmark’s energy market in perspective

Denmark has been a pioneer in transitioning to clean energy sources, with 50% of its electricity coming from renewables in 2022. However, growth in the onshore wind sector has stalled, with only one new commercial turbine installed in 2023.

In this context, the National Energy and Climate Plan (NECP) outlines ambitious goals for the country’s energy transition. Key objectives for 2030 include a 70% reduction in greenhouse gas emissions compared to 1990 levels and achieving a 55% share of renewables in final energy consumption.

The NECP also envisions substantial expansion of offshore and onshore wind capacity as a cornerstone for meeting these targets. However, the recent tender’s failure underscores the need to adjust strategies to ensure the plan’s objectives remain achievable.

A challenging but promising path

Despite this failure, the Danish government remains committed to maximising its offshore wind capacity. “The Climate Minister, Lars Aagaard, put it clearly: yesterday we wanted more offshore wind; tomorrow we will still want it,” Ernst affirms. The goal remains to exploit every viable site to contribute to energy security and Europe’s climate objectives.

“The future of wind energy in Denmark is bright, but the path to unlocking its potential will be more challenging than expected,” Ernst concludes, emphasising the importance of a collaborative and strategic approach to overcoming these obstacles.