Sørlige Nordsjø II and Utsira Nord: Comments to the criteria for pre-qualification on Sørlige Nordsjø II and the qualitative competition criteria for Utsira Nord
The Ministry of Petroleum and Energy’s (the Ministry) announcement of the final competition rules for the Sørlige Nordsjø II (SN II) and Utsira Nord (UN) offshore wind areas is as mentioned in our news article from 29 March 2023 broadly in line with the consultation documents from the hearing rounds in December 2022 (the Consultation Paper). However, there are still some important changes and clarifications worth addressing.
This article is part of a series of 3 summaries of the central aspects concerning the competitions for exclusive rights to areas for offshore wind development on SN II and UN. In this article, we have focused on the pre-qualification criteria for SN II and the qualitative criteria for the competition for the award of areas at UN, on a high level and with focus on what has been clarified or amended since the Consultation Paper.
We have already commented on (i) the CfD auction and support scheme for SN II and support scheme for UN and (ii) the grid solutions and associated matters in separate articles.
Overview of the qualitative criteria
As in the Consultation Paper, the criteria for pre-qualification on SN II is sorted under three main criteria – (1) Ability to Execute, (2) Sustainability and (3) Positive Local Ripple Effects – and the criteria for UN under two additional criteria, i.e. totally five main criteria – (1) Cost level 2030, (2) Innovation and Technology development, (3) Ability to Execute, (4) Sustainability and (5) Positive Local Ripple Effects. In the ranking for the SN II pre-qualification, the scores from each of the three main criteria are weighted 60%, 20% and 20%, respectively, in the order the criteria are listed above. On UN, the similar weighting is 30%, 20%, 30%, 10% and 10%, respectively.
Several of the hearing notes called for increased clarity and predictability with respect to both content, required documentation, relative weight among the criteria and, not least, the assessment. Several comments also pointed out the importance of holding the applicants to their applications and the requirements and criteria measured in the pre-qualification for SN II and the competition for UN.
In appendix 1 to this article, we have included a short version summary of all sub-criteria applicable for SN II and UN, respectively, with high-level comments summarizing the key content of the criteria and notable amendments from the Consultation Paper.
Several criteria have been clarified both with respect to content and requirements for documentation. However, the relative weighting of the different sub-criteria still appears unpredictable, as only the main criteria are provided with a weight, and there remains little guidance on aspects that will be positive or negative for the scoring. Some of the criteria will certainly not be easy to measure, with the consequence that the assessment will lack transparency and that it may become difficult to hold the winners to their concepts and plans presented in their applications. More about this below.
The Ministry’s assessment and scoring
As a first step, the Ministry will test the applicants’ qualifications on a fulfilled/unfulfilled basis.The basis for assessment differs from UN and SN II, respectively.
For SN II, the Ministry will – as a part of the initial assessment of qualifications – first assess whether the applicant fulfills the pre-qualification criteria with associated sub-criteria. The criteria will be assessed as fulfilled or not fulfilled. If the applicant does not meet the pre-qualification criteria, the application will be rejected.
For UN, the Ministry will assess whether the applicants have fulfilled the Offshore Energy Act § 2-3 (3), hence if the applicants have the satisfactory technical competence and financial strength, and meet the relevant requirements for health, environment and safety. An applicant will be disqualified if they do not meet the requirements set out in the Offshore Energy Act § 2-3 (3). We assume the same applies to the sub-criterion related to integrity, as this is specifically mentioned as a pass/fail criterion. It is not always clear which criteria and/or sub-criteria that fall into e.g. technical competence and financial strength. It has therefore become unclear if all expressed criteria will have to be met to be qualified, as for SN II, or if a failure to meet such only will be accounted for in the scoring. In the Consultation Paper, it appeared clear that all criteria would have to be met to be qualified.
For SN II, there is a second step, and further qualification is required. Even if an applicant fulfills the initial assessment of qualifications, only between six and eight applicants may participate in the auction. If more than eight apply for pre-qualification – and qualify – selection will be based on a ranking of scores achieved in the pre-qualification assessment. In case of a draw in the following auction, one will again look back on the pre-qualification and award based on the highest score in the pre-qualification. The pre-qualification should hence not be regarded as a “tick-the-box” exercise, as the scoring may become decisive both in respect to participation in the auction and in case of a draw. As we will revert to below, one should also be aware that the winners will be held to the descriptions of concepts, plans etc. provided in the pre-qualification application when developing the project.
In the Consultation Paper, the Ministry proposed to score each sub-criteria on a scale from 0-4, where a 0-score would imply that the applicant failed to fulfil the minimum requirement for the sub-criteria, relevant information was missing, or the information provided was inconsistent or unrealistic. A zero score on any sub-criteria would imply disqualification both in relation to SN II and UN. Scores 1-4 would be assessed based on a predefined score scale. On some criteria, it was specifically mentioned that the score would be assessed relative to other applicants.
