In the following interview Karina Würtz, Managing Director German Foundation Offshore Wind, assesses the renewables targets formulated by the German Federal Government and tells about her own visions for the Foundation.
REH: As the German Offshore Wind Energy Foundation, what do you think about the current round of offshore tenders initiated by the Bundesnetzagentur (Federal Network Agency) in late January and late February 2023?
Karina Würtz: “We are eagerly awaiting the results, of course. Following its record tender for 7,000 MW for so-called non-centrally pre-inspected areas in January, the Bundesnetzagentur has now issued further tenders for 1,800 MW for four areas that have been pre-inspected by the central approval and planning authority, BSH (Federal Maritime and Hydrographic Agency). So almost 9,000 MW in total. For comparison purposes, there are currently 28 offshore wind farms with an output of approx. 8,100 MW in operation in the German sectors of the North and Baltic Seas. According to the German government’s plans, the total output is to be expanded to at least 30,000 MW (30 GW) by 2030. So an additional 22 GW in eight years, after 8 GW in 12 years. Most of this in 2029 and 2030. That is going to be a huge challenge.
The tender design is at the heart of the Offshore Wind Act that was amended last year and is the single most important law for the offshore wind sector in Germany. The tender results will reveal just how resilient, attractive and future-oriented this concept is. However, we assume that there will be subsequent adjustments in important areas. For example, within the German Federal Ministry of Economic Affairs and Energy and among experts there are already discussions about the structure of what’s known as an industrial electricity pricing mechanism, which could be used for the centrally pre-inspected areas and would replace the current design in this segment. This is going to be a fascinating and controversial discussion – one that affects the entire renewable energy sector – as the current proposals could create a competitive situation for the direct Power Purchase Agreement (PPA) market that has struggled to evolve in recent years. This is particularly important for large commercial and industrial power consumers such as Deutsche Bahn and BASF, as it means they can purchase electricity at guaranteed prices over the long term. The upcoming debate alone is already creating uncertainty.
Moreover, the qualitative criteria currently used for the centrally pre-inspected areas could also be replaced. These were the subject of major controversy last year. There was and is widespread dissatisfaction in the industry with their design. Here too, we as a foundation would have preferred a more courageous approach and a willingness to use these in a targeted manner to promote innovation, as happened in the Netherlands, instead of relying solely on simplicity and legal certainty. This no longer existed anyway, following the last-minute changes in the parliamentary procedure. We missed an opportunity there, with the introduction of a carbon footprint criterion for the transportation of large components, for example.
‘Monetary components’ play a crucial role in both tender segments, i.e. the contract is awarded to whoever is willing to spend the most money. We take an extremely critical view of this. Firstly, there is a risk that project developers will choose or be compelled to pass on the payment pressure from the tenders to the supply chain, thereby exacerbating tensions. Secondly, since the onset of the war in Ukraine and with the tensions in the Indo-Pacific region, we’ve seen growing uncertainty in international supply chains and sharp price rises for materials and commodities. Furthermore, with unchanged production capacities for assets such as ships, turbines and foundations, there are signs that demand will exceed supply in a few years’ time, while project developers are ‘under pressure’ from tight implementation deadlines and high penalties. All this is creating huge uncertainty for bidders and investment security, as well as for the overall structure of the offshore sector. Now we must wait and see how the whole thing develops. Things will become clearer in the summer.
REH: The German government would like to significantly expand the German offshore market. How realistic do you think it is to actually implement the 30 GW? How will the German offshore market develop?
Karina Würtz: “We consider the German government’s expansion targets to be courageous and necessary. In its Coalition Agreement, the government clearly committed to expanding renewable energies and therefore also to expanding offshore wind power. However, it is not enough to formulate targets. There is also an urgent need for industrial policy to accompany these energy policy targets. A much closer link between energy and industrial policy is required, which is still less noticeable in practice than you might think, unfortunately. But there are also steps in the right direction.
One important topic is the funding of the manufacturing value chain that will supply the platforms, turbines, foundations, cabling and ships for this offshore expansion and which needs to be making investments now in expanding its production capacity. Following years of crisis and sluggish expansion, it’s simply impossible for manufacturers to keep pace with the speed of the current need for change. Not only have the expansion targets risen in the offshore sector as a whole, but the projects to be built in the future are also getting bigger – from an average of 400 MW to up to 2,000 MW per wind farm. As a result, there’s also a huge increase in the number of and requirements for guarantees and contract fulfilment regulations. The supply chain must therefore make significantly higher initial investments than it did even a few years ago. When it comes to building new plants, for example, the equity share runs into the hundreds of millions, which can be difficult to achieve, especially for medium-sized firms following years of crisis. Our suggestion would be for the government to open up the existing major guarantee programme and reduce the equity ratios.”
REH: You’ve been the Managing Director of the German Offshore Wind Energy Foundation for 18 months. What are your goals?
Karina Würtz: “Our foundation’s overarching goal is to promote offshore wind energy in Germany and Europe as well as, since 2021, green hydrogen from offshore wind energy. This is our entire focus and we achieve it in a variety of ways. As an independent, non-partisan institution, we always try to maintain a holistic, macroeconomic view of the relevant issues and trends. This is reflected in our statements, policy advice and commissioned studies, such as our study on location factors for electrolysers with offshore wind energy as a source of supply, which is about to be published. As a network and communication platform, we also initiate and facilitate stakeholder processes on important issues, such as maritime security, offshore rescue and occupational safety. In addition, we constantly expand our portfolio of third-party funded projects and invest in public relations and educational work. For example, one of our employees recently visited a Hamburg district school to inform pupils about our exciting, up-and-coming industry. We particularly focus on ethnic-minority young people in order to inspire them to take up training courses and jobs in the offshore sector.
The nature of our institution, with its diverse Board of Trustees made up of operators, manufacturers, suppliers, banks, insurers and TSOs, as well as regional and national government ministries, and our specific combination of activities, makes the foundation a unique stakeholder in the renewable energy and offshore landscape. My principle goal as Managing Director is to constantly reinforce this profile.
It’s also important for us in this role to promote collaborative, mutually empowering interaction between the various institutions, clusters and associations in the renewable energy and offshore sector. Far more synergies could be created.
However, we’ll only be able to maintain these activities if the foundation’s financial basis is improved and consolidated in the long-term. During the tenure of the previous German government, there was disruption, not only in the offshore sector, but also within our foundation. We need a resilient solution and would also like to see stronger commitment from the northern German federal states."