Over the last 10 years, the levelized cost of electricity from offshore wind has seen a worldwide decrease by more than 60%. Meanwhile, global installed capacity has grown by nearly a factor of 181. This growth has been heavily supported by national and international climate and energy policies, targets, and support mechanisms that has led to a shift in focus to decreasing reliance on subsidies and mitigating the risks of offshore wind. As the market has become increasingly competitive, some governments have started to introduce requirements into award processes rather than evaluating bids purely on the subsidy level required.
These requirements can be divided into two categories: qualification criteria and criteria. Qualification criteria must be met to be eligible to participate in a tender while criteria determine the ranking of participants and awarding of the tender. Tenders can include price and non-price criteria, the latter of which is the focus of this article.
Categories of Non-price Criteria
Non-price criteria are a way for countries to drive offshore wind developers to give greater consideration to the qualitative parameters of offshore wind projects, such as environmental and social parameters. There are three primary categories for non-price criteria:
Environment and Ecology — These criteria focus on reducing the impact of the windfarm both from a greenhouse gas and biodiversity perspective. For example, in 2023, Germany introduced a criterion to reduce the noise impact of foundation installation on marine mammals. The criterion is scored based on the proportion of foundations which are not installed using impulse piling or gravity foundations. Similarly, the Netherlands have included a criterion which aims to reduce the number of marine mammal ‘disturbance days’ during installation and operation of the wind farm. Other criteria include reduction of bird casualties, reduction of habitat displacement, and reduction of light pollution.
Economy, Social and Supply Chain — These criteria pertain to the use of local assets including people, infrastructure, and suppliers, as well as the support and uplifting of local communities through dedicated funds and resources. This not only strengthens domestic industries but also creates jobs in the local communities. An example of this is Norway, which launched its first offshore wind auctions in 2023, with three criteria of this type. The first concerns developing skills in the local supply chain, the second is based on using small and medium-sized companies to develop their experience in the offshore wind industry, and the third concerns the developer’s plan to enhance and support the local supply chain’s green transition. Other criteria within this category can include circularity, responsible business conduct, and citizen participation. For instance, an upcoming offshore wind farm tender in Belgium is likely to include a criterion for citizen participation, requiring at least 1% of the total investment to be put up by citizens or citizen communities.
System Integration — This recent category concerns the planning of integration the windfarm into the onshore energy system, and can include offtake securing, integration of storage, power-to-x, demand side response, and cable landing innovations. These criteria aim to encourage innovation in offshore wind system integration technologies to improve the ease of integrating a project into the energy system. The Netherlands introduced this type of non-price criteria first in 2021. In this round, developers could score points based on their stimulation of investment and innovation to promote the integration of the project and future offshore wind farms into the Dutch energy system. This criterion is also included in the upcoming 2024 offshore wind farm tender in the Netherlands (IJmuiden Ver). Other countries, including the UK, appear to be preparing to introduce similar criteria in upcoming tenders.
Non-price Criteria in a Global Context
The figure below gives an overview of the extent of non-price criteria adoption in twelve key countries. Several countries, such as the Netherlands and France, have been using non-price criteria for several years, while others, such as Belgium, Norway, and Spain, are expecting to have their first tenders in the next few years and are looking to the leaders in this area to adopt into their tender design. The United States is also incorporating non-price criteria, but tender designs vary by state and therefore the extent of adoption differs by geography.
The Netherlands has been leading the way for the adoption of non-price criteria in offshore wind tenders. Though they first implemented these only in 2017, later than others such as France (implemented in 2011), it has since rapidly developed and iterated through eleven criteria to continuously improve the quality of offshore wind farms. The impact and importance of non-price criteria on tender outcomes has been varied for different rounds and geographies.
In 2022, RWE won the Dutch offshore wind tender for the Hollandse Kust West VII site, which focused on system integration. RWE committed to green hydrogen production and storage, electrification of heat, and floating solar panels.2 That same year, Shell and Eneco won the tender for the Hollandse Kust West VI site, for which the non-price criteria focused on ecology, by committing to a wide range of measures to ensure the wind farm would have a net positive impact on nature.3
The Net Zero Industry Act, proposed by the EU in March 2023 to accelerate the development and production of net-zero technologies, requires European Member States to implement non-price criteria in all renewable energy auctions. The Committee on Industry, Research and Energy has voted to support the act, but it still needs to pass the vote in plenary at the European Parliament, expected in November 2023, before it can be passed into law. While the regulation has not yet been formally adopted, it demonstrates that non-price criteria will be here to stay and developers who are active in the growing European offshore wind market must be prepared to deliver on these criteria.