Some of the hearing notes submitted addressed that the proposed assessment system would, to a high degree, be based on the Ministry’s discretion and hard to test legally.
In the current pre-qualification criteria for SN II and the qualitative competition criteria for UN, the scoring range is set from 1-10 on each main criteria, and the sub-criteria will not be given separate scores but will be a part of the overall score per main criteria. The best applicant within each main criteria will be given 10 points. The rest will be scored relative to the best applicant. As mentioned above, there is an initial assessment of qualifications to at all being pre-qualified for SN II or qualified for UN. For SN II, this is probably not very different from what was said about a 0-score in the Consultation Paper, but for UN, it appears that not all sub-criteria will be separately assessed as a part of the initial assessment of qualifications. As mentioned above, this appears somewhat unclear.
More important to note is that although several of the sub-criteria have been clarified or specified, and hence are more predictable with respect to what is required, the overall scoring of the main criteria only may make it even harder to legally test the Ministry’s discretion. This may very well be intentional, noting that the Ministry on several occasions during the hearing round, stated that they aimed at criteria being subject to an overall discretionary assessment. On the other hand, the relative scoring, which is similar to public procurement processes, is perhaps easier to challenge than a score scale (more or less) purely based upon the Ministry’s discretion. Still, as there is no substantial indication of the relative importance of the various sub-criteria (except those measured on a pass/fail notion), and only a few indications of specific aspects that may count positive or negative to the Ministry’s assessment, it will be hard to legally challenge the Ministry’s judgement.
Nevertheless, applicants should note that in relation to some of the sub-criteria, the Ministry indicates topics that will weigh in on the scoring. We will address some of these below.
Criteria on SN II
Ability to Execute – Financial strength (1A) and Financing Plan for the Project (1B)
Under the Financial Strength (1A) criteria, the Ministry has compared to the Consultation Paper, specified in detail the financial capacity the applicant will have to evidence in order to show satisfactory “financial strength “, as required by the Offshore Energy Act § 2-3 (3).
The Ministry requires that the applicant presents the annual reports for the last three years (including the auditor’s report), credit ratings for the same period and a set-up with the key financial figures. The submitted documents must evidence an average annual turnover of at least NOK 40 billion during the period, and a solidity of at least 20 per cent or show a credit rating of minimum BBB- (S&P or Fitch) / Baa3 (Moody’s). If the applicant is a consortium, which can be assumed is the case for all/most applicants, the turnover requirement will be considered collectively, however so that the Ministry also will consider to what extent the turnover of a shareholder in the consortium on a pro-rata basis equals the share such shareholder has. As an example, a shareholder having a 25 percent stake in the consortium should accordingly have a minimum annual turnover of at least NOK 7.5 billion to satisfy “its share” of the required consolidated turnover. The requirement for solidity of at least 20 percent in the last three annual accounts (or credit rating, which is the alternative) will be considered on an individual basis for all shareholders in the consortium.
If one is unable to present annual reports (including auditors report) or credit ratings for the last three years as required, the applicant must present “other documentation” that in the same manner can evidence the financial and economical capacity. What such “other documentation” can be is not further specified. All documentation that substantiates a solid and sufficiently strong financial capacity will naturally be positive, but some further guidance from the Ministry in this respect would be welcome. While the criteria opens up for an applicant being dependent on financial support from a parent entity by specifically saying that the solidity requirement will be considered on a consolidated basis with the parent if the parent is providing financial support, one may also envisage set-ups where the financial strength is present without a parent company providing continuous financial support. It must be mentioned in this respect that a set-up relying on financial support from a parent entity requires the parent to sign a support letter in the form provided by the Ministry (see appendix 7 to the announcement).
It is also specified that when considering the financial strength of a consortium, the Ministry will also review and take into consideration how the governing agreement for the consortium (the partnership agreement/joint venture agreement) regulates the financial responsibility of the parties.
The financing plan
In addition to documenting the required financial strength, the applicant must also provide the Ministry with a financing plan for the project (1B) that is “robust and realistic”. The financing plan must be based on the applicant (the project company) having an equity level equaling at least 20 percent of the estimated investment costs of the project. If the applicant is a consortium, it must be specified how the provided equity is split between the shareholders, and to the extent any other entity is to be relied upon when it comes to the provision of equity (such as a parent company) the entity in question must sign a support letter as provided (appendix 7).
It is stated that the financing plan must at least (i) specify the project’s budget up until the investment decision (ID/FID) and (ii) specify the funding of project costs from ID/FID and until the commencement of operations.
It will, of course, be up to the various consortiums to provide their (realistic) estimated project costs, but the Ministry have in Prop 93 shared some information about the calculations they have done, in cooperation with other involved public authorities and advisors.
A more detailed specification of what costs go into the referenced “project costs” is not provided. Although a lot of the elements will be clear, it must also be kept in mind that there is still ongoing work with respect to the details of the grid solution, route of radial etc. that must be catered for in the period to come. Some guidance can also be found in appendix 5 in the competition rules for UN, however, so there are, of course, some key differences between the construction of a bottom fixed and floating wind farm in different geographical areas.
