Offshore wind: the Norwegian government’s proposal for allocation of areas in Sørlige Nordsjø II and Utsira Nord

For both areas, Statnett is responsible for planning the offshore grid in accordance with guidelines given by the Ministry and input from players within the offshore wind industry. Statnett is responsible for the electricity grid offshore, and will identify connection points to the transmission grid onshore. In the event connection of wind power plants triggers investments in the transmission grid, the wind power project may be required to cover such investments.

Based on the current outlook for costs and electricity prices for offshore wind, resource rent tax for offshore wind is not proposed. However, on May 11^th 2022, the Norwegian government informed that resource rent related to future offshore wind projects will be further assessed. Revenue from renewable energy resources is taxable in accordance with ordinary rules in the Norwegian Tax Act. The Norwegian Ministry of Finance sent a consultation memorandum on February 21^st 2022, proposing to introduce tax liability to foreign persons and companies participating in exploitation of renewable energy resources to ensure equitable treatment of Norwegian and foreign entities.

The deadline for making comments to the consultation memorandums regarding offshore wind is January 6^th 2023. Important elements of the two consultation memorandums are summarised below:

Consultation memorandum on pre-qualification criteria and auction model for Sørlige Nordsjø II

Sørlige Nordsjø II is opened with a total capacity of 3000 MW. The first phase is opened for a maximum of 1500 MW. The Ministry’s proposal is limited to allocation of areas in the eastern part of Sørlige Nordsjø II, in an area comprising 605 km².

Key elements of the proposal:

To participate in the auction for allocation, the actors must be pre-qualified in accordance with proposed amendments in the Offshore Energy Act § 2-3 and the associated Regulations. There will be an upper limit for the number of applicants who can be pre-qualified. The proposed pre-qualification criteria are:

• Execution ability, emphasizing financial strength, project plan, competence, and experience
• Sustainable development that safeguards coexistence and minimizes consequences for the climate
• Positive local repercussions for industry development, hereunder development of competence and supply chains

Pre-qualified applicants will then have the opportunity to participate in an auction.

• The Ministry is proposing a combination auction as auction model to achieve an efficient allocation of the society’s resources with the lowest possible level of state funding, a so-called Anglo-Dutch auction. The auction involves a normal bidding round and a subsequent hidden bidding for the remaining two bidders.
• A two-sided contract for difference with a funding period of 15 years, with a capped amount payable under the contracts for difference.

Consultation memorandum on qualitative criteria and funding model for Utsira Nord

Utsira Nord is opened for a capacity of 1500 MW divided into three tender areas, each with a capacity of 500 MW. Based on proposals for a new section § 2-3 in the Offshore Energy Act, the government’s ambitions for offshore wind, and inputs from the industry and affected bodies, the Ministry has decided to allocate the areas of Utsira Nord without executing a pre-qualification.

Key elements of the proposal:

Five qualitative criteria have been proposed and will be assessed as a whole at the end of the application period:

• Cost level for 2023, positively emphasizing low cost levels with a realistic estimate
• Contribution to innovation and technology development ensuring a lower cost development
• Execution ability, emphasizing financial strength, project plan, competence, and experience
• Sustainable development that safeguards coexistence and minimizes consequences for the climate
• Positive local repercussions for industry development, hereunder development of competence and supply chains

In addition to a competition for the areas, there will be a competition for state funding to ensure that funding is kept at the lowest level possible. The Ministry has presented two alternative models to carry out the competition for area and funding:

• Allocation of area based on qualitative criteria leading to three projects being awarded areas and an exclusive right to apply for a licence within the awarded area. Competition for state funding is held as part of the licencing process in a later phase where not all of the projects will receive funding.
• A minimum of six players are invited to mature their projects prior to allocation of area which are based on qualitative criteria. Subsequent to further maturing and a quantitative competition on state funding, three players will be awarded areas. The respective players will be given an exclusive right to prepare an impact assessment and an application for licence for the awarded area. A final competition for state funding is implemented as part of the licensing process.

Two alternative state funding models are presented, and both alternatives will be subject to a maximum amount:

• The State provides investment funding as cash payment at the time of the investment, aiming to raise the project’s profitability to a commercially acceptable level. The companies are exposed to risks related to the electricity price, but the State will cover the project risk in the development phase by funding a part of the investment costs.
• Two-sided contracts for difference where the State provides relief from the risks related to the electricity price in terms of a guaranteed electricity price. The State funding will cover the difference between the bid price and the reference price when the reference price is lower than the bid price. The producer will cover the difference when the reference price is higher. Project risks will be borne by the producer.

Read the consultation memorandum for Sørlige Nordsjø II here and for Utsira Nord here.