Could the Dutch dash for offshore wind become a victim of its own success?

Efforts to ramp up offshore wind capacity are often surrounded by concerns over hitting targets, but in the Netherlands there are also fears that its tendering system could become a victim of its own success by moving at a pace that leaves demand and the supply chain behind.

Shallow waters, a sandy seabed and strong average wind speeds helped Holland become an early mover in offshore wind and successive government have continued fine-turning tender rules.

The most significant reform was in 2013, when the Dutch offshore wind tender model moved the focus to qualitative bidding criteria, with capped financial bids playing a much less significant role in the outcome.

As part of this switch, the Dutch system stood out for the proactive role played by the government in site selection, investigation, certification and environmental permitting with some, but not all, of the these costs recouped from the winning developer.

Sites are prepared and standardised by the transmission system operator TenneT for an efficient and timely grid connection.

At a lick

A one-stop shop approach to these measures has help Dutch projects reduce lead times to between three to four years, compared to between seven and 10 under the previous system, according to the Netherlands Enterprise Agency (RVO) .

The pace of rollout has increased discernibly after these reforms with annual tenders of around 700MW every year between 2016 and 2020, and an increase in scale since then.

Holland expects to have 4.7GW installed by the end of 2023, ahead of its original roadmap target of 4.5GW, according to Henk van Ellburg, an offshore wind specialist with the RVO,

The latest offshore roadmap, launched by the Netherlands earlier this year, reinforces the multi-annual nature of the rollout and offshore tenders are proceeding at a lick, pursuing a target of 21GW by 2030.

The current round, for Ijmuiden Ver areas Alpha 2GW and Beta 2GW, is due to conclude its tender process by March.

Kick-off for a similarly scaled tender is starting for two areas called Ijmuiden Ver Gamma and Nederwiek I. This process is due to conclude in March 2025, with first power scheduled for 2029 and 2030 respectively.

The fast pace of growth set by the tendering system, however, is raising some concerns of its own.

Green overhang

“Everyone talks about the increase in costs as the main challenge facing the wind sector but there is another very significant risk that is often ignored. This relates to whether the demand for green energy can keep pace with our growth,” says Andre Craens, senior branch specialist at the Netherlands Wind Energy Association (NWEA).

The risk stems from the possibility that a renewables ramp-up at the pace envisaged by Dutch policy makers can sometimes outpace progress on other aspects of the energy transition, impacting prices.

“A lot of production is coming onstream, but what if the demand is not there? This is a huge risk in the business case, I would say," Craens says. "Sometimes policy makers assume that the climate and energy aspects of what they are doing are aligned, but this is not necessarily so."

Craens describes replacing fossil fuels in the electricity system as the "easy part" of the energy transition but he points out that "80% of energy demand in industrial sectors is met with (fossil fuels) and that's way more complicated to achieve the electrification of these industrial processes.

Constraints

Some of the Dutch wind sector's concerns are more familiar to peers elsewhere.

Newer Dutch wind farms are scaled at 2GW requiring what Craens describes as "double the amount of turbine installations in half the time."

"The time that is available to do the cable pulling and commissioning the wind turbines is incredibly short... and it's tough to find a supply chain companies to do that," he states.

"If you are short of time you often needs to double up on things like installation vessels and factor in safe storage of any turbines that cannot be installed yet. If you do not get the schedule right you can end up paying a fine of €10m or €20m per day. This sort of risk also affects the business case," he adds.

Money talks

The issue that is really dominating the debate about offshore wind tenders in the Netherlands is the decision to allow bidding of up to €33bn under its new financial rules when bidding begins next March.

A rising chorus of voices among developers and OEMs have warned that the Netherlands might see negative bidding, and some of the harmful side-effects of this.

"The negative bidding aspect is something that that worries me," says Craens.

"Governments are in a squeezing mode and are looking for where they can earn money or save money. This can amount to a missed opportunity because persuading developers to invest in something like recovery of ecology or system integration can generate efficiencies that can be applied more widely in other projects and in other countries. It is better to focus the competition on these technologies".

Dutch officials do not necessarily see it this way.

Van Ellburg argues that the 85% weighting toward qualitative criteria will be enough to retain the balance sought in the system and, he said, would continue to stimulate the kind of investment to which Craens was referring.

"The questions asked of developers are whether they can meet renewable capacity targets and whether they can you build on time, with points awarded," he told the recent WavEC seminar in Lisbon.

"The tender also asks what can you do for society. How can you intervene in the field of circularity and in the field of every responsible business conduct? What can you do for economic revival in the region? What can you do for future system integration?

"There are all sorts of investments that project developers can use for their own future. So it's also just not part of the bidding process, it is an investment in their own competitiveness"

But van Ellburg is willing to acknowledge the lucre aspect.

"Of course, when there is a specific financial component it is right that, in the end, it is maximised….So, I am very curious what will happen and see what importance that financial bids in the end will turn out to have."

“You could feasibly bid negatively and then look to make this up with a PPA," he noted. "Some of the usual risks, such as permitting have been reduced, so if you are confident you can get a PPA of say €50 or €60 (per MW/h), or more, then you could feasibly bid negatively and factor this into your costs to make a profit."

Describing negative bidding as "a possible but not necessarily likely outcome" van der Berg added: "It will be interesting one to see how the market responds.”

Craens also acknowledged some of the positives in the new Dutch system, noting that the government listened to feedback and made the qualitative criteria more focused and functional than it used to be.

"For example system integration has scoring for up to 50MW of floating solar, up to 1GW of offtake, storage, optimisation of cables. You can see what you need to do to get the full points without having to compare very different offers," he notes.

"What we like is a functional question so that the industry can still determine what kind of technology will be used to reach that goal."

Grid upgrade

A major upgrade in offshore grid technologies in Holland adds to the short-term challenges.

TenneT, the Dutch TSO which also operates part of the German system, is currently engaged in a major expansion and modernisation of the offshore grid serving wind farms and connecting the two countries.

The overhaul includes new transmission lines, substations , shunt reactors and high-performance transformers to enable the integration of renewable energies into the grid.

Future offshore wind turbines in the key IJmuiden Ver wind farm zone will be connected through 66 kV “inter-array” cables to an offshore 2GW AC/DC converter station, using high voltage (525kV) export cables to transport the electricity to shore for conversion back to AC.

"TenneT is doing a fantastic job with new substations but getting this done, with the demand for people and vessels that it requires and the fact that it is a new technology means this could be another risk," Craens adds.