Winning Offshore Wind Auctions in a Changing Market

Offshore wind has emerged as a key technology to decarbonize power production at scale globally. Between 2012 and 2022, the cost of offshore wind fell by around 60%, showcasing its potential as a low-cost clean energy source.

However, the offshore wind sector is currently facing unprecedented challenges. Escalating costs, increasing interest rates, and a constrained supply chain have led to project delays and cancellations, putting the industry to the test. Developers with extensive and mature project pipelines are typically strongly impacted, as they often confront the reality of final investment decisions of projects that were secured through tenders years ago, based on significantly more favorable expectations.

Amid the challenges, countries are increasing their offshore wind targets to enhance energy security and accelerate decarbonization efforts. Tenders are increasingly used for awarding new capacity to developers. In this report, we bring forward three key messages, each detailed in a separate chapter:

1. 2024 a crucial year
A record-breaking offshore wind capacity of 65 GW is expected to be awarded through tenders in established and emerging markets in 2024. While incredibly tough for developers and suppliers alike, we believe that the worst of the industry crisis is behind us. Developers who dare to invest at this time and succeed in securing capacity can build a prolonged competitive advantage through scale effects and learning, while those who wait out the current crisis risk being left behind.

2. How to win varies by market
Factors like prioritizing markets to leverage scale, rule shaping, forming partnerships, optimizing supply chain, and enhancing financing structures are success factors applicable to all markets. Other factors are more specific for each market. System integration has changed from being a competitive edge to being a competitive necessity in several European markets, and a strong competitive advantage in most others. This is driven by increasing merchant power market exposure and higher power price volatility in Europe. In the US, establishing a strong, reliable supply chain with a local footprint is a prerequisite for winning but a large challenge given the high cost of developing an immature supply chain. Success factors in emerging markets strongly differ, but working with the government to shape policies and tender rules is important across markets, particularly when the market design is underdeveloped.

3. Building bid excellence is key
The increasing number of tenders, as well as higher complexity and intensifying competition, make bid excellence — having the right team, governance, portfolio- and tender approach, networks, and tools — even more important. The bid excellence function can be established in a step-wise approach.

We believe that 2024 will be a pivotal year for the offshore wind industry. Successful developers will be the ones winning the right projects in the right markets, balancing the risks posed by industry challenges with the need to build scale and learnings. This task will not be easy.