France explores sweeping offshore wind reforms to go faster, bigger

Offshore wind players are readying for an acceleration of activity in France as the country attempts to catch up with its European neighbors with plans for a supersized capacity auction featuring measures to diversify the competitive landscape.

The French government aims to kick off a 10-GW offshore wind auction in late 2024 or early 2025 consisting of multiple projects in a move away from its existing model of tendering sites one by one.

Observers say the historical approach has contributed to France's slow progress in offshore wind. Since 2012, just eight tenders have been completed, mostly for projects of about 500 MW in size, with the Saint-Nazaire wind farm the only one to be fully commissioned so far.

More significantly, tenders have been characterized by permitting delays, heavy litigation and in one case a tariff renegotiation. Saint-Nazaire, built by French state-owned nuclear giant Electricité de France SA, took more than 10 years to go from tender award to commissioning.

Efforts are now ongoing to streamline the tender process, incorporate power purchase agreements (PPAs) into projects, and map out areas of the seabed where future wind farms will be built. Grid operator RTE Réseau de Transport d'électricité will also have the flexibility to build new connections before offshore wind investments are confirmed, helping reduce the potential for delays.

Together, the measures aim to accelerate France's quest for 18 GW of offshore wind by 2035 and 45 GW by 2050.

"There is a very strong movement in the French state to accelerate the development of offshore wind," said Michel Gioria, general representative of industry association France Renouvelables, adding that the technology is popular because it plays into France's long history of large-scale centralized power generation with nuclear.

"[The government] can decide from the Élysée Palace [the French president's official residence in Paris] where to put the future offshore wind farms," Gioria said in an interview.

Market opening up

The prospect of a 10-GW tender brings France more in line with Europe's offshore wind big hitters like the UK and Germany, where auctions have ushered in multiple gigawatts of new capacity at a time.

While France's auction design is still to be finalized, renewables lobby group SER said it will feature a mix of fixed-bottom and floating sites along with a cap on the amount of capacity one company can win, helping to broaden the pool of offshore wind operators in France.

EDF, now fully owned by the French government, dominates the country's offshore wind market, having won five of the eight tenders for fixed-bottom projects, including the only two held since 2014.

Spain's Iberdrola SA is developing one project while Ocean Winds SL, the joint venture of Engie SA and EDP Renováveis SA, is behind the other two. All three of the non-EDF projects were awarded a decade ago or longer.

"If every time it's the same operator that keeps winning … other operators could lose interest and then the competitive tension … could be jeopardized as a result," said Francois April, a partner at law firm Linklaters in Paris.

Observers expect awards to be capped at 50% of capacity — a level that will "create much more interest and dynamism in the market," according to Andrei Utkin, associate director in clean energy technology at S&P Global Commodity Insights.

Utkin highlighted the absence in recent French auctions of the world's largest offshore wind developer, Denmark's Ørsted A/S, as an indication that certain players consider the market too involved or tough to break into.

Still, Bertrand Jacquet from financial advisory firm Green Giraffe described France's idiosyncrasies as a "necessary pain."

"The French market is actually very attractive to developers," Jacquet said in an interview, pointing to the fact that tenders give winning bidders a site, a tariff and a grid connection in one package. "There is big interest from all of the usual European players."

Indeed, while they may not have won anything in France just yet, heavyweight offshore wind investors like RWE AG, Vattenfall AB, TotalEnergies SE and Corio Generation Ltd. are all among the prequalified bidders for two gigawatt-scale projects that are slated to be awarded this year.

Flexibility via PPAs

Future offshore wind tenders in France could also feature corporate PPAs or elements of merchant risk, in another change from the government to spur greater competition.

As it stands, winning bidders get a 20-year contract for difference, which provides guaranteed revenue for 100% of their output. The idea would be to allow a certain portion of that power to be sold on the market or via PPAs — likely between 10% and 25%, according to market players.

"That's something you see in other markets ... so it would make sense to bring that to France, just to give more flexibility to participants to do what they think works best for them," Jacquet said. "People want to at least be given the option to look at it."

The move will also reduce the weight on public finances, according to Adrien Comte-Bellot, senior research analyst at Commodity Insights. However, developers will have to weigh any potential upside against the uncertainty that would creep in if there is a long time between auction award and commissioning.

"You don't know what the power price will be after such a long time," Comte-Bellot said in an interview.

Another factor to consider is France's relatively immature PPA market. In 2023, the country recorded just 640 MW of renewable PPAs, according to PPA marketplace Pexapark, compared to 4.67 GW in Spain and 3.73 GW in Germany.

Still, the market is anticipating a growth of PPAs given the so-called ARENH mechanism, which pegged the price of French nuclear power at €42/MWh over a decade ago, is due to expire in 2025.

Post-ARENH, new regulation will aim to ensure average nuclear power prices of €70/MWh for 15 years, which Gioria said provides a "strong incentive" to sign renewable PPAs at lower prices.

In 2023, EDF and its Canadian partners Enbridge Inc. and the Canada Pension Plan Investment Board won a 1-GW tender off Normandy at a price of €44.9/MWh.

"That is very competitive," Gioria said.