A Case Study on the Danish Auction Framework for Offshore Wind

Abstract

This thesis examines the failed 2024 Danish offshore wind auction, in which no bids were submitted despite strong site conditions and a well-established national track record. The outcome exposed a misalignment between public ambitions and investor requirements, raising broader questions about how auction design, risk allocation, and financial conditions interact in renewable energy investments. In light of these developments, this thesis seeks to investigate the underlying reasons behind the tender’s failure and to evaluate how future offshore wind tenders can be structured to ensure sufficient investor participation. The thesis follows a logical progression, with each section building on the previous one. It begins with an introduction to the Danish offshore wind landscape, followed by a literature review that establishes key insights into investor risk and support scheme design in the renewable energy sector. These insights inform a qualitative risk analysis based on market feedback, which identifies the main barriers to participation in the 2024 auction. Building on this, the thesis develops a financial model that simulates project viability under merchant conditions and four support mechanisms, integrating insights from the preceding sections. Finally, the discussion brings together the analytical and financial findings to assess how the Danish government can design a more effective framework that secures investor participation. Findings indicate that the auction created a complex and unmitigated risk profile that undermined both expected returns and psychological investor confidence. Under merchant exposure, the project generated a negative net present value and failed to meet the required return. Among the four support mechanisms assessed, the two-sided CfD emerged as the most effective in balancing investor and government interests, providing revenue stability while upholding fiscal discipline. The thesis concludes by proposing a revised auction design that combines a 15-year two-sided CfD with five targeted policy adjustments addressing the core shortcomings of the tender. Taken together, these measures constitute a flexible and effective framework that aligns with market dynamics and facilitates long-term renewable energy development.