Denmark selects CfD model for 800 MW Thor offshore wind project in the North Sea

The Energy Settlement Circle has established a competition model for the supply of the Thor offshore wind farm. The chosen model means that the Danish wind resource can be harvested in a cheap and competitive way.

The Contract for Difference (CfD) is the technical name of the competition model chosen by the parties behind the energy agreement for the 800-1,000 MW offshore wind farm. A similar model has previously been used for the Danish offshore wind, but the model for Thor entails that the investor and the state share risk and possible financial gains on Thor.

In general, a CfD works in such a way that investors bid with a price per cent / kWh and the lowest bid price wins. If the market price of electricity is below the bid price, the state must pay the difference, while the wind turbine owner must pay the state if the market price of electricity is above the bid price. The difference is calculated based on the difference between the bid price and a reference price, which is the annual average spot price. The result is that wind turbine tenants are hedged against large fluctuations in revenue, which reduces the requirement for returns and financing costs, while the state, in turn, has the opportunity for revenue when the electricity market price exceeds the bid price.

In total, the state has allocated DKK3.7 billion (US$547.89 million). The winning investor will have to build both a park and an onshore facility in the form of offshore transformer station and power cables inland. Therefore, the network connection will be included in the settlement price that is being offered.

The plant is expected to be completed around 2025.