When providing the financing plan, the applicant must also provide a description of their experience in planning and carrying out financing of up to three relevant reference projects.
Other related comments
There is an extra set of limitations on ownership changes in the applicant/the consortium in the period between the application for pre-qualification and the signing of the CfD.
Generally, the regulation of changes in ownership is found in the Offshore Energy Regulation § 2 d (effective from 29 March 2023), which in addition to requiring consent for transfer of the right to an area, requires consent when transferring shares in an entity holding such right. This includes transfers that provide for a change of a controlling interest in such an entity. Furthermore, the CfD will also contain regulations to this effect. The competition rules do, however, also address the topic and state that there cannot be any changes in the applicant or on the consortium parties in the period after the application for pre-qualification has been submitted and the signing of the CfD. This means that the consortium must be the same throughout this period. As the regulations in the Offshore Energy Regulation as a starting point will only apply after the area has been awarded it can be queried how far the Ministry has intended the reach of this statement when it comes to indirect changes in ownership (controlling stakes) in a consortium-party in the mentioned period. It would naturally be of key relevance if such changes in indirect ownership influence whether the consortium still can be considered to meet the qualifying criteria in the same manner/way, but such an effect is not necessarily the case.
Ability to execute – Key Personnel Competence (1D) and Relevant Experience (1E)
The Key Personnel Competence (1D) and Relevant Experience (1E) criteria are highly connected. The first criterion focus on personnel and associated CV’s, whilst the second criterion focuses on the applicant. For both criteria, it is possible to rely on parent organizations or other companies to the extent “confirmation of intention to support applicant” (appendix 7 to the announcement) is signed by the relevant company. We note that the applicant does not need to have the competence and experience in-house in the consortium, nor in the parents, and that competence and experience can be situated within other “committed partners”.
The confirmation is a letter of support for the “implementation of the project”. As a consequence, we would expect that detrimental changes to the 1D and 1E criteria during project execution will have consequences to be further regulated under the CfD agreement.
We expect that the Ministry, even though it is not clearly stated, will particularly look for key personnel competence that backs the Relevant Experience criteria. Criteria 1D Key Personnel Competence was not included in the Consultation Paper for SN II, only for UN.
Criteria 1E has, since the Consultation Paper, been subject to significant amendments. The requirement for experience with planning, construction and operation of grid-systems has become more general and can be fulfilled by experience from various projects of a certain complexity and size.
There is no longer a firm requirement for a reference project applying HVDC-technology and no longer a requirement that the reference project(s) were completed within the last five years.
What remains firm is that the applicant must have one reference project covering the construction of a large-scale offshore wind farm with a minimum capacity of 300 MW and that the reference project is completely commissioned. In addition, there is a requirement for either a reference project with HVDC- technology with at least 300 kV voltage level, or a reference project with HVAC-technology with at least 220 kV voltage level, or other reference projects of comparable complexity and size, e.g. onshore high voltage plants and maritime operations.
The minimum documentation requirements have been outlined in greater detail. It is now specified that the reference projects must document experience with at least the following project deliverables:
- Project planning (e.g. development, project management, design and engineering)
- Licensing processes (e.g. impact assessment, license application, contact with authorities and detailed planning)
- Construction (e.g. foundations, transport, installation and commissioning)
- Operation and maintenance (e.g. optimization of operation, power trading, power supply and preparedness)
At least one reference project must include experience from all project deliverables as listed above, however, excluding operation and maintenance. Although the project will involve the development, operation and maintenance of an HVDC system, there is no longer an absolute requirement for experience with such systems. Consequently, we expect that a broader group of applicants might qualify than was the case in the Consultation Paper. However, one may still assume that such experience will count positively toward the scoring.
Ability to Execute – Concept of the Project (1G) and Project Plan (1H)
With regards to the Concept of the Project (1G), the announcement is similar to the Consultation Paper in the sense that it is required that the applicant is required to have a clear and realistic concept; however, the Ministry now also requires a mature concept. In the Consultation Paper, a mature concept was not a clear requirement, but it was stated that it would be weighted positively.
We note that as a direct result of the requirement for maturity, the applicant is required to provide even more details of its planned project, than under the Consultation Paper. Applicants that have not done substantial planning are at risk of being scored low. And we assume that this entails heavy engagement with the supply chain in order to plan to the level required. We note that the maximum documentation that the Ministry will accept has increased from a maximum of five pages to a maximum of 15 pages, indicating the shift in focus from the Ministry on the requirement for a mature project. We hope that this shift in requirements from the Consultation Paper to the announcement has not led certain applicants to treat the Concept of the Project criterion lightly. The applicants that have invested in robust plans on concept with supply-chain engagement are likely to have a head start on the competition. For the applicants that have low maturity, the change from the Ministry signals that they have no time to lose in concept selection and creation of associated documentation. Any uncertainties are to be clearly stated. It is also stressed that the project concept will form the basis for the CfD agreement. If the concept is immature, the developer may still be held responsible for executing the project as described.
