The Danish government and the parties to the Climate Agreement for Energy and Industry have reached agreement on the subsidy scheme for the up to 1200MW Hesselo offshore wind farm.

Hesselo will be offered a 20-year period of risk sharing between the Danish State and the concession owner in accordance with the two-way Contract-for-Difference (CfD) model, the Danish Energy Agency (DEA) said.

“The CfD-model gives the concession owner certainty for the investment in the long run, but places more short-term risk by exposing the concession owner to market signals,” DEA said.

The price premium will be calculated as the difference between the offered bid price and a reference price, which consists of the average electricity prices in the previous calendar year.

DEA said the subsidy scheme provides “automatic acceptance of the offered bid price given that the prequalified tenderers do not cross the threshold for net zero subsidies” when submitting final tenders by the end of 2022.

It added that, if the bid with the lowest offered price in ore per kilowatt-hours amounts to the total subsidy costs over the 20-year period, which are equal to or below the budget evaluation threshold of net zero, award is guaranteed without any further approvals.

“If this is not the case, the parties to the Climate Agreement must decide whether to accept the bid and locate the required subsidy funds or whether to reject the bid,” DEA said.

The agency will use its electricity price forecast when. evaluating whether the bid will lead to subsidies that are within the net zero subsidy threshold.

When the concession is awarded, the actual amount of subsidies to be paid by the Danish State to the concession owner is Dkr5bn (€672m) in 2018 prices.

In that case, if electricity prices develop significantly lower than expected, the concessionaire still has an insurance for their income from the Danish State, DEA said.

The cap on the subsidy payment made by the Danish state is counteracted by a cap of Dkr2.8bn on the payment made by the concession owner.

Both caps are net over the 20-year subsidy period, DEA said.

It added that another feature of the subsidy scheme makes the cost related to renewable energy more transparent since the indirect support, granted as a separate premium as compensation for the feed-in tariff (FiT), will not be granted for Hesselo.

The FiT is a tariff payed by the consession owner for the electricity delivered to the transmission grid and previously tendered offshore wind farms are compensated for this expense through a premium separated from the subsidy scheme.

For Hesselo, however, the concession owner will have to take account of the expenses for feed-in tariffs in the bid.

DEA will publish the tender conditions in autumn 2021.