DUESSELDORF/FRANKFURT (Reuters) - Germany's network regulator on Thursday approved 1,490 megawatts (MW) of offshore wind capacity on the German North Sea at costs well below expectations, showing the renewable energy source can operate with lower subsidies than it currently receives.
The projects, due to be implemented beyond 2020, were cleared at an average price requiring a subsidy of 0.44 euro cent per kilowatt-hour (kWh) of power, the regulator, Bundesnetzagentur, said in a statement.
They were awarded to Denmark's DONG Energy (DENERG.CO), the world's largest offshore wind park operator, and Germany's EnBW (EBKG.DE), it said in the conclusion of the first public bidding round that started on April 1.
Under current tariffs, operators of offshore wind receive a subsidy of 12 cents/kWh. The power price paid by end-users is around 30 cents/kWh, among the highest in Europe.
Germany's thermal power generators obtain just 3 cents a kWh in the wholesale market, while the bulk of costs for households comes from transport, state fees and taxes. TRDEBYZ8
"The auction process has unlocked cost-cutting potential in the medium and long term that will result in an unexpected reduction of support payments," said Bundesnetzagentur president Jochen Homann, whose job it is to slash costs for consumers.
The authority will put to auction approval for a further 1,610 MW in a second round next year.
EnBW said it had received approval for a 900-MW site called He Dreiht, which ties in with two other wind farms in close vicinity, and is part of its long-term strategy to move away from nuclear and coal to renewable energy.
DONG said it had been awarded three projects with planned commissioning in 2024 and that two of them, OWP West and Borkrum Riffgrund West 2, each 240 MW, will receive no subsidies on top of the wholesale electricity price.
It said the zero subsidy bid was "a breakthrough for the cost competitiveness of offshore wind" and that some of the cost reduction would come from using the next generation of turbines which will be able to produce up to 15 MW each, twice as much as the most powerful turbines on the market now.
Very high wind speeds, the vicinity to an existing maintenance hub and approval from German authorities to extend the operational lifetime to 30 years from 25 years were also factors behind the record-low bid, DONG said.
DONG said that the third project, the 110 MW Gode Wind 3 project, was awarded on a bid price of 6 cents per kWh.
European offshore wind has seen investment costs plummeting at Danish and Dutch sites in the past two years, along with a rise in expertise.
Critics say that even with recent cost reductions, offshore wind remains much more expensive than traditional fossil-fuel electricity generation, while some environmental groups say the huge structures could harm marine life.
In Germany, the technology has attracted high feed-in costs for years as there was little experience of installing turbines far out at sea, which is necessary due to Germany's geography.
Lenders foresaw unprecedented risks but judging by the range of bids at the tender of between zero and 6 cents/kWh, offshore operators now have faith in the new assets' profitability.
Reporting by Tom Kaeckenhoff, Vera Eckert and Christoph Steitz, additional reporting by Teis Jensen in Copenhagen,; Editing by Dale Hudson and David Evans