Norway: Tendering For Offshore Wind In Norway Launched

The tendering for offshore wind projects on the Norwegian continental shelf is finally underway. The tender documents set out the terms and conditions for the tenders, and describe the process leading up to the award of project areas, the tender parameters and the documentation to be submitted by the participants. While the start-up for offshore wind development in Norway has been announced several times, the Government's announcement indicates that the race is now definitely underway.

There are several similarities between the tender documents for Sørlige Nordsjø II and Utsira Nord, but also a number of significant differences as to type of tender and how applicants are assessed. The differences may to a large extent be traced back to the difference in maturity of the projects, and the expected level of costs between bottom-fixed and floating offshore wind.

The tender documents are based on the proposals submitted for consultation by the Government in December 2022. However, the final tender documents contain substantial clarifications and elaborations in relation to the consultation documents, especially for the process leading up to the allocation. It is also clear that the Government has listened to the views of the industry and the public consultation feedback in several areas. One example is the requirements for reference projects, where the requirement for experience from development of HVDC grid facilities has been adjusted for Sørlige Nordsjø II.

For both Sørlige Nordsjø II and Utsira Nord, the Government prepares for a period where the applicants can ask questions related to the tender documents. This period is indicated to be 17 April – 1 June 2023.

The Government also announced at the press conference that a new tendering process for offshore wind areas will be launched in 2025.

Sørlige Nordsjø II

Summary

Project areas: One project area with a minimum of 1 400 MW and a maximum of 1 500 MW installed capacity, but with a maximum access to feed-in of 1 400 MW in the onshore grid.

Type of tender: Prequalification with selection of the 6 – 8 best applicants. Subsequent monetary auction between prequalified applicants.

Form of support: Two-sided contract for difference. Contract price to be determined by the auction. The contract for difference will be published later.

Grid connection: Radial connection, with the connection point either to Kvinesdal (primary alternative) or to Nye Mosby station near the Kristiansand station (secondary alternative). The radial will be built, owned, operated and financed by the developer.

Prequalification

The prequalification is the first step of the tender for the award of project areas at Sørlige Nordsjø II. There are three main criteria for the prequalification. These are:

• Execution capability, which is weighted 60%
• Sustainability, which is weighted 20%
• Positive local ripple effects, which are weighted 20%

Each of the main criteria have several sub-criteria. The main criteria are the same as those submitted for consultation in December 2022, while some adjustments have been made to the design and content of the sub-criteria.

The sub-criteria under execution capability include, among other things, a requirement for financial strength, with a requirement for total turnover of the consortium and solvency for each consortium participant, and a requirement for a funding plan with a minimum of 20% equity in the project. The sustainability sub-criteria include, among other things, requirements for quantification of estimated carbon footprint and a plan for coexistence with other affected interests. Under positive local ripple effects, applicants are required to document measures to promote small and medium-sized enterprises (SMEs), and a description of how the applicant's contract strategy contributes to the development of the supplier industry.

The prequalification implies a two-step assessment. The applicant must first document that all criteria, including sub-criteria, have been met or passed, including, for example, the requirement for financial strength, requirements regarding funding plan and equity ratio for the project, and the reference project requirement. All sub-criteria, including those of a more discretionary nature, must be met in order for the applicants to proceed to the rating stage.

The applicants who meet the qualification criteria will then be rated according to their score on the prequalification criteria. A rating from 1 to 10 is made for each of the three main criteria stated above. The individual sub-criteria under each main criterion are included in the overall assessment of the main criteria, but are not scored separately.

It is worth noticing that the Government has relaxed the criterion regarding reference projects, in particular with regard to reference projects for the development and construction of grid facilities. An alternative reference requirement based on HVAC-technology and a more discretionary criterion has now been included as an alternative to the requirement for construction and commissioning of a large-scale HVDC facility. The alternative requirements for reference projects will likely entail that significantly more participants will be able to meet the minimum requirements for relevant experience.

It is also worth noting that the Government is opening up for the possibility of combining the development of offshore wind at Sørlige Nordsjø II with the electrification of the Ekofisk field. Participants facilitating for electrification of Ekofisk will be awarded extra points in the prequalification. The intention is, however, that the terms and conditions for a possible purchase of power must be clarified on a commercial basis between the winner of the auction and the licensees on Ekofisk.

Auction

The auction will be held as an English auction, which in practice implies open bidding between the participants. The Ministry's proposed reservation price for the auction is NOK 0.66/kWh. The reservation price implies that no bids over this price will be accepted.

