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Launch of offshore wind tenders for Sørlige Nordsjø II and Utsira Nord


On 29 March 2023, the Norwegian Government announced the opening of Norway’s first offshore wind tenders in the areas Sørlige Nordsjø II and Utsira Nord.

The two areas will have a total capacity of 3000 MW, enough to power 460 000 households on mainland Norway. The announcement marks a big step towards meeting the Government’s goal of awarding rights to develop 30 GW of offshore wind capacity by 2040.

Key take-aways

Both Sørlige Nordsjø II and Utsira Nord will be awarded by the end of 2023.

Exclusivity to the 1500 MW Sørlige Nordsjø II area will be awarded to one consortium only, based on a pre-qualification stage with deadline 4 August 2023, followed by an English style open-bid ­auction expected in December 2023. A maximum of 8 bidders will be pre-qualified. The winner will be eligible for capped public funding through a contract for difference (“CfD”). The bidders will be required to provide an on-demand guarantee as security for their potential obligation to pay a penalty of NOK 400 million if the bidder fails to sign the CfD after being awarded exclusivity. A new guarantee will have to be provided under the CfD, and the CfD will contain an obligation to realise the project with sanctioned milestones.

For the Utsira Nord tender, on the other hand, there will be no pre-qualification round. The Utsira Nord area is divided into three project areas of 500 MW each, which will be awarded through a competition based on qualitative criteria, with ­application deadline 1 September 2023. Due to an average water depth of 265 ­metres, floating wind turbines are most suited in the area and the Norwegian Ministry of Petroleum and Energy (the “Ministry”) has set qualitative criteria to develop expertise and technology within this field. Government support will be awarded to two of the three elected winners of Utsira Nord, based on a competition at a later stage. It is expected that the Government will award exclusivity to the three Utsira Nord areas in December 2023. The limit of 500 MW may be increased to 750 MW, subject to conclusions in a study undertaken by the Norwegian Directorate for Energy and Water Resources (NVE).

For both areas, it is specified in the ­tender rules that there will be limited ­possibilities to change the projects ­negatively after award of exclusivity, hence, the bidders will be measured on the promises made in their application documents.

The projects will be connected to the transmission grid on the Norwegian mainland, and the elected bidders will be responsible for constructing the radial connection. The Government expressed that hybrid grid connections may be relevant in the next licensing round for Sørlige Nordsjø II.

The Ministry published a proposed tender format and support scheme for the two areas in December 2022. The Ministry received over 250 contributions from relevant stakeholders, and has now finalised the tender rules for phase 1 of Norway’s first offshore wind projects. However, detailed regulations clarifying the specific auction rules for Sørlige Nordsjø II, the detailed terms of the CfDs, as well as the rules for the Government support scheme competition for Utsira Nord, are yet to be announced at the date of this article. Prospective bidders will therefore have to prepare their applications without full clarity of the regulations and criteria for the award process for now.

Sørlige Nordsjø II – pre-­qualification criteria

The application deadline on 4 August 2023 provides the entrants with only four months to prepare their application. The bidders will have to work efficiently as their application needs to fulfil quite stringent criteria, e.g. to demonstrate a well matured project, a robust and realistic financing plan and several other criteria concerning the bidders’ and the projects’ characteristics and strengths.

To pre-qualify for the Sørlige Nordsjø II auction, prospective bidders must show that they satisfy each of the pre-qualification criteria, and will be given points based on how successfully they meet each criteria compared to other bidders:

  • Capacity to implement the proposed project weighted at 60%:
  • Sustainability weighted at 20%
  • Positive local spill-over effects weighted at 20%

As part of the capacity-criteria, the bidders must demonstrate, inter alia, the following:

  1. financial strength, including an average annual turnover of at least NOK 40 ­billion over the past three years,
  2. capability of financing a minimum of 20% of the project through equity,
  3. integrity,
  4. experience in developing, building and commissioning large-scale offshore wind farms of at least 300 MW and HVDC installations or other complex projects,
  5. compliance with HSE requirements, and
  6. a realistic project concept and plan.