Challenges of Non-price Criteria in Offshore Wind
Non-price criteria have faced criticism in some recent offshore wind tenders. Achieving national objectives for increased offshore wind farm quality can be achieved with differentiating non-price criteria. However, it is essential that these criteria can be objectively evaluated and quantitatively scored. Subjectivity in the formulation of tender criteria and the evaluation of the bids may lead to lengthy appeals procedures to overturn the outcome. Another common criticism is that a strong focus on non-price or qualitative criteria may invite developers to overpromise in their bid. As a result, offshore wind tenders run the risk of being considered a beauty contest, rather than selecting the plan of the highest quality and likelihood of realization.
Alternatively, non-price criteria can be less impactful on tender outcomes if they are not challenging enough to score highly on, in which case they no longer work to drive innovation and differentiate competitors. This has been seen in France’s latest tender awarded in 2023 for the Centre-Manche (AO4) site, where all six participating candidates scored maximum points on the non-price criteria, likely because these were too objective, which meant the winner was decided on price bid alone. This demonstrates that while non-price factors are on the rise, the financial aspect of tenders can still be a key differentiator, and developers need to dedicate themselves to both to maximize their chances of being successful.
In the short term, non-price criteria are being used to face the challenges the offshore wind sector poses on the energy system. Issues such as system integration and grid congestion have not truly been considered in tender mechanisms until recently, making it challenging to perform well. Developers first need to build expertise, as well as having to be agile and adaptive to fast evolving criteria. Going forward, as developers improve their capabilities and become more competitive on these aspects, the potential for innovation and differentiation in tender responses could lessen.
Other challenges such as circularity and lifecycle impact may become more prominent and introduce a new area for competition. Results of offshore wind tenders with non-price criteria can set a new standard for future offshore wind farms, and innovative measures proposed by developers to maximize points in non-price criteria may be included in future tenders as requirements, rather than differentiating criteria.
While price remains a critical factor in offshore wind auctions, non-price criteria are increasingly recognized for their role in shaping future offshore wind farms which are more environmentally responsible, socially beneficial, and economically viable. Developers will need to dedicate an increasing amount of time and resources to their efforts in this area to keep pace with the industry and secure successful auction outcomes. In the short term, developers should focus on establishing strong relationships with supply chain partners who are critical in delivering measures and solutions for criteria like ecology, circularity, and system integration.
Over time, as an increasing proportion of electricity becomes green, offshore wind will face a new challenge of how to remain competitive when low carbon electricity demand no longer provides such a strong market driver and value. Such future challenges could give rise to new non-price criteria to help address these. In addition, governments should consider the proper drivers for investments in offshore wind in shaping future policies and potentially even support mechanisms. For instance, a clear roadmap for industrial electrification or decarbonization with binding targets in line with offshore wind capacity targets may improve revenue security for the offshore wind sector.
Non-price criteria will be here to stay, and it is not unlikely that new categories will emerge to address sector-specific challenges in the future.
This article authored by Magali Aurand
1 IRENA (2022), Renewable Power Generation Costs in 2021, International Renewable Energy Agency, Abu Dhabi, link, data given is for the period 2010 to 2021
2 RWE. n.d. “RWE Successful in Dutch Offshore Wind Tender Hollandse Kust West VII.” Benelux.rwe.com. Accessed November 8, 2023. https://benelux.rwe.com/en/press/2022-11-10-rwe-successful-in-dutch-offshore-wind-tender-hollandse-kust-west-vii/.
3 “Shell and Eneco Win Bid to Develop 760 MW Offshore Wind Power in the Netherlands at Hollandse Kust (West) vi | Shell Global.” n.d. Www.shell.com. https://www.shell.com/media/news-and-media-releases/2022/shell-and-eneco-win-bid-to-develop-760-mw-offshore-wind-power-in-the-netherlands.html.
Complexity demands a trusted guide with the unique expertise and cross-sector versatility to deliver unwavering success. We work with organizations across regulated commercial and public sectors to catalyze transformation and pioneer new directions for the future.