The Federal Ministry for Economic Affairs and Energy has submitted a draft “Third Act to Amend the Offshore Wind Energy Act and other Provisions” (Drittes Gesetz zur Änderung des Windenergie-auf-See-Gesetzes und anderer Vorschriften, “WindSeeG (draft)”), proposing a fundamental overhaul of Germany’s offshore wind energy auctions. A key element of the reform is the introduction of a two-stage award procedure that prioritises market-based implementation and provides for a hedging mechanism based on contracts for difference (CfDs) as a secondary support measure.
Background and objectives
The German government intends to strengthen offshore wind energy as a cornerstone of a climate-neutral power supply. To this end, the draft seeks to establish a reliable investment framework that combines market integra-tion with appropriate safeguards. At the same time, it aims to improve coordination between renewable generation and the development of grid connection infrastructure, helping to lower system costs and prevent overcapacity. By transposing the EU’s Net-Zero Industry Act (NZIA), the draft also focuses on reducing unilateral supply chain dependencies and increasing national resilience.
The reform of the offshore wind auction design has been prompted by higher investment costs and unsuccessful auction rounds in 2025. The federal government nevertheless remains committed to achieving at least 70 GW of installed offshore wind capacity by 2045, which will require an average of around 3,000 MW to be added every year from 2035 onwards. The draft therefore focuses on introducing a CfD-based hedging mechanism as part of a broader redesign of the auction system.
Key elements of the draft WindSeeG
The key provisions of the draft are summarised below:
- More predictable auction pathway (section 2a(1), no. 3 WindSeeG (draft)): The draft introduces an annual auction range of 2,000 MW to 4,800 MW from 2027. The aim is to establish a continuous expansion pathway from the 2032 commissioning year onwards, enhancing planning certainty for project developers, manufacturers, operators and suppliers while giving the Federal Maritime and Hydrographic Agency (Bundesamt für Seeschifffahrt und Hydrographie, “BSH”) greater flexibility in setting auction volumes.
- Standardised auction design with a two-stage award procedure (sections 20–23 and 53–54c WindSeeG (draft)): The proposed reform harmonises the auction design by creating a two-stage award procedure for both centrally and non-centrally pre-investigated sites, reducing regulatory complexity and red tape. The first stage focuses on determining whether bidders are prepared to develop a site under market conditions, i.e. without public funding. If several bidders are interested in this option, the successful bidder will be selected through a dynamic bidding process based on willingness to pay. The second stage will only be triggered if no bidder is prepared to proceed without financial support, providing a hedging mechanism in the form of a two-way CfD. In that case, the contract will generally be awarded to the bidder with the lowest reference value.
In recent years, offshore wind sites in Germany have been awarded without funding, with particularly high bids being submitted in the dynamic bidding process for non-pre-investigated sites. Under the new auction design, it will be particularly interesting to see whether offshore wind sites will ultimately require funding under a subsidy regime or whether market conditions will continue to allow them to be awarded without funding. - Introduction of two-way CfDs (sections 24(1), no. 2, 55(1), no. 2 WindSeeG (draft)): The draft WindSeeG introduces a two-way CfD as the second-stage hedging mechanism. This is implemented through the existing market premium regime under section 19 Renewable Energy Sources Act (Erneuerbare-Energien-Gesetz, “EEG”) and the refinancing contribution mechanism under section 21d EEG. This means that operators receive funding via the market premium if the market value is less than the reference value, while windfall revenues generated when market values exceed the applicable reference value are recovered through the refinancing contribution.
- Limited options for exiting the CfD (sections 24(1), no. 2, 55(1), no. 2 WindSeeG (draft) in conjunction with section 21e EEG): The draft generally does not permit operators to opt out of the CfD framework and the related clawback mechanism, in order to prevent them from initially benefiting from funding while avoiding subsequent repayment obligations. However, section 21e EEG does allow operators to make a one-time switch from the CfD mechanism to another form of direct marketing or PPA-based marketing within the first ten years.
