Offshore wind, Wind power | The figures you have seen about offshore wind subsidies are wrong

INSIGHT: This case is for those with a special interest, but can still be useful if you get confused by different numbers.

It is the case that almost everything you have read about how much the state will pay for the development of the first offshore wind project in Søndre Nordsjø II is wrong.

The week before Easter, Ventyr, consisting of Belgian Parkwind and Ikea’s investment company Ingka, won the auction to develop the bottom-fixed Norwegian offshore wind project.

There are usually two numbers that repeat:

• The guaranteed electricity price of 115 øre per kWh (the winning bid)
• A cap is set on subsidies of NOK 23 billion

Both of these numbers are only true if you live in the past. The real figure is much higher.

Would remove uncertainty

The preparations for the first auction took place at a time when everyone was increasingly worried about inflation. No one knew how big the price increase was going to be, nor how long it was going to be high.

If there’s one thing industries that have to invest a lot of money really hate, it’s uncertainty. You cannot promise to spend tens of billions of kroner many years into the future, if there are many things you do not know.

So when the government was to propose how the auction for the offshore wind development should take place, they wanted to remove as much uncertainty as possible.

They managed that. But at the same time, they created a system where it is difficult to understand simple numbers.

Changed the system at the last minute

Just before Easter last year, the government sent a bill to the Storting in which they explained how they thought the auction should take place.

This document states that is set to NOK 15 billionand that that figure should be price adjusted from the assumed completion of the auction in the 1st quarter of 2024.

But after that this is being proposed, the politicians began to understand that it has become much more expensive to build offshore wind than was thought, and that there was a big risk that no one would try to get such a contract.

Thus did the Storting two important changes, of which only one received particular attention:

• The maximum support from the state was increased from NOK 15 to 23 billion.
• The time for inflation adjustment was moved from the 1st quarter of 2024 to the 1st quarter of 2023.

These two changes led to a real increase in the subsidy ceiling, from 15 to 24 billion kroner in 2024, or 60 per cent.

Guarantees for past inflation

The solution the government came up with was that those who would bid on the offshore wind auction did not have to think about inflation either before or after the auction.

The government not only promised that all figures were to be adjusted for inflation in the future, but they were also to be adjusted for the past.

The contract states the following:

«The contract price, minimum price, maximum price addition and maximum price deduction must be index-regulated once in accordance with Statistics Sweden’s consumer price index (CPI).

The index adjustment shall be based on changes in the CPI during the period from the first quarter of 2023 until the quarter in which completion is achieved in accordance with point [18]. The CPI for a quarter must be based on the average for the three months included in the quarter.

After index adjustment in accordance with the foregoing, the Contract Price, Minimum Price, Maximum Price Addition and Maximum Price Deduction shall remain fixed throughout the Support Period.»

The auction itself took place in March 2024 – i.e. a full year after the inflation adjustment starts.

Gains great importance

Statistics Norway does not initially have figures for quarters, but their inflation calculator shows that the price increase from February 2023 to February 2024 has already been 4.5 per cent.

That means the numbers you’ve heard so far are actually much higher:

* Assumed average inflation of 3 percent.

Whether the figures for 2030 are correct, no one can say today. Firstly, it is not certain that the plant will be completed in 2030, and the adjustment will take place until it is put into operation. Secondly, no one knows how high inflation will be in the future.

The actual the ceiling will only be known after the project has actually been built. How much the state actually has to pay cannot be said with certainty until 15 years after that again.

Both the maximum state subsidy and the electricity price the state guarantees the developer will be adjusted in line with inflation until the project is completed. No deadline has been set for when the project must be completed, confirmed Energy Minister Terje Aasland (Ap) to Nettavisen in January:

– Will there be any deadlines for when the project will be finished?

– We want to have this done, we need that power. So the fact that they cannot sit on the project indefinitely is important.

– But there will be no clear deadlines?

– No, we are not saying that this should be in production in 2030. But we will set up our decision-making processes in such a way that it is clear if they want to build until 2030.