“Hors Catégorie” – French Mega Offshore Wind Auction Coming Up

“Hors catégorie” (beyond rating) describes those climbs in the Tour de France that separate the best from the rest. The homeland of the Tour de France has just published the “Alpe de Huez” of auction design that will leave bid managers sweating until the deadline on 12 October.

Managing Director Dominik Hübler, Director Soren Tang Sorensen, Senior Consultant Leonie Janisch, and Consultant Julien Martin break down the key economic features—like performance-enhancing drugs but entirely legal.

The Product on Sale

• The tender offers a diverse portfolio of fixed-bottom and floating offshore wind projects across multiple locations. Four large-scale fixed-bottom sites, totalling c. 5.2 GW, are being tendered, alongside several floating sites, totalling c. 4.9 GW. The floating segment includes three 500 MW sites adjacent to existing projects, creating opportunities for extensions. In addition, the tender includes two 550 MW sites and two larger floating projects of 1,100 MW and 1,200 MW. This diverse portfolio requires bidders to carefully assess and prioritise their preferred sites.
• To de-risk the projects, the French state offers an indexed, modified production-based CfD with a 25-year support period, one of the longest available in Europe. The strike price applies to generated volumes when market prices are zero or positive. For negative price or specified non-production periods, remuneration is based on theoretical production, thus incorporating elements of a capability-based CfD. Additionally, the sophisticated strike price indexation mitigates developers’ exposure to cost volatility. Until commissioning, the strike price is indexed to general inflation, labour costs, and raw material prices; thereafter, indexation for general inflation and labour costs continues. Given the French system’s traditionally long lead times to commissioning, this two-phased indexation addresses a key development risk.
• While CRE will evaluate bids primarily based on their financial offer, non-price criteria also play an important role. The “project credibility” criteria assess the conceptual robustness of bids. Although these criteria are weighted lower, poor performance leads to the elimination of offers from the tender process. Additional award criteria include assessments of the project’s expected carbon footprint and the sourcing of components from the EEA. Finally, further reflecting the requirements of the EU’s Net Zero Industry Act (NZIA), bidders have to commit to standards e.g., related to cyber security, recycling, and the contracting of SMEs to be eligible for award.
• To reduce the risk of project cancellations, a multilayered penalty will apply in the event of a project cancellation: i.) The developer is excluded from the re-tender of the project; ii.) a financial penalty applies depending on the development stage; iii.) the developer remains liable for stranded costs of the grid connection; and iv.) the developer continues to be bound to the dismantling obligations. As a result, the value of the developer’s option to cancel a project changes throughout the development process, further affecting the attractiveness of option-based bidding strategies.

The Auction Rules

Following the submission of bids, bidders are scored mainly on price, which accounts for 70% of the score, and other factors (e.g., project credibility, environmental and supply chain aspects) that account for the remaining 30%. Following the initial scoring is when the fun starts.

For PPE2 (three floating extension projects)

• Bidders can generally win at most one PPE2 project.
• Any bidder who exceeds the cap (due to being ranked first on too many projects) will be awarded its favourite project based on ranked preference order. On any sites that a preferred bidder has to relinquish, the next ranked bidder on that site becomes the preferred bidder at its own bid value until there are three different preferred bidders.
• Sites are awarded starting with the lowest bid price for as long as the average bid price across the PPE2 sites stays below 100 euro/MWh. Any site that would tip the (weighted) average bid price above 100 euro/MWh will go unsold.

For PPE3 (a blend of fixed bottom projects and new floating projects split across four zones)

• Bidders can generally win at most three PPE3 projects and a maximum of one PPE3 project per maritime area (façade). There are three defined areas, with three of the four fixed bottom projects residing in the same area, thereby effectively limiting the number of fixed bottom projects a single bidder can win to two.
• For PPE3, any bidder that exceeds the cap is awarded those projects in which it has the largest advantage over the next-ranked bidder, relinquishing projects until its remaining winning bids fit within the cap. To avoid this process of relinquishing sites pushing another bidder over the cap, only bidders that are not yet at the cap can “inherit” sites relinquished by first placed bidders, potentially allowing a third-placed bidder to sneak in. This step yields a set of provisional winning bidders.
• Once PPE3 bidders are ranked, the regulator computes the average tariff among all provisional winning bidders (weighted by each project’s min capacity). If the average of all projects exceeds 100 euro/MWh, the regulator rejects projects whose bid exceeds that level, in order of price, until the average reaches 100 euro/MWh.

