Out-Law News | 26 Jul 2019 | 12:25 pm | 4 min. read
The final design of the tender process, officially Offshore Wind Leasing Round 4, was presented by TCE to an industry audience at an event last week. TCE will confirm the areas of seabed being made available to market when the leasing round launches later this year, but has said that the rights would be capable of supporting at least 7GW of renewable energy.
Jonny Boston, TCE's business development manager, said that the process had been designed to be "attractive, accessible and fair".
Developers are effectively being asked to pay a substantial deposit in respect of a proposed site that may not progress beyond the plan-level Habitats Regulation Assessment undertaken by The Crown Estate.
"Our proposed tender design would assess the technical capability of potential bidders and their proposed projects, before using option fee as a means of determining project award," he said. "This approach will help to ensure that capable bidders and the strongest possible projects come forward for new leasing, within a process that is objective, fair and transparent."
The final design comes after 18 months of engagement by TCE with the offshore wind market, and incorporates a number of changes from the original tender design. Significantly, the tender process has now been split into three stages: a pre-qualification stage (PQQ); and a two-part invitation to tender stage (ITT 1 and ITT 2).
Potential bidders will firstly be assessed on their technical competence including project management, access to grid connection and consenting and financial strength at PQQ. The project bids of developers which pre-qualify will then be assessed at ITT 1 based on project-specific financial and technical assessments. Developers will be able to propose a 'primary project' and up to 20 smaller 'secondary projects', overlapping with the primary project.
Projects that pass ITT 1 will move on to ITT 2, at which awards will be made based on the option fee proposed by the bidder. Projects will be awarded over a week-long bidding cycle with one project awarded daily, which TCE said would allow developers to review and adjust their bidding strategy as the process progresses. Developers will only be permitted to bid on one project per day either on their own or as part of a consortium, with a 400MW minimum and 1.5GW maximum capacity proposed per project. In addition, the amount of capacity in any one area of the seabed will be capped at a maximum of 3.5GW "to ensure geographic diversity".
TCE will no longer require a successful developer to pay the full option fee up front. Instead, a winning bidder will be required to transfer the option fee for the first year to TCE by 6pm on the day the successful bid is announced, followed by the following two years once the lease is signed. The balance of the option fee will then be payable annually.
Flexibility in project milestones will be welcomed by developers and stakeholders in the consent process, as in previous rounds the completion of pre-application work by developers, to the satisfaction of stakeholders, was a significant challenge.
Energy expert Gareth Phillips of Pinsent Masons, the law firm behind Out-Law, said: "Whilst the flexibility in the option fee arrangement should be more attractive to developers than under previous rounds, those that attended the event last week called for TCE to 'think again' in respect of the first payment being non-refundable".
Planning law expert Gary McGovern of Pinsent Masons added: "Developers are effectively being asked to pay a substantial deposit in respect of a proposed site that may not progress beyond the plan-level Habitats Regulation Assessment (HRA) undertaken by TCE; a situation made less attractive by TCE having stated that sites for which an 'Adverse Effect on Integrity' of a protected habitat cannot be ruled out will be dropped without consideration of whether an IROPI ('Imperative Reason of Overriding Public Interest') case can be made for the site to proceed".
"To some extent this risk could be mitigated by TCE engaging developers in the HRA process to a greater degree than experienced in relation to the Offshore Wind Extension Round HRA, which should be concluded by TCE this month," he said.
A rental discount of 50% on up to 10% of the project capacity for the first five years of operation will be made available to qualifying projects, in order to incentivise and support developers interested in trialling new technologies. Further details will be announced at a later stage.
Project milestones in the Agreement for Lease awarded to a successful bidder feature greater flexibility than in previous rounds, with "significant development activity" being required within 18 months of award. That activity could include preliminary environmental impact assessment work, such as geophysical and ornithological surveys. An application for development consent in respect of both generation and transmission assets must be submitted within five years.
"Flexibility in project milestones will be welcomed by developers and stakeholders in the consent process, as in previous rounds the completion of pre-application work by developers, to the satisfaction of stakeholders, was a significant challenge," said Gareth Phillips.
Bidders will require to participate in daily bid cycles under which the highest bid each day will win, with the first (non-refundable) payment of the deposit being payable that same day, and careful thought will be needed as to the best way to approach this process.
TCE manages public land, property and property rights in England, Wales and Northern Ireland, including rights to offshore renewable energy. Separately, Crown Estate Scotland has been developing its own proposals for a new leasing programme for offshore wind projects in Scottish waters, in respect of which an update is expected shortly.
Renewable energy expert Alan Cook of Pinsent Masons, the law firm behind Out-Law, said that developers would welcome the announcement, which would give them the opportunity to prepare before the formal launch of the leasing round.
"Bidders will require to participate in daily bid cycles under which the highest bid each day will win, with the first (non-refundable) payment of the deposit being payable that same day, and careful thought will be needed as to the best way to approach this process. Timescales also remain unclear and we are now simply told that the Round 4 launch is proposed for 'later in 2019'", he said.
03 Dec 2018