German offshore wind bidding takes a breather ... or does it?

On the 10 August German regulator BNetzA published the results for the "second" (1 August) offshore wind auction this year. RWE won three of the four sites totalling 1.53 GW with the remaining 0.27 GW going to Waterkant Energy, which appears to be associated with German investment manager Luxcara; a previous (unsuccessful) bidder in Dutch offshore wind auctions but not a household name in the German offshore wind sector. RWE may still be ceding one of the sites (0.63 GW) to Vattenfall, which holds a step-in right for that one. RWE already owns the step-in right on the other two suggesting that it will have been the only bidder on these sites: There is no incentive for a step-in right holder to put in a competitive bid in the first round given that it always gets a chance to match the highest bid later.

Financially, at least at first sight, everything looks a little smaller than it did when the record results of the first auction came out a month ago (see here for more details on that one). The bid volume was 1.8 GW vs. 7 GW in the first auction making the whole thing a smaller affair in volume terms already. However, bid values were down significantly more than that with total "lease fees" reaching only EUR 784 million vs. EUR 12.6bn in the previous round; a drop from EUR 1.8bn per GW to EUR 0.4bn per GW.

What happened?

BNetzA provides very limited information so far (here); in particular there is no information on how the EUR 784 million are spread across the four sites but there are some scenarios worth thinking through:

• It seems safe to assume that RWE (Nordseecluster) bid zero on the two sites where it already had the step-in rights. That raises the average bid on the remaining two sites to EUR 871 million per GW; still a far cry from the June auctions but hardly nothing - in fact higher than the average bid in the 2021 England & Wales leasing round that held the record before the June auctions
• Assuming for the moment RWE only put in a notional challenge to Vattenfall and bid just more than zero that would catapult Luxcara's bid into the boldness stratosphere at EUR 2.9bn per GW; nearly 50% above what we saw even at the top of the June auction. In light of this RWE probably did not just go "notional" against Vattenfall but threw down a full-blown "gauntlet".
• The upper bound for the full-blown "gauntlet" by RWE is given by allocating the full EUR 784m to the 0.63 GW site where RWE and Vattenfall seem to be headed for a clash; resulting in a financial bid of EUR 1,244 million per GW; higher than the top end of the previous (England & Wales) record and only about 20% below the bottom end of the June auction. That makes you wonder whether the 2022 change in the Offshore Wind Energy Act that allowed negative bidding against step-in right holders really was only a marginal change to the rules that was still covered by the German Constitutional Court's ruling on step-in rights as acceptable compensation.

There were some qualitative criteria involved in the auction too but they appear to have mattered rather little (with RWE apparently winning unopposed on two sites and the RWE / Vattenfall step-in right clash being decided by financial bids alone as per the Offshore Wind Energy Act). The fact that BNetzA managed to turn around the results within the space of 10 days despite being asked to evaluate qualitative criteria for the first time suggests that there was rather little competition on the last site as well that would have required a detailed analysis of the qualitative criteria.

BNetzA is certainly very quiet on how bidders did on these qualitative criteria; so far choosing not to use this round to provide much in terms of guidance for next year when 5.5 GW will come under the hammer using this scheme.

PS: In keeping with the analysis of the first round: the total takings would have bought you i) the world's two most expensive paintings (once) or 0.04% of Saudi Aramco. It would have at least bought you 10% of Zalando, the smallest member of Germany's blue chip stock index.