Finally, the auction is pay-as-bid (first price): Once the caps and the average-price test have determined the winners, each surviving winner is awarded a CfD at the strike price set out in its own bid. Because each winner is paid its own bid price, every euro a bidder can add to its bid without losing the site or tripping the average test is pure surplus paid over 25 years, which makes the bidding decision value-critical.

The Implications

In principle, the substantial risk mitigation via a long CfD-support period and strike-price indexation during the development and the subsidy phases increases the attractiveness of the projects compared to various European peers.

While the tender volume of around 10 GW provides ample opportunities in theory, the sites differ substantially in terms of technology, size, and location. Given the rule that the average of bids is not to exceed 100 euro/MWh, the final allocated volume may end up significantly below 10 GW as some sites may struggle to attract any bids. Nonetheless, as pointed out by CRE, the bid caps are likely to reduce competition on individual sites, creating scope for bid shading, even on the most attractive sites.

Beyond any single site, the size of the auction and its allocation rules leave a multi-site bidder with harder problems still: how to win its target capacity without winning so much that the caps strip away the sites it most wants and how to land the right sites at the right price. Because the caps, the relinquishment cascade, and the 100 euro/MWh average-price threshold all interact, no site can be valued or bid for in isolation. What a bidder actually wins on any one site depends on its bids everywhere else, on what rivals do, on the order in which sites are reassigned once a cap binds, and on which sites survive any trimming to bring the average tariff below the 100 euro/MWh ceiling. Thinner competition on each site leaves room to bid a higher price, but bidding too high risks the site being lost or dropped, while shading too little forgoes income or locks in a site a bidder would have preferred to trade for a better one. With sites differing widely in technology, scale, location, and grid timing, the field and the room to shade safely shifts site by site. Working out which bids to place, how to spread them across sites, and how to rank preferences to come out ahead under these rules is exactly the kind of problem we model and war game for bidders.

In extreme cases, the budget cut-off can scrap more projects than the target tariff requires. The mechanism runs in two steps that do not feed into each other. The regulator first picks the projects to drop using the provisional winners’ tariffs and only then re-runs the allocation, once, on the surviving sites, potentially returning some sites to lowest price bidders that had initially been forced to relinquish them under the “no more than three sites” rule if some of their more expensive winning bids were removed by the cull. The re-run cannot change which projects were dropped, so the cull is locked in before any tariff is recomputed.

This matters because the provisional tariffs already carry the impact of the diversification caps. A bidder ranked first on two sites on one façade keeps only the site in which its lead over the runner-up is widest, which can be its more expensive site. Its cheaper site then passes to a rival at a higher price and enters the average at that higher tariff. As a result, the average that drives the cull is overstated, and a project that the re-run would have made safe can be dropped, requiring every bidder to consider how one bid for one site can affect all other bids for other sites in unexpected ways.

While certainly special, the auction evokes memories of the German 2018 offshore wind auction in which caps on capacity by cluster/zone (not unlike they apply here) allowed one bidder to sneak in a successful bid near the ceiling price in one cluster while fighting it out at zero subsidy levels in other clusters, playing to the different competitiveness of different sub-auctions happening within the same auction (see here for a refresher).

Your Path to the Yellow Jersey

We hope this discussion has provided you with some insight into the complexities of the French auction coming up. If you would like to discuss further, do not hesitate to contact us.

In other complex multi-site auctions (e.g., UK LR4 and Germany’s 2023 auctions), we have helped bidders with financial modelling, competitor analysis, auction strategy and simulations, and conducting mock auctions.

We have also recently worked on analysing previous French auction rounds and the non-price factors they have employed (here) and the integration of explicit option modelling into bid preparation and the impact it can have on bid valuation (here).