Another change from the Consultation Paper is that the Ministry has, under reference to a letter from ConocoPhillips, opened for the possibility that SN II may be used for electrification of the Ekofisk field, if the developer wishes to do so. This provides i.e. an opportunity to secure an off-taker for the spare capacity of 100 MW that the onshore grid can’t receive if the farm is developed with a maximum capacity of 1500 MW. In the pre-qualification criteria, it is confirmed that if the applicant can show that the project concept can be connected for electrification of Ekofisk, this will be weighted positively. In the proposal for the CfD and state support scheme for SN II to the Parliament, the Ministry addresses this opportunity to connect directly to other end users in more general terms, and states that the developer will be allowed such connection at his own discretion. It has thus become somewhat unclear if a connection to Ekofisk will be counted more positive than another alternative for a direct connection that an applicant may prefer.
With regards to the Project Plan (1H), the announcement is similar to the Consultation Paper in the sense that it is required that the applicant is required to have a good understanding of what is required for the project to be carried out on time, cost, resource requirements and quality. The applicant must have a project plan and a risk assessment.
Notable changes from the Consultation Paper are the time to be assumed for the grant of concession and approval of the detailed plan, which is increased from 6 to 12 months. Further, the milestones in the project plan have doubled to 14 milestones and simultaneously the maximum possible pages of documentation have increased from 5 to 15, indicating the Ministry’s increased focus on a realistic and robust project plan. Again, documentation of firm supplier agreements and/or serious engagement with related parties, including the supply chain, appears key for the applicant to successfully meet the pre-qualification criteria for a realistic and documented development and execution plan, including budgeting. We refer to our general comments above under criteria 1G. It is also in criterion 1H stressed by the Ministry that the project plan will form the basis for the CfD (and hence for the delay liabilities set forth therein).
The Government wants to facilitate the development of offshore wind in a sustainable way that takes climate and the environment into account. To support its overall goal, four criteria are required fulfilled; Climate Footprint (2A), Co-existence (2B), Waste, Recycling and Reuse (2C) and Nature and Environment (2D). Notable changes from the Consultation Paper are that Area Efficiency is no longer a separate requirement, whilst Nature and Environment are. In addition, the estimated climate footprint’s calculation is highly detailed, whilst it was undeveloped with regards to the calculation methodology in the Consultation Paper.
The Nature and Environment criterion will focus on impacts on seabirds, marine organisms and the marine ecology system and cover such matters as e.g. atmospheric and oceanographic dynamics, habitat alterations (positive and negative), water quality, noise effects and structural impediments.
Another change from the Consultation Paper is that as a part of the licensing decision / concession by the government, conditions will be set that the licensee for the offshore wind power plant must carry out an analysis of the project’s sustainability and deliver a final report no later than two years after the plant has been put into operation. The final report must contain a GAP analysis that compares the plans and the end result. The final report will be published and the concession may end up including requirements on the concessionaire to remedy potential gaps and deficiencies.
We assume that local production has a positive impact on the climate footprint calculation, but that environmental gains from local production must be assessed against the LCOE and the project concept and project plan.
Positive local ripple effects
The government has a goal that investment in offshore wind should contribute to industrial development. To that end, the development of the first phase of SN II has set three criterias to motivate the applicants to contribute to industrial development through building experience and competence development in the supply chain. Specifically, Competence Development (3A), Small and Medium-sized Companies (3B) and Development of the Supply Chain (3C).
A development from the Consultation Paper is that as a part of the licensing decision / concession by the government, conditions will be set that the licensee for the offshore wind power plant must carry out an analysis of the regional and local ripple effects of the development and deliver a final report no later than two years after the plant has been put into operation. The final report must contain a GAP analysis that compares planned ripple effects and results, and the final report must be published.
The applicants should keep the entire life of field into account when considering the ripple effects and also ensure that they are able to capture, not only the effects on the first tier of the suppliers, but also measure and capture the effects on the entire value chain.
Again, this criterion must be balanced by the applicant against the LCOE and the project concept and project plan.
Criteria on UN
Cost Level 2023
Cost Level 2030 is an UN specific criterion, not required for SN II and is the result of the Ministry’s acknowledgement that floating offshore wind is not yet commercially sustainable. The criterion shall contribute to the project areas being allocated to the most cost-effective projects. The goal is to accelerate the commerciality and competitiveness of floating offshore wind whilst at the same time limiting the government’s support and hence its costs.
A development from the Consultation Paper is that the Ministry has deviated from simply requesting and LCOE estimate, but rather attached an appendix detailing the input required upon which as standardized LCOE calculation will be applied. For the cost estimation, the applicant will provide CAPEX and OPEX for the wind farm, whereby a detailed cost estimation shall be stated as expected costs of P10, P50 and P90. For the estimated energy production both net and gross shall be estimated and shall be stated as expected production P50 and P90.
