"Subsidy-free" offshore wind is getting a lot of attention after contracts in Germany and the Netherlands were signed without direct government incentives. However, experts say these zero-subsidy offshore wind farms won't become the norm anytime soon.

Swedish developer Vattenfall won a tender to build up to 750 megawatts of offshore wind capacity in the Netherlands over the next five years, split across two adjacent sites 14 miles from the coast.

This puts commissioning ahead of the world’s first zero-subsidy offshore wind bids, which were awarded in Germany last year for projects due from 2024 onward.

While further zero-subsidy bids are likely in Europe, they will be linked to a very special set of market conditions for now.

“What the Dutch tender results illustrate is that zero-subsidy bids in offshore wind tenders are possible for some developers in some markets,” said Andrew Canning, press and communications manager for WindEurope, the European wind industry association. “This is especially so where governments take on and manage a share of the project risk.”

This opens the "subsidy free" claim up to interpretation. In the case of Germany and the Netherlands, it means no government cash was used to directly support project financing.

In the case of the Hollandse Kust Zuid 1 and 2 projects, which will be developed through Vattenfall’s Nuon Energy subsidiary, the Dutch government will take care of providing a grid connection. This is “a significant factor,” said Canning.

The Dutch government has also put in place a number of other market-strengthening measures.

It has been transparent about the future offshore wind capacity volumes that will be offered to developers, for example. It has also committed to introducing a national carbon floor price as part of moves to phase out coal. All this is “helping the business case for offshore wind,” Canning said.

Although there are questions about what constitutes a subsidy, Vattenfall is calling the latest projects the "first" subsidy-free offshore wind farms to enter operation in the world, when completed.

In a press release, Magnus Hall, Vattenfall's president and CEO, said the company is committed to investing SEK 13 billion kr (USD $1.6 billion) in wind energy this fiscal year. He said the Netherlands is “an important market for us.”

Gunnar Groebler, Vattenfall’s wind business area senior vice president, added that the zero-subsidy bid was a result of continuous cost-reduction efforts across the offshore wind sector.

“Offshore costs are coming down largely due to economies of scale,” he stated. “The average size of the new offshore turbines last year was 5.9 megawatts, a 23 percent increase over 2016. And the average size of new offshore wind farms was 493 megawatts, a 34 percent increase.”

Capacity factors are also rising. Anholt 1 in Denmark has a capacity factor of 54 percent, said Canning, while the U.K.’s Dudgeon project is at 65 percent. So is Hywind Scotland. This compares to a capacity factor of 37 percent for onshore wind in the U.S.

The quest for ever-larger, more efficient turbines means developers will increasingly be able to operate without subsidies. For this reason, “I am confident that we will see more subsidy-free bids in future,” said former MAKE Consulting senior research manager and managing consultant Michael Guldbrandtsen. “However, I would caution to call it the norm.”

The feasibility of subsidy-free projects depends on the market, he said. “It is no coincidence that zero-subsidy bids were first introduced in the Dutch and German markets.”

Support for grid connection, combined with an expected rise in power prices in the coming decades, makes subsidy-free bidding viable for projects commissioning in the Netherlands and Germany from 2022 to 2025, said Guldbrandtsen.

That means more subsidy-free bids could be in the cards in the coming months, particularly in the Netherlands. MAKE said the country fast-tracked its zero-subsidy auction after seeing subsidy-free projects emerge in Germany. The Netherlands has two more auctions planned through 2019. The country aims to have 3.5 gigawatts of offshore wind capacity by 2023.

Furthermore, Guldbrandtsen said: “I would not be surprised to see [subsidy-free projects] in Denmark soon, provided that there will be long-term clarity on offshore wind deployment following a hopefully ambitious energy agreement.”