Danish offshore wind: Frontrunner or failure?

• Denmark unveiled an up-to-14GW tender plan in late May
• But last week it cancelled 12GW of 'open door' projects
• Danish state plans to take 20% stakes in future projects

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It has been a fortnight of fluctuating fortunes for Danish offshore wind companies.

On 30^th May, the Danish Energy Agency unveiled its plan to hold tenders for 9GW of offshore wind projects that are set to be operational by 2030, including the Bornholm Energy Island. Companies will also be able to bid to build more capacity on the sites than the agency is planning, which means the full potential of the sites is 14GW. The industry can provide feedback on the regime in a consultation process this summer.

Morten Bødskov, business minister in the Danish government, said the “historically large” process would help Denmark to take advantage of its strength in the offshore wind sector. This huge pipeline of projects will excite offshore wind investors, and it is set to be one of the largest procurement processes in the sector in Europe.

But while the country has given with one hand, it has taken away with the other. 

On 7^th June, the Danish government approved a marine plan that is set to introduce tougher restrictions on what companies can develop in the country’s waters. Industry association Green Power Denmark said this ends 24 of the 33 offshore wind projects that had been brought forward under the country’s ‘open door’ regime, and costs the country 12GW of offshore wind capacity. It branded the process a “huge failure”.

Kristian Jensen, chief executive of Green Power Denmark, said the government was “failing the confidence of the companies that have to invest in the green transition of the future”, and warned that it was slowing down the country’s energy transition.

This means that development can continue on just nine ‘open door’ projects. Three of these – Kadet Banke, Paludan Flak and Vikinge Banke – are in areas previously designated for offshore wind, and six have secured initial approval: Aflandshage, Frederikshavn, Jammerland Bugt, Lillebælt South, Nordre Flint, and Omø South.

This is a difficult predicament for companies in the Danish offshore wind industry. On one hand, the government said it wants a green energy transition, and offshore wind is one of the best ways to do that at scale while avoiding objections onshore. But, on the other, it is under pressure to do so in a way that protects its marine environment. Denmark will not be the only country that struggles to balance conflicting priorities.

State ownership

The other significant aspect of the up-to-14GW tender plan is the government’s plan to keep 20% of the projects, except Bornholm Energy Island, in state ownership. The government said it was looking at state ownership of minority stakes so that more of the value from offshore wind farms in Danish waters will be returned to taxpayers.

Lars Aagaard, minister for climate, energy and supply, said it is significant that Danes will be co-owners in offshore wind projects “for the first time… and thus get a share of the actual income from offshore wind”. Developers and investors may also benefit from the vested interest that the Danish government has in making sure that offshore wind projects are built. This could re-build confidence after the ‘open door’ debacle.

The inclusion of the government as a shareholder could also help developers secure any capital they need on more favourable terms, because of the strong covenant.

But our concern would be whether these structures will restrict what developers and investors can do with their projects. The Danish government has a vested interest in promoting local jobs and supporting native turbine makers; and will also come under more scrutiny for the environmental and economic performance of projects. Having a government co-owner to satisfy could be a drag on the profitability of projects. 

The government’s decision to become an offshore wind owner comes at a tricky time for the sector, as Danish utility Ørsted set out at its Capital Markets Day last week.

The utility said on 8^th June that it was reducing its target for installed offshore wind in 2030 from 30GW to 28GW due to headwinds including inflation; and Mads Nipper, its chief executive, said the company would “prioritise the most value-creating projects and stay financially disciplined when bidding in tenders”. Nipper also said Ørsted will “only take FID on projects that we find will create sufficient value”.

The Danish government may soon get a similar taste of commercial reality.