The Norwegian Offshore Wind Licensing Process

Bryne 28. september 2023

Advokatfullmektig Marthe Wold

1. Introduction

Norway stands at the brink of their offshore wind energy adventure, as their first two areas Utsira Nord and Sørlige Nordsjø II opened for competition in March of 2023. These two areas have a combined capacity of approximately 3 GW of wind power generation. By 2040, the country aims to award areas for offshore wind that can generate a combined capacity of 30 GW, as a milestone on the trek towards a carbon neutral 2050.

With new areas opening and numerous large-scale offshore wind projects taking shape, the time is nigh for actors in all sectors of the value chain to join the endeavors. In lieu of this, this article seeks to render an overview of the offshore wind licensing process and its legal framework.

2. The Legal Basis

Wind power in Norway is regulated by two different national legal regimes. Land-based wind power and offshore wind power within the baseline (1 nautical mile from the shore) is regulated by the Norwegian Energy Act of 1990. For any offshore wind projects outside the baseline and on the Norwegian continental shelf, the Offshore Energy Act of 2010 (OEA/Havenergiloven) makes up the legal foundation. The OEA is built systematically upon the Norwegian Energy Act and the Norwegian Petroleum Act. The OEA regulates generation, transformation and the transmission of electricity produced by offshore renewable energy and is supplied by the Offshore Energy Regulation (OER/Havenergiforskriften). The OEA and the OER make up the legal framework for planning, licensing, impact assessments, decommissioning, and more.

Energy production activities at sea must also abide by the various international treaties and conventions of which Norway is a member. This includes but is not limited to the United Convention on the Law of the Sea (UNCLOS), the OSPAR Convention, the World Trade Organization (WTO) and the EEA Agreement. The OEA is developed pursuant to these agreements and treaties, which is reflected in the licensing process, as we will see below.

3. The Licensing Process

Building and operating an offshore wind farm in Norway requires a license, as stipulated in section 3-1 and 3-2 of the OEA. Acquiring such a license for an allotted area is a long process which requires a great deal of planning from both the state and the applicants.

First, the Norwegian Water Resources and Energy Directorate (NVE) must carry out the required ocean floor and environmental impact assessments pursuant to section 2-2 of the OEA. The government may then open an area for offshore wind energy production.

A license shall, with a few exceptions, always be granted through competition (section 2-3 of the OEA). This can happen in the two following ways (or a combination of the two):

  1. Through an auction prior to which applicants must fulfill a set of prequalifying criteria, or
  2. Through a discretionary selection process based on a set of qualifying criteria.

The ministry decides the content of the criteria, cf. section 3-3 of the OEA, so long as they are in accordance with national and international laws and agreements. For the two currently opened areas, Sørlige Nordsjø II has applied the former model for its call for tenders, while the right to the areas in Utsira Nord will be granted based on the latter. In both competitions, the applicants must provide plans for how to carry out the project in a cost-effective and sustainable way, to build competence across the industry and among small and medium sized enterprises, and for how to contribute to the development of the supplier-industry.

The complete list and description of the qualifying and pre-qualifying criteria for each of them can be found here (in Norwegian only):

Sørlige Nordsjø II:
vedlegg-4-beskrivelse-av-prekvalifiseringskriterier-for-forste-fase-av-sorlige-nordsjo-ii.pdf
(regjeringen.no)

Utsira Nord:
vedlegg-4-beskrivelse-av-kvalitative-kriterier-for-utsira-nord.pdf
(regjeringen.no)

An offshore wind energy production license is granted for a limited period of up to 30 years, which can be extended upon application from the licensee (OEA section 3-5 second paragraph). As seen from the tender documents in the links above, the contenders will be ranked based on a scoring system. For Utsira Nord, the three companies that place highest will be rewarded an area each, and the highest ranked contender will choose their preferred area.

As seen from the qualifying and pre-qualifying criteria above, offshore wind projects are costly and will rely on state aid. The areas in Utsira Nord are especially costly as they rely on floating wind technology due to the ocean depths in the areas.

Both the Utsira Nord and Sørlige Nordsjø II projects will, as of now, be granted state aid in the form of a 15-year, two-way Contract for Difference (CfD). For now, only two of the three areas in Utsira Nord will be granted state aid, and the companies will compete for this as the second part of the licensing process, after contenders have been selected through the discretionary process.

As the area Sørlige Nordsjø II will be rewarded through an auction, the qualified bidders’ request for state aid will have a direct impact on the award of the area. In essence, the bidder which requests the least amount of state aid (the lowest so-called “strike-price”) will be awarded the area.

The winners of the competitions receive a time-limited exclusive right to apply for a license. Before they can do so, the applicant must submit a notification to the ministry with a project specification, cf. section 3 of the OER. The required contents of this notification are laid out in section 4 of the OER, and includes a project specific impact assessment, subject to public consultation. When the project specification has been approved by the ministry, the applicant may apply for a license within two years, cf. section 7 of the OER. A license can then be awarded once the impact assessment has been approved, as laid out in section 8 of the OER and section 3-5 of the OEA.

4. Opportunities for
the supplier-industry

Both the pre-qualifying criteria for Sørlige Nordsjø II and the discretionary criteria for Utsira Nord have “positive local ripple effects” as one of the categories in which the applicants can score points in the competitions. To fulfill this criterion (Note that “criterion/criteria” is hereby a used in reference to both projects, even though qualifying criteria and discretionary criteria have different purposes in the licensing process), applicants must provide a plan for their efforts to develop the supplier-industry.

In both projects the ministry has put “small and medium sized enterprises” as a sub-category under “positive local ripple-effects”, which requires the applicant to produce plans for how to give work experience in supply or services to the offshore wind industry to enterprises with 100 employees or less. The nature of these criteria could well be an indicator for the type of opportunities for both smaller and larger actors within the supplier-industry that will arise as a result of Norway’s ambitious targets for offshore wind in the next few decades.

Furthermore, the contenders in the two competitions are also evaluated based on their ability to develop, disperse, and scale technology. As offshore wind, and especially floating offshore wind, is an industry in development, there is a great need for innovation and diversification. The qualifying and pre-qualifying criteria also illustrate the state’s desire to develop the supplier-industry locally.

EEA and WTO law prohibit the state from favoring local or national suppliers over international suppliers. Therefore, in an effort to reap local and national benefits in pursuit of their offshore wind targets, the state leaves it up to the applicants to find ways to involve local suppliers and create opportunities for technological development.

5. The Road Ahead

With the first two areas opened for license applications, we have been given a peak into what the Norwegian future of offshore wind projects might look like. Having started the licensing process for the first two areas with a combined capacity of 3 GW wind power generation, 27 GW remain until Norway has reached their 2040 target. There is, in other words, ample opportunity in the years to come for developers all across the supply chain to ride the wave of offshore wind energy.

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