Prequalification & licensing regime
The prequalification and licensing regime according to the Offshore Energy Act can be seen as a hybrid between the licensing regime for onshore wind according to the Energy Act, and the licensing regime according to the Petroleum Act.
The licensing regime can be summarised as follows:
Opening of areas
In order to obtain a license for offshore wind, an area must first be “opened” for licensing by the authorities, cf. the Offshore Energy Act Section 2–2. However, the authorities may make exceptions on a case-by-case basis and decide to award areas without a formal decision to open an area, cf. the fourth paragraph of Section 2-2.
Prior to the opening of an area the authorities must prepare an impact assessment of the area in question. On this basis, the Ministry of Energy (ME) sends a recommendation, which is then subject to public hearing. The final recommendation is then sent to the Government, which evaluates the recommendation and passes a final decision on whether or not to open the area.
As of February 2024, Utsira Nord (“UN”) and Sørlige Nordsjø II (“SN II”) are the only areas opened for offshore wind in Norway, and the Government published the tenders for UN and SN II on March 29, 2023. However, the Norwegian Water Resources and Energy Directorate (NVE), tasked by the ME to look further into relevant areas for offshore wind power production with a capacity of 30 GW offshore wind, and NVE submitted its report on this to the ME on April 25, 2023. NVE points at 20 areas that are suitable for offshore wind, and states that the areas should be subject to further examinations in order to find the best suited areas for offshore wind. Based on this, the Government has indicated that additional areas (Vestavind B, Vestavind F and Sørvest F) will be opened for offshore wind by 2025.
Prequalification process related to SN II
The deadline for applying for prequalification ended on 15 November 2023. On 16 February 2024, the MPE published its decision to prequalify five of the applicants.
The SN II tender consists of a prequalification, and a subsequent monetary auction, based on an English auction, see SN II tender documents.
For SN II, prequalification of companies/consortiums prior to an auction round to win the exclusive right to submit a license application for the opened areas, is sanctioned by the Offshore Energy Act section 2-3 third paragraph. The applicants must satisfy certain prequalification related to the company’s technical competence, financial standing and Environment, Health and Safety (EHS) requirements, in addition the MPE has set further prequalification criteria that needs to be met. The MPE has in the tender documents for SN II stated that a minimum of six applicants, and a maximum of 8 applicants may participate in the auction. Selection will thus be on the basis of ranking of scores achieved in the prequalification assessment. An applicant’s score in the prequalification process will therefore be crucial for the applicant.
The MPE has on 17 October 2023 made several changes to the competition for SN II. According to the changes, the applicants will be evaluated solely on the execution capability criterium. The sustainability criterium and the “positive local benefits”-criterium is changed to be minimum requirements. The “positive local benefit”-criterium is furthermore changed by removing “local” in order to ensure that the positive benefits do not have to be limited to positive benefits in Norway. The changes have come about in order to satisfy concerns from the EFTA Surveillance Authority (ESA) in the process of obtaining a swift approval under European state aid law. The following prequalification criterium and minimum requirements now apply:
1. Execution capability (prequalification criterium)
Applicants participating in the auction must demonstrate that they have a sufficiently mature project concept, as well as a solid project and financing plan. Experience and financial strength will also be emphasized. According to the criterium, the bidders must:
- Have an adequate financial standing to conduct impact studies, projecting, construction and operation of the offshore wind farm and grid system.
- Have a robust and realistic financing plan for the project with a equity requirement of minimum 20 % of the investment cost.
- Have the necessary integrity as project responsible with regards to taxes and sanctions. This will be assessed as passed or failed.
- Have key personnel with relevant and suitable competence and experience to be able to carry out the project.
- Have necessary experience and expertise to complete the project. The bidders have to have experience with one reference project regarding offshore wind project with a minimum capacity of 300 MW that is commissioned, as well as a reference project regarding a commissioned offshore grid based on 300 kV HVDC-technology or 220 kV HVAC-technology or other comparable reference projects larger high voltage facilities and maritime operations.
- Satisfactory systems for quality assurance HSE and internal control, and comply with the HSE rules applicable at all times. This will be assessed as passed or failed.
- Have an anticipated installed effect of between 1400–1500 MW, and present a clear and realistic project concept.
- Have a resilient project plan with realistic milestones, budgets, risk assessment and descriptions of relevant suppliers
2. The sustainability criterium (minimum requirement)
The sustainability criterium shall ensure that the development of offshore wind takes place in a sustainable way, taking consideration for the climate and environment, as well as coexistence with rivaling interests. The criterium was altered by the MPE on October 17 2023. The criterium is now a minimum criterium, meaning that the applicants will no longer be evaluated based on this criterium as long as the minimum criterium is met. According to the criterium, the bidders must list:
- The climate footprint per kW installed capacity of the wind farm
- The bidder’s plan for coexistence with the fishing industry, environment and shipping, including potential mitigating measures
- The bidder’s plan for recycling and re-use of larger construction elements in the wind farm
- The project must support the nature and environment and contribute to increased knowledge and innovation
3. The positive benefits-criterium (minimum requirement)
The positive benefits-criterium shall contribute to the Government’s goal of development of the Norwegian and European offshore wind industry, and contribute to facilitate new competence in the supplier industry. The criterium sets the following minimum requirements:
- The project’s contribution to the development of expertise in the supplier-industry (through introduction programme, supplier meetings and joint venture projects)
- The project’s plan for involvement of small- and midsize businesses (businesses with under 100 employees)
- The projects contribution to development of the supplier-industry for offshore renewable energy
Award of right to an area for SN II
After the prequalification phase for SN II, an auction process for an exclusive right to the opened sub-areas will take place. The monetary auction will take place as an English auction with open bidding. The monetary auction is based on a Contract for Difference (CfD), where the bidder with the lowest strike price wins the right to an area. In case of draw, the highest score in the prequalification criteria will prevail. The ME initially set a reservation price for the CfD of 0,66 NOK/kWh, and a cap on the support scheme for 15 billion NOK, and stated that it would not take into account bids with a price above the reservation price.