The sustainability criteria include requirements to present plans to (i) minimise the climate footprint of the project, (ii) ensure stakeholder engagement and cooperation with the fishing and shipping industries, (iii) ensure proper waste handling and project life cycle, and (iv) promote environmental considerations.

It is also required that the project shall contribute positively to local spill over effects, including developing expertise in the offshore wind supplier industry, providing offshore wind experience for small and medium sized businesses, and advancing the supplier industry’s competence in the energy transition.

Sørlige Nordsjø II – Auction

The competition will be held through an open-bid auction, expected in December 2023, where the bidders will bid for their CfD contract price. The Ministry has announced it will propose a maximum contract price of 0.66 NOK/kWh.

Detailed rules for the auction have not yet been published, but are expected to be clarified in August 2023. The Ministry initially proposed an Anglo-Dutch auction model, but it has now moved away from a finalisation with sealed-bids, and opted for an award based on fully open-bids.

A detailed description of the CfD terms is yet to be published, but is expected in the second quarter of 2023. The Ministry has, in the meantime, confirmed that a 15 year two-sided CfD based on monthly a­verage power prices in the relevant bidding area, is the chosen support scheme awarded to the winner of phase one of Sørlige Nordsjø II. There will be a cap at NOK 15 billion for payments from one ­party to another for the duration of the CfD. In addition, the Ministry has informed that the CfD will contain mechanisms ensuring that the producer will not receive support for production in hours where the hourly spot price is less than NOK 0.05/kWh. The support scheme must be approved by both the Norwegian Parliament and EFTA Surveillance Authority (ESA).

Utsira Nord – competition

The qualitative criteria which must be met in the Utsira Nord qualitative competition are quite similar to the Sørlige Nordsjø II pre-qualification criteria, save that for Utsira Nord the bidders must also provide:

  • an estimate of the cost to develop 500 MW floating wind capacity operational in 2030 (weighted 30%)
  • a plan to promote innovation and technological developments for future floating offshore wind projects, capable of (i) reducing costs and (ii) distribution and scale-up (weighted 20%)

Capacity to implement the project is weighted at 30%, whilst sustainability and positive local spill-over effects will be weighted 10% each.

The Ministry decided on its initially preferred model, where the highest ranking bidder receives its first preference, the second ranked bidder has its second choice, and the remaining area will go to the company coming in third. This was also the model generally preferred by the industry.

Utsira Nord – Government ­support scheme

In the Ministry’s proposal for tender rules in December 2022, it was indicated that not all projects would receive financial support for Utsira Nord, which became heavily criticized by the industry. Despite protests, the announcement clarified that government support will be awarded to only two of the three elected winners. The third project will not receive financial support, but will be given a prolonged exclusivity to mature the project, and may participate in any future competitions for government support and/or seek alternative funding.

In its original proposal, the Ministry considered both an investment support scheme (capex support) and support through a CfD scheme. The Ministry has now decided on a 15 year two-sided CfD as its preferred support scheme. The state-aid will be capped, and the Ministry will set a maximum contract price. However, more detailed information about the state aid scheme is yet to be announced. The support scheme is also subject to approval by the Norwegian Parliament and ESA.

The wind farm will be visible from the municipality of Utsira, and parts will be built within the municipality’s borders. The Ministry has communicated that Utsira’s interests will be taken into consideration, and it is expected that Utsira municipality will profit from the projects, although the details of this are not yet clarified.

Further information about the announcement can be found here for Sørlige Nordsjø II and here for Utsira Nord.

Profile image of Caroline Skaar Landsværk
Caroline Skaar Landsværk
E-post cln@wr.no
Profile image of Maren Folkestad
Maren Folkestad
Senior Associate
E-post mfo@wr.no

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