Game changer for Norwegian offshore wind
The Norwegian Government today published a white paper on energy (Meld. St. 36 Energi til arbeid – langsiktig verdiskaping fra norske energiressurser), comprising several important elements; clarifications for the development of offshore wind in Norway, electrification of Norwegian industries, hydrogen development and a more efficient development and use of the Norwegian power grid, to mention some.
In this newsletter, we will focus on the game changing clarifications presented for the development of offshore renewable energy in Norway.
The Ministry of Petroleum and Energy (the MPE) last year adopted regulations to the offshore energy act, specifying the rules applicable to offshore renewable energy license applications. The regulations entered into force 1 January this year. At the same time, the Government opened two areas offshore Norway for renewable energy production; Sørlige Nordsjø II and Utsira Nord.
The regulations adopted last year have been criticised for not meeting several concerns of relevance for license applications in the opened areas. In particular, the original regulations were silent in respect of prioritizing among the large amount of serious market players having announced their interest in participating in the new offshore wind adventure in Norway. Seemingly, the MPE had not expected the vast interest in offshore wind development.
Today's announcements considerably changes this impression, as the MPE now proposes material changes to the offshore energy act and to the regulations to the offshore energy act, affecting the procedure for license applications and selection of market players in particular projects. In addition, the MPE has prepared a guideline for the application process which shall apply to offshore wind development. The MPE's proposal may be found here.
Some of the most important changes proposed in today's hearing notes may be summarised as follows:
- Procedures for prequalification: In order to be permitted into the application processes, the MPE foresees a prequalification process, where each applicant must in advance prove its suitability for development of offshore energy projects. As far as we understand, the criteria for pre-qualification will be established for each area award (see below), but in general the market players will be considered based on their financial and technical capabilities, as well fulfilment of HSE requirements. From the guideline, the interested applicants must e.g. describe its previous experience with comparable projects, its HSE systems, how they plan to finance the offshore wind project, number of employees, strategy for training of employees and contract strategy, to mention some. For consortiums, they can fulfil the relevant criteria together, although, as it is required that the applicant is a legal entity, it is in our view not entirely clear how such requirements will be assessed for consortiums or other forms of joint ventures. The new rules will in our view benefit the major market players, and most likely make it difficult for smaller entities to succeed. Furthermore, a pure financial investor will seemingly not be able to pre-qualify for a license/ area award.
- Exclusive award of project area after competition: A major difference from the existing legal framework is that the opened areas will be divided into smaller project areas, which will be allocated to one market player exclusively, as a main rule after a competitive process. Such allocation does not give the applicant a right to develop offshore wind in the relevant project area, but it is an exclusive right to submit a plan for impact assessment, which would thereafter allow such applicant to apply for an installation license. For Sørlige Nordsjø II, where bottom fixed technologies is the likely option, the MPE envisages an auction process where the bidders propose a price for the area award. For Utsira Nord, where floating wind is more relevant, a competition based on qualitative criteria is envisaged. After being awarded an exclusive right to apply for a project area, the applicant will have only six weeks to submit a plan for impact assessments (with possibility of prolongation).
- Grid development: The authorities have been criticised for not sufficiently accommodating a co-ordinated development of an offshore grid, which would benefit both offshore energy producers, electrification of petroleum installations and cross-border power transmission in a socio economic beneficial manner. In this regard, we note that is still envisaged that each licensee (potentially jointly with other project developers) will apply for a license for, build and finance power cables required for their offshore wind projects. However, the white paper partly addresses this by (i) stating that Statnett – the onshore transmission system operator in Norway – will be appointed as system operator for the offshore grid, and (ii) informing that they will look further into the legal and technical implications of hybrid projects. In the coming semester we expect more information on whether these initiatives will address the concerns raised, as the role of Statnett as system operator and the scope and procedures for hybrid projects currently remain unclear. In addition, the MPE has notified that it will assess third party access rules and tariffing for the joint use of grid infrastructure offshore. We welcome this very important initiative, which should not be delayed.
The documents presented by the MPE today mainly focuses on offshore wind. It will be exiting to follow this process further in the months to come.
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Wikborg Rein has a team of leading offshore wind experts. We are able to serve offshore wind players from our Norwegian offices in Oslo and Bergen, and from our foreign offices in London, Shanghai and Singapore. Our combined experience enables us to assist players with any aspect of project development, financing and M&A and regulatory matters for offshore wind.