In addition, the Ministry is not any longer asking for documentation in relation to ongoing research and development for new technology and its status, but rather documentation on carried out qualification for technology chosen for the concept. The Ministry is clearer in its communication, than under the Consultation Paper, that it requires realistic and guaranteed implementation, very much in line with the shift towards maturity and robustness found under the criteria Ability to Execute. Any future novel innovations are sorted under future cost reductions for future developments, ref. the Innovation and Technology criterion. We note that a realistic cost estimate will require clarity and maturity in the concept and execution plans addressed under the criteria for Concept of the Project (3G) and Project Plan (3H).
Innovation and Technology Development
The criterion shall contribute to promoting measures, innovations and technology development that can provide future cost reductions for future floating offshore wind developments and is constituted of two sub-criterion: Potential for Cost Reductions (2A) and Diffusion Potential (2B).
With regards to 2A, the cost reduction estimate to be delivered shall be based on the premise that the applicant has established a 500 MW production plant in operation at UN in 2030, and the applicant shall quantify the potential for further cost reductions for a (potential) corresponding plant that is put into operations in the same area in 2035. The cost reductions shall include CAPEX and OPEX reductions on the same template as used for Cost Level 2030.
The main principles from the Consultation Paper are not deviated from; however, the process of estimation and the premise that the cost reduction estimate is to be based on the technology concept of the existing field bound by the parameters connected to UN is clearer, in our opinion.
With regards to 2B, it is also clearer that it is the overall technology concept that is the basis for the assessment of the diffusion potential, and the applicant shall highlight distinct advantages of the concept which enables diffusion. An inherent part of diffusion of technology is that it requires measures and plans from the applicant to make the technology available for other projects or companies.
At the outset, the developers/applicants are generally technology agnostic, in the sense that they do not own proprietary information for the various work packages required for constructing an offshore wind farm. The proprietary information is – as a main rule – owned by the suppliers of services and hardware. Therefore, as a main principle, the technology is already diffused and free for all developers/applicants to use through strategic subcontracting. Hence, the question is what more the Ministry is trying to achieve by setting Diffusion Potential as a requirement.
There are today several floating offshore wind concepts that seemingly have as its business model to create novel technology that is protected by intellectual property, especially within floater concepts. In addition, intellectual property protected solutions can be found in virtually every work process in the supply chain, from towage of floaters, to mooring solutions to mounting of turbines, to each and every hardware component required in fabrication. The question is whether the applicant will succeed in forcing its supply chain to “make the technology available for other companies”. We note that this requirement can give rise to a number of questions. Whether the diffusion should be limited to Norwegian developments or on a global scale and whether the technology can be licensed with a fee, or whether the intellectual property needs to be released free of charge. The applicants need to raise this topic with their planned subcontractors at the earliest and attempt to find attractive solutions for all parties concerned to score as high as possible.
We would like to note that this requirement – relatively speaking – has the third highest weight of the criteria set at 20%.
Ability to Execute – Financial Strength (3A) and Financing Plan for the Project (3B)
The criteria for Financial Strength and Financing Plan are equally formulated in the requirements for UN as for SN II; however, the required minimum turnover is set to NOK 30 billion as opposed to NOK 40 billion for SN II.
With respect to ownership changes, it is stated, similar to what is said in the SN II rules, that no changes can be made in the period after the deadline for submitting an application for the award and the actual award of an area. The Ministry has, however, also added some elaborations when it comes to ownership changes after the award, which requires consent under § 2d in the Offshore Energy Regulation. It is emphasized that the Ministry will have a strong focus on the award being made in a competition, amongst others, based on the applicant’s presented concept, experience, technical capabilities, and financial strength. In the period up until the commencement of operations, it can accordingly not be expected that the Ministry will consent to changes in ownership that in their discretion will weaken the ability to carry through with the project.
Ability to execute – Competence (3D) and Relevant Experience (3E)
For the Competence criterion, there are no substantial differences from SN II as reviewed above.
For the Relevant Experience, applicants shall document their experience with reference projects, which cover as a minimum (1) establishment of an offshore wind farm (bottom fixed or floating) with capacity of minimum 200 MW being in complete operation and (2) the planning, licensing processes, procurement, construction, installation, operation, and maintenance of a grid-system for an offshore wind park or another grid system of minimum 66 kV.
As for SN II, it is specified that the reference projects must document experience with certain project deliveries, including project planning, licensing processes, procurement, construction, installation, transport, commissioning, operation, and maintenance. One of the reference projects concerning an offshore wind development project must include experience with all these aspects, except operations and maintenance.
It is clarified that reference projects concerning floating wind, and other projects with particular relevance for the UN development, such as various experiences from offshore installations (fabrication, installation and operations) or with grid-systems and substations based on AC technology, will count positively.
As for SN II, there is no longer any requirement that reference project(s) were completed within the last five years.
