Challenges in Sustainable Wind Energy Pricing

Offshore wind is a cornerstone of the energy transition. And in Germany, it is critical. Without an efficient expansion at sea, the country risks missing its climate targets and losing grip on affordable, clean power.   But the current German auction model is under strain. A recent study by Stiftung OFFSHORE-WINDENERGIE highlights what many in the sector already know: the auction design is flawed.   The most troubling feature is negative bidding. It pushes project costs up, distorts the market and opens the door to the dreaded “winner’s curse”, where developers commit to prices that are simply not sustainable. What is needed now is a change in mindset. We must redesign auctions to move away from short-term revenue chasing and focus on long-term system value.   An important lever are two-sided Contracts for Difference (CfDs). These reduce financing risks, lower costs for consumers, and offer price stability, while options for merchant build-out should be maintained to provide for system flexibility.   And perhaps it’s time to rethink how we measure success. Moving from gigawatt targets to terawatt-hour goals would better reflect real system value. Cross-border coordination, smarter grid usage and expansion, and prioritising the most efficient sites can make the offshore buildout more cost-efficient and help Europe to make best use of its limited sea space.   That is how offshore wind can scale – reliably, affordably, and sustainably. Not just for Germany, but for Europe as a whole.

The economics of renewables are shifting. By the end of 2025, wind and solar became the world’s main source of electricity, but this success has brought a new challenge: value cannibalization. In the EU, cannibalization cut renewable producer revenues by over $14 billion in 2025 alone. Wind value factors in some markets have dropped to ~0.55–0.65 of average prices, and solar to ~0.45–0.65. Negative price hours have more than doubled since 2020. The core issue isn’t capacity anymore; it’s system flexibility. High simultaneous output depresses prices, erodes revenues, and risks chilling future investment unless we address the supply–demand mismatch. The article highlights that tackling daily and weekly volatility will be the most impactful (and challenging) lever, and that creating system-wide flexibility requires rethinking: • market design (pricing for flexibility, locational signals), • grid planning and network investment, • storage and demand participation mechanisms, and • policies that allocate risk and reward appropriately. For anyone building or investing in power systems, this reframes the conversation: renewables need flexibility value streams, not just more capacity. Great new piece by Antti Belt, Antti Kaskela, Zsofi Beck et al. You can read the full piece here: https://lnkd.in/eh4meNAv

Earlier this month the latest UK CfD round saw no bids from off-shore wind projects leading to strong criticism of the Government for failing to increase prices in response to rising supply chain costs. The reason for the problem is tha the Government and developers are working at cross purposes. The Government thinks it is providing subsidies to an immature technology which will eventually taper to zero. Developers think they are receiving a market hedge. After a quarter of a century of wind subsidies, we certainly are not in the "immature technology" zone any more. Developers want a hedge which will vary in response to supply chain costs and this means the strike price can go up as well as down. In the future, if wholesale electricity prices start trending towards zero as renewables set the market price, the CfD will be a subsidy again as well as a hedge, because developers will never be able to repay their capital costs if the price they receive for the electricity they sell is close to zero. In any case, if off-shore wind targets are to be met, the Government needs to have a re-think about the purpose of the CfD and how it will evolve as market conditions change. And it needs to move away from its expectation that subsidies will eventually disappear - they will not, unless some new income streams are devised for weather-based renewable generation. #renewables #energypolicy #subsidies https://lnkd.in/ezaXfXj7

What challenges does negative power prices give offshore wind in Europe? Well, an article yesterday in the FT showed that Europe is seeing an unprecedented rise in negative power prices, where electricity prices dip below zero for 1000s of hrs across the continent. This sounds like a win for consumers (who can essentially be paid to use power ⚡), but it’s a serious challenge for the renewable energy sector, especially offshore wind 🌊🌬️. Here’s why it matters: 🔻 Price Cannibalisation: When wind and solar generate a lot of power at the same time, prices drop. For offshore wind, this means big production at peak times can drive prices down to zero or even negative. While this helps lower emissions, it threatens the financial stability of these projects 💸. 🌪️ Grid & Storage Gaps: Offshore wind projects, which are often far from demand centers, are producing more power than the grid can handle. Without enough storage and flexibility solutions (like BESS and hydrogen electrolysers), excess electricity is wasted, and developers lose out 🏗️. 🚨 Risk to Investment: Investors might start hesitating. If offshore wind projects can’t guarantee revenue, we risk a slowdown in development—just when we need to speed up to meet net-zero goals 🛑. So what’s the solution? 🤔 🔋 More and more Storage: We need a rapid buildout of energy storage solutions to capture excess electricity and release it when demand is high. ⚡ Grid Upgrades: More robust grid infrastructure to handle the growing supply of renewable energy is essential. Interconnectors across countries can help balance supply and demand. 📉 Policy Adjustments: Govts must rethink market structures and ensure offshore wind (and other renewables) can remain financially viable in a world where negative pricing becomes more common. What else do we need to see to reduce this challenge? --------------------------------------- 📞 📧 Contact me or OWC if you want to chat about support for your renewable energy project, investment, or market entry. ➡ Subscribe to the loudest, most seriously caffeinated #offshorewind newsletter on LinkedIn 👉🏼 https://lnkd.in/evdXr-QH