The first Norwegian license round for offshore wind has attracted significant interest from major Norwegian and international players, as the Norwegian waters (Exclusive Economic Zone) is considered the ideal place for locating large scale offshore wind projects, with the second largest wind resources in Europe (after Portugal) and its relative proximity to the European markets. Last Friday, the Norwegian Ministry of Petroleum and Energy (MPE) issued its long awaited proposals for amended regulations and a detailed set of guidelines for the coming auction and licensing process.
The amended regulations and proposed guidelines ensure that the government has complete control over the selection of bidders, impact assessment program, project design and execution.
The MPE expects to announce a competition for areas within the two first zones, Utsira Nord and Sørlige Nordsjø 2, towards the end of the year and in the first quarter of 2022 respectively. Award of exclusivity is expected to occur 6 – 12 months after announcement. At Utsira Nord, which is only suitable for floating installations, the MPE intends to announce at least three areas with a maximum capacity of 500 MW and at Sørlige Nordsjø 2 two or three areas with a combined total of up to 3 GW. Sørlige Nordsjø 2 is regarded as suitable for both bottom-fixed and floating installations due to its relatively shallow depths of 60 -70 metres.
Below, we have summarised four key takeaways for developers, suppliers and investors who are considering engaging in the substantial business opportunities raised by the competition:
1. Award of areas will as a main rule be determined by way of auction
According to the MPE’s proposal, the preferred method for awarding exclusivity to areas will be by auction, where participants bid for the acreage fee to be paid to the government. The rationale behind introducing the auction model is to ensure a completely transparent and objective process for awarding exclusivity. In particular circumstances, the government may nevertheless elect to announce a competition based on qualitative criteria, e.g. if warranted to support technology development or ensure a socio-economically profitable development. Although this has not been stated definitely, we expect that qualitative auctions may be used at Utsira Nord in connection with the deployment of floating installations, whereas auction is likely to be used at Sørlige Nordsjø, relying on mature technology. As the auction model is not previously used in the Norwegian licensing system for awards of acreage to explore national energy resources, this proposal may be challenged in the upcoming consultation rounds before the regulations are adopted.
2. Subsidies will be available for technology-enabling projects only
The proposals indicate that projects in the Sørlige Nordsjø zone will have to be built subsidy-free, whereas floating projects at Utsira Nord may be eligible for investment support from the governmental fund Enova.
The level of support and eligibility criteria will be set at a later stage. As a possible reference data point, Equinor’s Hywind Tampen floating project received a support of NOK 2.3 Bn in 2019, amounting to almost 50% of the total capex. This is however likely to be a high point in terms of support percentage and we advise investors to be prepared for substantial but somewhat lower levels.
3. Bidders will be subject to strict prequalification criteria
The proposed guidelines contain an extensive set of prequalification criteria for bidders, which is likely to favour participants with solid financial capacity and a documented track record in developing, constructing and operating offshore wind farms. Parties to bidding consortia may qualify as a group, meaning that the combined resources of the consortium will be assessed by the MPE towards the prequalification criteria.
4. Grid connection will have to be paid for by the developers
The planning, construction and operation of export cables and interconnectors will have to be paid for by the developers, whereas the existing Norwegian transmission system operator (TSO)-Statnett- will be the appointed system operator for transmission networks offshore. The MPE is considering the regulation of so-called hybrid projects connecting to several different points, e.g. bilateral and multilateral grids between Norway and other countries, other wind farms, offshore grid hubs or oil and gas installations, which raises a number of legal questions. The MPE may also set conditions in the license requiring developers to cooperate on common grid infrastructure in an area. We expect these matters to be clarified ahead of announcement of areas for competition.