The tender is prepared so that the participants' bids will be binding. It is therefore a requirement that the winner of the auction must meet the requirement of having a specific applicant company (for consortiums) and has signed the contract for difference within four weeks after the auction. This requirement is secured by liquidated damages of NOK 400 million, combined with a requirement for a bank guarantee in the same amount for participation in the auction. If the winner of the auction withdraws, or fails to sign the contract for difference, the liquidated damages are triggered.

The auction is expected to take place in December 2023.

Support model and contract for difference

According to the tender documents, the contract for difference will be published later, along with a general overview of the support model. The Government's website also states that the contract for difference will be shared with the relevant applicants for comments before being finally determined. The Ministry asks applicants who wish to receive a draft of the contract of difference for review to notify the Ministry at havvind@oed.dep.no.

Schedule

The tender documents set out the following schedule for the allocation process on Sørlige Nordsjø II:

Utsira Nord

Summary

Project areas: Three project areas, each with a minimum of 460 MW and a maximum of 500 MW installed capacity. The Ministry has indicated the possibility of increasing the capacity up to 750 MW per project area if studies show that this is feasible.

Type of tender: Qualitative competition where the three best qualified applicants are assigned one project area each. No prior prequalification.

Form of support: State aid will be based on a subsequent competition for support between the projects that are allocated areas, which will be implemented as part of the licensing process. The Ministry has proposed that state aid be based on a two-sided contract for difference with a duration of 15 years.

Grid connection: It remains open whether the grid connection will be a joint solution for all three project areas (coordinated solution) or a separate grid solution per project (distributed solution). The connection point to land may be either Karmøy station, Gismervik station or Spanne station, and may depend on the choice of coordinated or distributed network solution. The Ministry has stated that the developers shall build, own, operate and finance the grid connection, either through a distributed solution or a coordinated solution.

Qualitative competition

The three projects areas on Utsira Nord are awarded through one single qualitative competition.

The qualitative criteria on Utsira consist of five main criteria. These are:

• Cost level 2030, which is weighted 30%
• Innovation and technology development, which is weighted 20%
• Execution capability, which is weighted 30%
• Sustainability, which is weighted 10%
• Positive local ripple effects, which are weighted 10%

As with Sørlige Nordsjø II, the main criteria again have several sub-criteria, apart from the cost level 2030 criterion. The main criteria are the same as those submitted for consultation in December 2022, while some adjustments have been made with regard to the design and content of the sub-criteria.

It is worth noting that the same criteria (including the sub-criteria) used in the prequalification for Sørlige Nordsjø II are also used for Utsira Nord, but with some adaptations to both the criteria and the documentation requirements. Utsira Nord does, for example, have somewhat less stringent requirements for the consortium's total turnover (NOK 30 billion as opposed to NOK 40 billion), and somewhat less stringent requirements for relevant experience, in particular with regard to reference projects for the development of grid facilities.

Moreover, the tender for Utsira Nord also includes two distinctive main criteria. One is the "Cost level 2030", where the applicants are assessed according to their estimated level of costs for the development of a wind farm on Utsira Nord for operation in 2030. The other distinctive main criterion is "Innovation and technology development", where the applicants have to describe the possibility for further cost reductions for their technology from 2030 to 2035.

As part of the competition, the applicants must also rate their choice of project area. The winner of the competition will be allocated its preferred project area; the second in the competition will be allocated its preferred area thereafter, while the number three will be allocated the remaining project area.

Competition for state funding and contract for difference

The Ministry has stated that there will be a competition for state aid in connection with the licensing process. The three allocated projects will compete on funding in an auction, where one of the projects will not be granted funding. The Ministry has here chosen its preferred model from the consultation round before Christmas.

The Government has stated that state funding will be granted through a two-sided contract for difference, that the state funding will be limited by an upper ceiling, and that the contract for difference will have a duration of 15 years from production start-up.

For the project that is not awarded state aid, the Ministry will propose to the Norwegian parliament that the project shall have the right to participate in potential future competitions for state aid to new offshore wind projects.

It is worth noting that although the Government is open to the possibility of increasing the capacity in the project areas on Utsira Nord from 500 MW to up to 750 MW, state aid will only cover 500 MW.

Schedule

The tender documents set out the following schedule for the allocation process on Utsira Nord:

Originally published by 29 March, 2023

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