Ability to Execute – Concept of the Project (3G) and Project Plan (3H)
Criterion 3G is a new sub-criteria not found in the Consultation Paper for UN, clarifying the importance of a defined concept, and not only a defined Project Plan. Mature concepts will count positively. It is further clarified that grid solution from the offshore site to the connection point onshore will be defined later. Applicants are asked to describe their preferred solution.
Criterion 3G is largely the same as for SNII, but some differences with respect to descriptions of milestones to be included in the plan because applicants on UN are not yet required to include plans for export cables and substations. The criterion is somewhat more detailed with respect to the content of the plan, than in the Consultation Paper but less specific on elements that will count positively. Focus is, however, still on a good understanding and realistic approach to time, cost, resources and quality, and associated risks. The time to be assumed for grant of concession and approval of the detailed plan has been increased from 6 to 12 months, as for SN II.
For the Sustainability criterion, there are no substantial differences from SN II as reviewed above.
Positive Local Ripple Effects (5)
For the Positive Local Ripple Effects criterion, there are no substantial differences from SN II, as reviewed above. We note that there are high expectations in Utsira Municipality.
Binding submissions – limited possibilities to make changes to or deviate from concept, plans and descriptions
After the deadline for the application for pre-qualification for SNII and right to an area at UN, respectively, no changes may be made to the application. The same applies with respect to the applicant or the entities applying (including the consortia) until after the CfD has been signed for SNII or after an area has been awarded for UN, respectively.
Applicants for both SN II and UN must also subsequently to an award be prepared for being held to their concept, plants and descriptions provided in their applications.
With respect to SN II, this will be further regulated in the CfD, which is yet to be published. So far, it is both stressed under the pre-qualification criteria for the Project Concept and Project Plan that the descriptions will be basis for the CfD and stated in the announcement that winners cannot count on approval to change the project unless the developer can document that that changes to the project will result in a development that is qualitative equal or better than what was presented in the application. We will assume that the CfD will include various remedies for the state in case of the developer’s breach of their obligation to seek approval before changing the project.
The possibility to change the project appears somewhat more flexible in regard to UN. This is natural as the intention is to use UN for driving technology development and developing the supply chain. It thus appears opened for changes (compared to the description provided in the application) that are factually justified, e.g. to secure cost reductions or improvements, secure a more efficient execution, or maintain or improve other important considerations, such as matters concerning society, nature and environment. However, one should note that also, in respect to UN the winners must document (in the application for concession) that changes to the project will result in a development that is qualitative equal or better than what was presented in the application. We assume that the concession will include specific requirements ensuring that the state has the necessary remedies to keep the developers to its promises.
These requirements will also apply in case of ownership interests are assigned. Aligned with this, the Ministry has, in respect to UN, clarified that approvals of assignments, to a large extent, will account for the areas being awarded in competition based on the applicants’ project concept, experience, technical competence and financial strength. Although this is not equally expressed for SN II, we will assume the same to apply also in respect to assignment of ownership shares there. As mentioned above, the qualitative pre-qualifications criteria may not only be relevant for the initial pre-qualification, but also for the selection of 6-8 participants allowed into the auction and, in case of a draw in the auction, for the award of the area. It is hence little reason for handling SN II and UN differently in this respect.
Summary and Haavind comments
The Ministry has in its announcement, elaborated upon the criteria and the process of selection, but there are still some conditions that are unclear, and this creates certain predictability challenges. The discretionary element is prominent. We would recommend that the applicants use the opportunity to ask questions in the period between 17 April and 1 June to create as much certainty on the criteria as possible.
The criteria seem to place great importance on clarity regarding concept and planning and documentation that underpins this, also for UN, which initially seemed to allow developments with larger elements of R&D. We note that the documentation required to underpin the concept and the plans can prove demanding to get in place in time.
On the financial side, the requirements for financial strength are high – especially if you also add the potentially very high requirements with respect to guarantees that the Ministry might require.
The applicants that have set up consortiums should note that various mechanisms are being put in place to ensure that the state can hold applicants to their application and the descriptions and documentation provided as a basis. For this reason, it is important to have mature cooperation concepts that provide a basis for longevity or well-thought-through alternative plans.
Finally, it seems clear that a great deal of work will have to be done as part of application preparations, with substantial costs, to deliver a winning application. Especially for UN this is something to take note of, since the uncertainty of future costs of development and the uncertainty regarding the support scheme the state will apply, will remain unknown for a period of time, whilst the date of submission continues to draw closer.
