EnergyWatch

Lottery process involved in Thor auction comes under heavy fire

The auction arranged for Denmark's biggest offshore wind farm was settled by drawing lots. "Unfortunate" and "unfair" are some of the responses from players involved in the process. It provides food for thought, says the Danish Energy Agency.

Photo: RWE

The auction for offshore wind farm Thor proved to be a historic turning point for the industry, generating quite the buzz, as decades worth of subsidies for the wind sector were replaced by a number of utilities willing to pay the Danish state DKK 2.8bn (EUR 390m) to win the tender.

Behind all euphoric facade, however, is a fierce criticism of the process that led to the winner of the 1GW wind farm being determined by drawing lots, with German RWE emerging victorious. All of five companies were prepared to pay the highest amount alllowed.

One of the critics of the process is Michael Hannibal, partner at Copenhagen Infrastructure Partners (CIP), which was one of the companies that had to leave empty-handed after the lottery ceremony, which took place at the Danish Energy Agency's offices on Dec. 1 last year.

"I don't suppose any of the bidders particularly enjoyed ending up in a drawing of lots. It almost goes without saying that this isn't a fair and proper way of assessing a bid," says Hannibal.

"A lot of people worked hard for 11 months to come up with a bid that we have devoted energy, resources and money to. And then it was decided by drawing lots."

Lena Kitzing, associate professor at the Technical University of Denmark (DTU), shares his criticism, calling it very unfortunate that it wasn't possible to find the most qualified candidate for the project through the tender.

"What's crucial is that it's the best project that wins. But when it ends in a lottery, then it isn't the qualifications that determine the winner of the tender. It's luck, and that's an unfortunate situation to end up in," says Kitzing.

She notes that a drawing of lots could have been avoided if the political parties behind the project hadn't in advance settled on a maximum sum for how much the bidders were allowed to pay to win the right to develop Thor.

However, she also adds that having no cap might have come with other drawbacks.

Photo: PR Energistyrelsen
Photo: PR Energistyrelsen

The Thor auction was held in December last year, but the initial deliberations on the offshore wind farm were part of the 2018 national energy policy.

In September 2020, the tender conditions were revealed by DEA, but the terms were set by the political parties in the Danish parliament.

Six candidates were selected, among them Ørsted, RWE and CIP, as bidders for the wind farm project. The tender model was constructed in a way that the state and the winner would share the risk.

In the meantime, however, the development of the wind industry has accelerated, so much so that five of the six candidates expressed a willingness to assume the full risk and also pay the state DKK 2.8 billion. As a result, the winner had be found by drawing lots.

It also comes as a surprise to Jona Axelgaard that the winner had to be found in this manner. He is head of division at the Centre for Renewable Energy at DEA, which assisted in arranging the lot process.

"Of course it gives cause for reflection when you wind up drawing lots for such a tender. That is also why we have to look into how else we could have proceeded going forward," says Axelgaard.

RWE wins Danish offshore wind tender Thor   

RWE: Thor triumph will "boost activities" in Denmark

Danish Parliament agrees to another 2GW offshore wind by 2031

Ørsted joins the lottery for Thor 

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