The offshore wind sector is at a crossroads, and the head of RWE’s offshore wind business, Sven Utermohlen, has issued a stark warning to governments: auctions alone do not guarantee success. Speaking at WindEurope, Utermohlen challenged the prevailing narrative that successful allocation rounds equate to a thriving offshore wind industry. He argued that the true measure of success is whether projects reach a final investment decision (FID).
Utermohlen didn’t mince words, stating, “I want to pour a little water into the wine” on the notion of successful auctions. He asserted that without FID, auctions are merely theoretical exercises. His skepticism stems from the current economic realities facing the sector. High supply chain costs, increased capital expenditures, and merchant risks are making many business cases unviable. This is not just a theoretical concern; it’s a practical issue that’s already causing problems. Some auction rounds are failing to attract bidders precisely because the business cases don’t stack up.
The implications of Utermohlen’s remarks are significant. If governments continue to rely solely on auctions, they risk creating a pipeline of projects that never materialize. This would be a missed opportunity for both the energy transition and economic growth. Moreover, it could lead to a situation where governments are forced to intervene to rescue stranded projects, further straining public finances.
So, what’s the alternative? Utermohlen advocates for a shift to Contracts for Difference (CfDs). CfDs provide a more stable revenue stream for developers, mitigating some of the risks associated with high costs and market volatility. This could make the business case for offshore wind more robust, encouraging investment and ensuring that successful auctions translate into operational wind farms.
However, the transition to CfDs is not without its challenges. It requires a significant shift in policy and could face resistance from those who favor market-based solutions. Moreover, it’s not a panacea. CfDs must be designed carefully to balance risk and reward, ensuring that developers are incentivized to drive down costs and innovate.
Utermohlen’s comments should serve as a wake-up call for policymakers. They need to look beyond the headline figures of successful auctions and focus on the real-world challenges facing the offshore wind sector. They need to ask themselves: are we creating a pipeline of projects, or a pipeline of problems? The answer to this question will shape the future of the offshore wind industry and, by extension, the global energy transition. It’s time for governments to get real about offshore wind and take bold action to ensure that successful auctions translate into operational wind farms. The future of the energy transition depends on it.