APPENDIX 1: Criteria SN II and UN
Table 1: Criteria for pre-qualification on SN II
|Ref.||Criteria||Key content||vs. Consultation Paper (main clarification/changes)|
|I||Ability to execute|
|1A||Financial strength||Document sufficient annual turnover and solidity.|| Minimum required turnover and solidity specified (NOK 40 billion and 20 percent last three years, respectively). Satisfactory credit rating an alternative when evidencing solidity. |
|1B||Financing plan for the project||Provide robust and realistic financial plan, including minimum level of equity (minimum 20%).||Includes description of experience with planning and completion of financing of up to the relevant reference projects. |
No longer a reference to a higher equity percentage (than 20%) being favorable.
|1C||Applicant’s Integrity (pass/ fail)||Document good standing with respect to taxes, confirm compliance with trade sanction regimes and confirm non violation of certain legal offences, such as bribery, terrorism, money laundering and child labor.||Same content.|
|1D||Competence of key personnel||Document competence through up to 20 CVs from key personnel from applicant, committed cooperation partners or others supporting the applicant.|| |
Not included in the Consultation Paper for SN II, only for UN. Very much linked to the criteria for proven experience.
|1E||Relevant experience||Documented reference projects covering as a minimum (1) establishment of a large-scale offshore wind farm being in complete operation and (2) the planning, construction and operation or large grid systems offshore with HVDC-technology at minimum 300 kV or HVAC-technology at minimum 220kV, or other reference projects of comparable or complexity or size.||The requirement for experience with planning, construction and operation of grid-systems has become more general, and can be fulfilled by experience from various projects of a certain complexity and size. No longer a firm requirement for a reference project applying HVDC-technology. |
No longer a requirement that the reference project(s) were completed within the last five years.
Now specified that the reference projects must document experience with certain project deliveries, including project planning, licensing processes, procurement, construction, installation, transport, commissioning, operation, and maintenance. One of the reference projects must include experience with all these aspects, except operations and maintenance.
|1F||HSE (pass/ fail)||Signed HSE self-declaration and documented system for quality assurance, HSE and internal control.||Added requirement for internal control systems.|
|1G||Concept of the project||Description of the project that supports a clear and realistic concept and good understanding of the risks.||Similar to the Consultation Paper in the sense that it is expected a rather mature concept. The final announcement is somewhat more specific about minimum information required, and that the concept must be consistent with the responses provided under other sub-criteria. Added that a concept adopted to electrification of Ekofisk will count positive.|
|1H||Project (time) plan||Prepared (and substantiated/documented) project plan that describes progress, central milestones (including a list of pre-specified milestone), and the organization of the project.||Somewhat more detailed with respect to content of the plan, but less specific on elements that will count positive. Focus is however still on a good understanding and realistic approach to time, cost, resources and quality, and associated risks. Time to be assumed for grant of concession and approval of the detailed plan have been increased from 6 to 12 months. |
|2A||Climate footprint||Documentation of completed climate footprint analysis of the planned concept and of the applicant’s climate plan.||Specific requirements for the analysis added, and scoring appears to be more focused on the quality of the climate plan and documentation of experience and competence for climate measures from previous projects, and not on the estimated climate footprint per kW as it was in the Consultation Paper.|
|2B||Co-existence||Prepared plan for securing best possible co-existence at, and joint use of, the area with impacted stakeholders, including fishery and sea traffic.||Similar to the Consultation Paper.|
|2C||Waste, recycling and reuse||Plan for waste handling, recycling, reuse and measures to prevent pollution and description of estimated share of materials that may be recycled.||Similar to the Consultation Paper, although scoring appears to be more focused on the quality of the plan and documentation of experience with waste handling etc. from previous similar projects, and not so much on the grade of recycling as it was in the Consultation Paper.|
|2D||Nature and environment||Prepared plan for safeguarding nature and environment (within the project area) through increased knowledge and technology and innovation.||Not included as a separate element in the Consultation Paper. On the other hand, the Consultation Paper had a separate requirement concerning the project’s efficiency with regards to use of the area that no longer is included as a separate criterion. Scoring appears to be focused on the quality of the plan and documentation of experience and competence from working with nature, environment, knowledge (building), and innovation. Assumed that focus will be on impacts on seabirds, marine organisms and the marine ecology-system.|
|III||Positive local ripple effects|
|3A||Competence development||Description of planned and completed measures to increase competence among suppliers and contractors, to increase use of skilled workers and apprentices, and to involve and increase cooperation with academia in the project, and description of experience with the same from previous projects.||Similar to the Consultation Paper.|
|3B||Small and medium sized enterprises||Description of contracting strategy with indication of how this will contribute to small and medium sized enterprises will obtain experience with supplies and services to the offshore wind industry, and description of any agreements entered with such enterprises.||Similar to the Consultation Paper.|
|3C||Development of the supply chain industry||Description of procurement and contracting strategy for both the construction and operation phases and how this will contribute to the development of a financial sustainable supplier industry.||Similar to the Consultation Paper.|
Table 2: Criteria being competed on for UN
|Ref.||Criteria||Key content||vs. Consultation Paper (main clarifications/changes)|
|I||Cost level 2030|
|1A||Cost level 2030||Estimate of levelized cost of energy (LCOE), incl. CAPEX and OPEX, for 500 MW floating wind in full operation by 2030. Completed Appendix 5 (template for cost estimation), documentation of completed technology qualifications, and documentation of cost risk analysis.||Estimation principles specified. Cost estimates to be based on both P10, P50 and P90. LCOE to be provided based on net and gross estimated energy production (P50 and P90). Realism in the estimates, and proactive approach to cost estimation risk, will be assessed. Unrealistic estimates will count negatively. Estimates shall include internal grid/cabling, but exclude export cabling and potential substation(s).|
|II||Innovation and technology development|
|2A||Potential for cost reductions||Demonstration of understanding and measures for technology development, innovation and other processes that may drive down costs and provide for a most cost efficient and competitive for a potential similar (windfarm) in full operation 2035. Estimate of levelized cost of energy (LCOE), incl. CAPEX and OPEX, for 500 MW floating wind in full operation by 2035.||Similar to the consultation paper, but more specified. Estimates to be based on the template in Appendix 5. Requirement for QA by independent third party no longer specified.|
|2B||Potential for diffusion and scaling||Demonstration of potential and measures for further diffusion and scaling of central technologies applied in the concept.||Similar to the Consultation Paper.|
|III||Ability to execute|
|3A||Financial strength||Document sufficient annual turnover and solidity.||Minimum required turnover and solidity specified (NOK 30 billion and 20 percent last three years, respectively). Satisfactory credit rating an alternative when evidencing solidity |
|3B||Financing plan for the project||Provide robust and realistic financing plan, including minimum level of equity (minimum 20%).||Includes description of experience with planning and completion of financing of up to the relevant reference projects. |
No longer a reference to a higher equity percentage (than 20%) being favorable.
