Commercial framework offshore bidding zone
Risks and mitigation measures associated with offshore bidding zones for offshore wind farm and power-to-gas developers
Why read this report
Clarity on commercial framework, including risk and mitigation measures, for an offshore bidding zone (OBZ) market setup is crucial for investment decisions by offshore wind farm (OWF) and power-to-gas (PtG) developers. This discussion paper uses the OBZ market setup as a starting point and intends to inform policy makers and relevant stakeholders, including OWF and PtG developers, about potential consequences and opportunities. The paper identifies risks for investors in OWFs and PtG when changing the market setup from a home market (HM) approach to an OBZ market setup and makes an assessment and proposal of potential mitigation measures. How risks should be allocated to the involved stakeholders is a political decision that needs to be taken before tendering so that a transparent level playing field is provided to developers to calculate their business case.
Highlights
Changing the market setup offshore will result in a change of risks for (offshore) developers. In order to effectively roll-out offshore bidding zones, mitigation measures may be needed to address some of these risks.
The key difference with a HM setup is that in an OBZ, developers depend on the available capacity of interconnectors that connect to adjacent bidding zones. These interconnectors are not only used to transport offshore wind generated electricity to shore, but also for trading electricity between between bidding zones.
A balanced and stable development of offshore generation, hydrogen and electricity grids will provide a degree of certainty on installed offshore wind, power-to-gas and interconnection capacities, which is crucial to increase investment certainty on future developments related to the OBZ and their ability to better assess long-term market risks.
Several mitigation measures were examined, and certain low regret actions were identified that allow for a better assessment of the risks to developers in an OBZ market setup. Mitigation measures should be implemented by policy makers only for risks that developers cannot manage themselves. In addition, these risks do not necessarily need to be reduced to the same level as under the home market setup. However, the appropriate allocation of risks to stakeholders is ultimately a political decision.
