Fair competition in the WindSeeG tendering procedure

Friday, 19 May, 2017 - 11:00
The results of a call for tenders for offshore wind farms raised more questions than it answered – clarification is needed. (Photo: iStock)
The result of a call for tenders for offshore wind farms raised more questions than it answered – clarification is needed.(Photo: iStock)

On April 13, Germany’s Federal Network Agency announced the results of a call for tenders for offshore wind farms. The tender was awarded to Dong Energy and EnBW for a total of four wind farms in the North Sea with a total capacity of 1,490 MW. Three of the projects that were awarded contracts submitted bids for 0.00 cents.

If the winners exercise their real options acquired through the tender procedure and realise their projects, they will not receive any production-based compensation from the EEG apart from the connection and feed-in guarantee. The average value of subsidies across all of the projects awarded contracts was 0.44 cents per kilowatt-hour. PwC forecast an anticipated a cost degression of subsidy rates of under ten cents per kilowatt-hour. The offshore industry expected 6-8 cents. The EEG subsidy is currently as high as 18.4 cents per kilowatt-hour.

Opinions on the results of the tender are divided against this background: BWE president Hermann Albers expressed strong doubts about the integrity of the results. Overall, he expressed the view that the reliable instrument of the EEG had been traded for a highly speculative instrument. “SMEs and companies not backed by the state will not be able to do business in such a highly speculative way,” said Albers.
Dirk Güsewell, who is responsible for expanding EnBW's production portfolio, said: “Our planning is based on extensive market analyses and an intensive exchange with the supplier industry, which is working on numerous technological advances and has completely internalised cost-efficiency. The price assumptions on which the bid was based are conservative. The expected return on investment is well above our cost of capital, which makes it attractive.”
The reason for the huge disparity in opinions among offshore experts remains an open question. The legal framework also appears to be unclear. In an article it published on 18 April 2017 entitled "Tendering system needs safeguards for fair market,” the BWE points to antitrust legislation anchored in the GWB (Restriction of Competition Act). Antitrust law contains guidelines to ensure fair competition. These guidelines should also be applied to the offshore wind industry. Procurement law stipulates that all of the German federal states shall award contracts not to the cheapest bid but to the most economical.

The jurisprudence offers some room for interpretation of the law. As a matter of fact, the tendering procedure of the WindSeeG is a significant departure from the provisions in the GWB. In contrast to tenders carried out in accordance with the GWB where – as in a central model – a single public contract (or concession) is awarded, there is no uniform starting position for bidders in the transitional system of the WindSeeG with its different project sites, each with its own cost structure, which has a detrimental effect on competitiveness and equal opportunity.

Furthermore, the GWB contains explicit prohibitions against  market-dominating companies. For example, Section 19 (1) of the GWB states:
“The abuse of a dominant position by one or more companies is prohibited.”

Although, the awardees have rejected any allegations of cross-subsidisation, one cannot ignore the fact that both EnBW and Dong Energy have average monthly revenues of well over EUR 1 billion. Without necessarily broaching the issue of cross-subsidies, the question of what to make of the fact that the contract awardees have other depreciation, offsetting and risk-assessment opportunities than SMEs not backed by state-backed structures.
Standards also deal with the requirement of ensuring a fair market. For example, section 16d (1) no. 1 VOB/A, sec. 19 (6) EG VOL/A, sec. 33 (1) p. 2 VSVgV. These all contain prohibitions against dumping. Specifically, section 16d (1) no. 1 VOB/A states,
“Contracts should not be awarded for bids with an unreasonably high or low price."

It is true that the bid value according to WindSeeG is only the level of the subsidy; the market value of the electricity is unaffected. Nevertheless, the applicability of the regulation is based on the comparability of the circumstances and the fact that the regulatory loophole in WindSeeG presents a significant obstacle to planning. If the contracting authority wishes to award the contract at a dumping price, procurement law requires it to obtain information on the bid price. Against this background it is astonishing that the Federal Network Agency allotted only a few days for the announcement of the results.

As a result, the announcement of the outcome of the tender raised more questions than it answered. The non-transparency of the factual and legal situation, however, has raised the concern that in the next round of tenders in 2018 the awards will again go to zero-value bids. The industry would be well served by making a firm demand for clarification, and not simply exercise patient forbearance of the state of affairs. After all, important questions remain for the industry: were the zero-value bids primarily a bet on rising electricity prices and cost degression? To what extent, and with what justification, were antitrust regulations observed or ignored?

Linda Blunk

The author is a lawyer  at Kanzlei Blunk in Hamburg.

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