|3C||Applicant’s Integrity (pass/ fail)||Same as for SN II.||Same content.|
|3D||Competence of key personnel||Same as for SN II.||Similar to the Consultation Paper, but now opened for up to 20 CVs.|
|3E||Relevant experience||As for SN II applicants shall document their experience with reference projects, and for UN such references should cover as a minimum (1) establishment of an offshore wind farm (bottom fixed or floating) with capacity of minimum 200 MW being in complete operation and (2) the planning, licensing processes, procurement, construction, installation, operation, and maintenance of a grid-system for an offshore wind park or another grid system of minimum 66 kV.||Clarification regarding minimum requirements added. |
As for SN II specified that the reference projects must document experience with certain project deliveries, including project planning, licensing processes, procurement, construction, installation, transport, commissioning, operation, and maintenance. One of the reference projects concerning an offshore wind development project must include experience with all these aspects, except operations and maintenance.
Clarified that reference projects concerning floating wind, and other projects with particular relevance for the UN development, such as various experience from offshore installations (fabrication, installation and operations) or with grid-systems and substations based on AC technology, will count positive.
As for SN II, there is no longer any requirement that reference project(s) were completed within the last five years.
|3F||HSE (pass/ fail)||Same as for SN II.||Added requirement for internal control systems.|
|3G||Concept of the project||Description of the project that supports a defined, realistic and good concept consistent with the responses provided under other sub-criteria. |
Description of risks, technology developments etc. that may impact the concept.
|New sub-criteria clarifying the importance of a defined concept, and not only a defined project plan (criterion 3H). Mature concepts will count positive. |
Clarified that grid solution from the offshore site to the connection point onshore will be defined later. Applicants are asked to describe their preferred solution.
|3H||Project (time)plan ||Same as for SN II, but some differences with respect to descriptions of milestones to be included in the plan because applicants on UN is not yet required to include plans for export cables and substations.||Somewhat more detailed with respect to content of the plan, but less specific on elements that will count positive. Focus is however still on a good understanding and realistic approach to time, cost, resources and quality, and associated risks. Time to be assumed for grant of concession and approval of the detailed plan have been increased from 6 to 12 months.|
|4A||Climate footprint||Same as for SN II.||As for SN II, specific requirements for the analysis are added, and scoring appears to be more focused on the quality of the climate plan and documentation of experience and competence for climate measures from previous projects, and not on the estimated climate footprint per kW as it was in the Consultation Paper.|
|4B||Co-existence||Same as for SN II.||Similar to the Consultation Paper.|
|4C||Waste, recycling and reuse||Same as for SN II.||As for SN II, scoring appears to be more focused on the quality of the plan and documentation of experience with waste handling etc. from previous similar projects, and not so much on the grade of recycling as it was in the Consultation Paper.|
|4D||Nature and environment||Same as for SN II.||As for SN II, this criterion was not included as a separate element in the Consultation Paper. On the other hand, the Consultation Paper had a separate requirement concerning the project’s efficiency with regards use of the area that no longer is included as a separate criterion. Scoring appears to be focused on the quality of the plan and documentation of experience and competence from working with nature, environment, knowledge (building), and innovation. Assumed that focus will be on impacts on seabirds, marine organisms, and the marine ecology-systemt.|
|V||Positive local ripple effects|
|5A||Competence development||Same as for SN II.||Similar to the Consultation Paper.|
|5B||Small and medium sized enterprises||Same as for SN II.||Similar to the Consultation Paper.|
|5C||Development of the supply chain industry||Same as for SN II.||Similar to the Consultation Paper.|