- Transposition of the Net-Zero Industry Act (sections 15a, 51, 51a, 54a, 83a and 100 WindSeeG (draft)): The draft implements the provisions of the Net-Zero Industry Act on resilience, cybersecurity and sustainability. While cybersecurity and resilience of supply are mandatory prequalification criteria, bidders may also voluntarily commit to resilience measures relating to permanent magnets and sustainability as assessment criteria. In return, they receive a multiplier which, in the first auction stage, reduces the contribution payable and, in the second stage, increases the applicable reference value under the CfD. These criteria apply to centrally pre-investigated sites and replace the previous qualitative criteria. Cybersecurity is considered a prequalification criterion for all sites. Failure to satisfy the mandatory prequalification criteria will result in the award being revoked, while non-compliance with the voluntary assessment criteria will trigger a penalty of 10 % of the security for each criterion.
- Extended operating period (sections 69(7), 102(8) WindSeeG (draft)): New offshore wind turbines and other energy generation installations are generally to be approved for 35 years rather than 25 years, although a shorter period is an option in exceptional cases due to grid connection constraints or subsequent use of the site. Where a new installation has been approved for the 35-year operating period, a post-approval extension will be available only once and for a maximum additional period of five years. This is intended to support technically and economically optimised investments and improve the commercial viability of new projects. There will be no blanket statutory extension of the approval period from 25 to 35 years for projects that have already been awarded, but operators may apply for a one-time extension of up to ten years.
- Maximum bid values and security (sections 18 et seq., 52 et seq. WindSeeG (draft)): The draft establishes a maximum bid value for the second stage of the auction process, setting the cap at 9.487 ct/kWh for non-centrally pre-investigated sites and 9.6715 ct/kWh for centrally pre-investigated sites. In addition, the Bundesnetzagentur will be authorised to adjust the maximum bid values under certain conditions, particularly where actual electricity yields significantly deviate from projections. At the same time, the required security will be increased from EUR 100/KW to EUR 200/KW for non-centrally pre-investigated sites and from EUR 200/KW to EUR 250/KW for centrally pre-investigated sites. Consistent with the current regime, successful bidders will not have a right to unilaterally return projects awarded to them.
- Grid connection, cable pooling and procedural efficiency (sections 24(1), 55(1), 2a(2), 4, 5(1), 91a WindSeeG (draft)): The draft also introduces greater flexibility in relation to grid connection by removing the requirement that installed capacity must match grid connection capacity. Instead, the site development plan may provide for a different site-specific grid connection capacity, enabling cable pooling, i.e. the installation of generation capacity greater than the grid connection capacity. For this purpose, individual sites may in future be allocated auction volumes ranging from 500 MW to 2,400 MW. International offshore connection lines will also be integrated into the planning framework. In addition, environmental assessments will generally be coordinated by the BSH.
- Competitiveness and innovation (section 69(3) and (7) WindSeeG (draft)): The draft permits limited co-location projects combining offshore wind power and electrolysis. Other energy generation installations, such as electrolysers, may be authorised if their installed generating capacity does not exceed 2.5 % of the allocated grid connection capacity and they are operated as pilot offshore energy generation installations. The aim is to trial offshore hydrogen production under real-world conditions without generally opening up offshore sites to hydrogen production.
Assessment and recommended actions
The draft bill overhauls the auction design for offshore wind energy, replacing the previous system with a two-stage procedure that prioritises market-based implementation and provides for a CfD-based hedging mechanism as a secondary support measure. For project developers, this means recalibrating revenue and financing models, particularly as CfDs offer downside protection against revenue risks while capping upside revenue potential.
The German Offshore Wind Energy Association (Bundesverband Windenergie Offshore, “BWO”) has welcomed the draft as a fundamentally sound basis for reform, describing the introduction of CfDs as a “step in the right direction” that could provide long-term planning certainty. The BWO also welcomes the decisions to maintain the 70 GW target to be achieved by 2045 and to extend the operational life to 35 years. At the same time, it sees significant room for improvement, arguing that CfDs should not merely be a fallback option, but should be available from the outset. The BWO and other industry representatives are also calling for an indexation mechanism linked to fluctuations in interest rates, commodity prices and component costs, as well as a mechanism allowing the return of legacy awards granted between 2023 and 2025.
Forward
