The Danish government charts course through offshore wind headwinds

The challenges surrounding Denmark’s offshore wind tender 

At the end of 2024, the lack of bidders in the ambitious offshore wind tender in Denmark marked the end of another challenging year for offshore wind.  

Earlier this month, I was on Berlingske’s podcast ‘Derfor vil ingen være med I regeringens grønne eventyr’, where I talked about the failure of the Danish tender. In the podcast, I argued that we should not consider this as an isolated event but rather as part of a process. In this case, it was particularly difficult to make changes to the tender before it was concluded, as the change would enact a shift from the developers paying the government, to the government paying the developers.  

As we have seen in the US and the UK, this change in direction requires strong justification, and no justification is stronger than failure. I therefore argued we should wait for the government response before we ‘settle the estate’.  

Government response 

This morning, the world received a response from the Danish government, detailing the following plans: 

• Reduced capacity and a phased approach for offshore wind tenders: The Danish government is reducing the tendered capacity from 6 to 9 GW (where the last 3 GW would be off grid) to 2 to 3 GW across 2 to 3 tenders where our expectation is that all of it will be targeting the grid. The large capacity of this tender was one of the reasons that companies did not bid, as it made it difficult to make assumptions on the supply and demand for power and, in turn, revenues – especially considering the uncertainty around the green hydrogen pipeline which was still to be decided at the time. Hence, the reduction in size alone will increase the likelihood of companies bidding in the upcoming tenders.  
  
  The Minister of Climate, Energy and Utilities, Lars Aagaard also stressed that this does not mean a reduction in the long-term offshore wind build-out, but simply that it will happen in phases. More importantly, Aargaard said that they are now going to revisit the tender criteria and open the doors for subsidies. The exact measures are undecided, but they could range from a contract for difference (CfD) to rolling back some of the ‘negative’ initiatives from the previous tender (such as the government taking the transmission scope, reducing the requirement of the state owning 20% share in the projects, and a reduction in the penalties for delays). The key here is that a holistic approach is being used and that the initiatives reduce the risk and uncertainty around the bid, and do not increase it.  
  
  In the meantime, the EU has asked for 30% non-price criteria in tenders, which also opens the door for a more complex tender which could challenge timeline but also bring other benefits to Denmark and the EU depending on how the criteria are implemented. The Danish government is still to secure the funding for the subsidies. Depending on the outcome of those negotiations, this would also influence the design of the new framework. The government intends to share more details about the tender framework already this year and targets a tender deadline in spring 2026.
• The green hydrogen pipeline: A big challenge for the project was also a lack of demand. In that context, it was positive to see that the Danish government are going to move ahead with the green hydrogen pipeline to Denmark (although only from Esbjerg to the German border) by the end of 2030. The Danish government have already secured funding for DKK 7.5 b (government loan) and DKK 8 b in support during operations over 30 years although the exact amount depends on how the pipeline will be used. Moreover, the booking requirement has been lowered to 0.6 GW. It was also noted that the green hydrogen pipeline could be extended both North and East at a later time. 

• Energy Island Bornholm: Yesterday, Energy Island Bornholm received DKK 4.8 b in EU support. While the project is currently estimated to require DKK 31.5 b to realized, of which DKK 17.6 b has already been made available, there is still a sizeable gap in funding. Against this backdrop, Lars Aagaard today announced that Energy Island Bornholm will be paused until after the election in Germany, as most of this power will flow to Germany. The government and the mayor of Bornholm still believe the project can be realised, but did note that this announcement will result in further delay. The sizeable gap in funding means that the project, which have already cost DKK 695 m, is still at risk of further delays, redesign and even cancellation.

What does this mean for Denmark’s decarbonisation goals?  

Denmark has an ambitious target of reducing greenhouse gas emissions by 70% in 2030 compared to 1990. According to Aagaard, today’s announcements will not have a material impact on the targets, as most of the green hydrogen was earmarked for exports. However, he did concede that it will result in less hydrogen export than what was initially envisioned. 

This is the way forward for offshore wind. More clarity and certainty at the expense of high ambitions by 2030. As we highlight in our Wind: predictions for 2025 outlook piece, more governments will follow suit in the coming 24 months as the long lead time and supply chain bottlenecks bring 2030 closer.  

In Wood Mackenzie’s view, most of the government targets for offshore wind by 2030 will not be achieved. As such, a reduction in a target is unlikely to push the target below our outlook and impact our outlook. It does, however, bring the possibility of the governments offering more favorable conditions for the remaining capacity. It is therefore more likely that a reduction in targets will drive an increase to our outlook as opposed to a decrease.  

The move towards government support in Denmark did not come out of the blue. On 1st January this year, the Danish prime minister stated, in a context beyond offshore wind, that government support is necessary. Other governments have improved the frameworks for offshore wind too and just yesterday, the European Commission announced that the EU will invest EUR 1.2 bn in cross-border infrastructure, such as Energy Island Bornholm. When discussing government subsidies, it is important to look at these as contracts that hold upsides and downsides for both the government and the bidders. That means that if a stronger government framework is made available, more companies will bid, which will help decrease the subsidies made available. As such, market forces will still apply even if subsidies are introduced. It that context, it is important to recall that it was the competition in the tenders that led to the biggest decreases in subsidies for offshore wind. 

Learn more about the announcements 

Read more about the latest announcements here and here, and find out more about Wood Mackenzie’s Wind Services offering.