Oil major TotalEnergies and utility EnBW won a 2.5 gigawatt (GW) German offshore wind site auction that fetched $3.2 billion, the country's energy regulator said on Friday, marking a plunge in price from last year.
The auction of two plots in the North Sea, located around 120 kilometers (75 miles) northwest of Heligoland, underscores TotalEnergies' continued interest in big offshore wind projects in Europe's largest economy.
The French oil major and British peer BP had emerged as winners in a similar auction last year that was seen as evidence that big oil is seeking to diversify away from fossil fuels.
"The results show the attractiveness of investing in offshore wind energy in Germany," Klaus Mueller, president of Germany's Federal Network Agency, said. "They are another important step towards achieving offshore expansion targets."
The auction consisted of two sites worth 1.5 and 1.0 gigawatt (GW) each. The planned offshore wind parks are expected to start operations in 2031, the regulator said.
TotalEnergies won the 1.5 GW site at a strike price of 1.96 billion euros ($2.1 billion) while EnBW won the 1.0 GW site at 1.07 billion, the regulator said.
Both companies must pay 10% to the German government within the next 12 months.
The result equates to an average strike price of around 1.2 million euros per MW, down a third from last year's average, but still a price not all bidders found palatable.
RWE, Germany's biggest electricity provider, had initially partnered with TotalEnergies in the auction, but said the French group would implement the project alone and it would exit the consortium.
An RWE spokesperson said that bid levels had been incompatible with its criteria for economic investments and that the company would focus on its 1.6 GW North Sea cluster, for which it has taken a final investment decision.
Auctions have put major pressure on wind power supply chains at a time when wholesale power markets in most of Europe's key economies turned out zero or negative prices for a record number of hours in the first five months of this year.
Germany hosts Europe's biggest capacity of volatile solar and wind power generation.
Andreas Mummert, head of Politics at the German Foundation Offshore Wind Energy, said bidders had to aggressively look for ways to earn back their massive investments, including ditching pricier European wind turbine makers.
"And they can do so, simply put, in three ways: increase the pressure on the supply chain to lower the purchasing costs, sell the future electricity for higher prices, or buy Chinese."
($1 = 0.9355 euros)
(Reuters - Reporting by Christoph Steitz; Additional reporting by Riham Alkousaa; Editing by Andrey Sychev, Susan Fenton, Elaine Hardcastle)