However, the level of costs for offshore wind have increased significantly recently, and the Government has therefore with support from the Parliament decided that there will be no reservation price for SN II, and that the cap on the support scheme would be raised to 23 billion NOK.
The winner of the auction/bidding round must within four weeks following the end of the auction (i) create a project company responsible for the execution of the project, if this has not already been done, (ii) enter into the CfD with the Government, and (iii) post the guarantees required under the CfD. Within six weeks following the award, the winner must also submit a project-specific impact assessment program pursuant to Section 2d of the Offshore Energy Regulations.
The winner of the auction receives an exclusive and time limited right to submit a license application for that sub-area. If the winner does not comply with relevant time limits, or the license application is rejected, the area will once again be open for other applicants.
The auction at SN II will take place on 18 March 2024. The processing of a license application may vary but will, according to the MPE, in general take approx. 1 year.
Tender process for UN
The tender processes for UN consists of a tender based on qualitative criteria, and a consecutive tender for support schemes from the Government, see UN tender documents. UN is not suitable for bottom-fixed installations due to the ocean depths in the area, and must be developed with floating installations. The projects within UN are thus dependent on support schemes from the Government, because floating wind turbines are currently not economically viable without support schemes.
Utsira Nord will be awarded according to a two-step model, where 1) the three sub-areas are awarded based on qualitative criteria, and 2) the companies compete for support schemes as a part of the further licensing process.
After the application deadline, the ministry will assess whether the applicants have satisfactory technical competence and financial strength, and meet relevant requirements for health, environment and safety. Applicants who meet the requirements will be ranked according to the qualitative criteria. The three applicants who overall get the highest score in the qualitative competition will each be awarded their own project area. The applicant with the highest score will be allocated their preferred project area, the applicant with the second highest score will be allocated their preferred project area among the remaining two project areas and the applicant with the third highest score will be allocated the last project area.
The interested parties will be evaluated based on the following main qualitative criteria: i) level of cost 2030, ii) contribution to innovation and technological development for floating offshore wind installations, iii) execution capability, iv) sustainability, and v) positive local benefits. In the following we will describe the relevant sub-criteria under each of the criteria.
i) The level of cost criterium will be evaluated based on the Company’s cost estimate for an operational 500 MW floating offshore wind project at Utsira Nord in 2030, based on LCOE.
ii) The innovation and technological development criterium will be evaluated based on the sub criteria: potential for cost reductions, potential for dispersion and scaling of technology.
iii) The execution capability criterium will be evaluated based on the sub criteria: financial strength, financing plan for the project, the Company’s integrity (requirement of orderly tax conditions), key personnel’s competence, experience, safeguarding of HES, and a realistic concept and resilient project plan.
iv) The sustainability criterium is evaluated based on the following sub criteria: climate footprint, plan for coexistence with fishery, environment and shipping, plan for recycling and reuse and effective use of the opened area and the contribution to nature and environment.
v) the positive local benefits criterium will be evaluated based on the project’s contribution to development of expertise in the supplier-industry, the project’s plan for involvement of small- and midsize businesses and the project’s contribution to development of the supplier-industry.
The Government has stated that not all three applicants that are awarded a sub-area within UN can expect to receive financial support in the above-mentioned second phase, and there is a risk that not all projects within UN will be completed due to lack of adequate support schemes.
Note that on 17 October 2023, the ME announced that the tender deadline at UN was postponed, with an indication that the new deadline will be set during the first quarter of 2024. This postponement is caused by delays in receiving state aid approval from the EFTA Surveillance Authority (ESA).
Award of a right to an area for UN
The winner of a competition based on qualitative criteria for UN, receives an exclusive and time limited right to submit a notification, and a license application for that sub-area. The processing of a license application may vary but will, according to the ME, in general take approx. 1 year. If a license application is not submitted within relevant time limits or is rejected, the area will once again be open for other applicants.
The Government has furthermore stated that the project that does not receive state support will be able to keep its awarded area and further develop its project, and apply for state support in future competitions for state support. However, we are uncertain that the third project will be completed, given the dependency of support schemes.
The MPE have stated that the new application deadline will be set during Q1 2024. It is not clear when the areas will be awarded following submission and processing of the tenders.
Notification and IA-program
Once the right to the sub-area is awarded, the developer can submit a notification to the MPE. The notification must include a proposal for a project-specific impact assessment program, cf. Section 3 of the regulations. Section 4 of the regulations stipulates the specific requirements for the notification and the proposal for the impact assessment program.
The proposal for the impact assessment program is subject to public consultation and the MPE determines the final impact assessment program of the specified sub-area.
License application
The developer must, within two years of the determination of the impact assessment program, submit the license application with the completed impact assessment program to the MPE, cf. section 7 of the regulations. The application is subject to public consultation. Further application requirements can be found in Section 7 of the regulations.
The Government has indicated that the detail plan will be a integrated part of the license application and thus be discontinued as a separate licensing step. This will contribute to facilitating a swift licensing process.
The MPE’s decision
The MPE is the licensing authority and decides whether a license is to be granted, including whether the impact assessments are approved, cf. Section 8 of the regulations. An appeal must be submitted to the Government. A license for offshore wind may be awarded for up to 30 years.