Germany aims to accelerate offshore wind deployment to 30 GW by 2030 and at least 40 GW by 2035.

Today, less than 10 GW is installed. At the same time, rising costs, higher interest rates and volatile supply chains have contributed to auctions without bids, and to projects across Europe being postponed or cancelled. Without adjustments to the support framework, delays to the expansion pathway are likely.

Against this backdrop, Frontier Economics, on behalf of EnBW AG, examined how a new offshore support regime should be designed to safeguard investment and efficiently deliver the expansion targets.

Key findings

1. Offshore wind is capital-intensive and exposed to significant risks

Around 70 percent of levelised costs of electricity are driven by investment and financing costs. Even moderate interest rate increases or commodity price shocks can materially change project economics between auction award and final investment decision (FID). Many of these risks are only partially controllable by investors.

Targeted risk sharing between the state and investors can reduce risk premia and increase the likelihood that awarded projects reach completion.

2. Two-sided CfDs are an appropriate reference mechanism

Two-sided Contracts for Difference (CfDs) compensate the difference between the auction-based strike price and the market value of electricity, both upward and downward. This reduces the core price risk and improves cashflow predictability.

The analysis shows:

• Production-based CfDs are simple, bankable and internationally proven.
• Production-independent or hybrid models can, in theory, strengthen system incentives, but are more complex and administratively demanding.
• From an investor perspective, return profiles differ only marginally if models are designed appropriately.

Overall, there is a strong case for a production-based two-sided CfD as a pragmatic entry point to a new support regime.

3. Strike price indexation can improve project delivery

In Germany, several years typically pass between bid submission and commissioning. During this time, interest rates as well as steel, component and turbine costs can shift substantially.

A purely inflation-based adjustment is insufficient. The study recommends phase-specific indexation:

• Before commissioning: reflect interest rate, commodity and component risks.
• During operation: simplified adjustment for OPEX risks, for example via inflation indices.

International examples suggest that targeted, pragmatic indexation can lower financing costs and reduce project risks.

4. CfDs and PPAs should be designed as complementary instruments

Even with the introduction of a CfD system, the market for green power purchase agreements (PPAs) remains important, particularly for industrial decarbonisation.

The study proposes an opt-out option until FID: successful project developers could decide whether, and to what extent, to market electricity via CfDs or PPAs. Under current market conditions, a parallel carve-out model appears to be a practical way to combine bankability with continued PPA supply.

Implementation from 2027: a phased approach

As the current support framework expires at the end of 2026, timely action is required. The study recommends:

• Start with a simple, production-based CfD to quickly restore investment certainty.
• Gradually strengthen market integration, for example through minimum PPA shares or more advanced CfD designs.
• Evaluate and refine the regime once the first projects under the new framework have been delivered.

Conclusion

In the short term, a two-sided, production-based CfD with targeted indexation offers an effective and investment-friendly framework for offshore wind expansion. Combined with clearly defined PPA options, it can improve predictability, limit system costs and support delivery of the expansion pathway despite challenging market conditions.