Increased option fee limit following ScotWind review

Out-Law News | 25 Mar 2021 | 5:30 pm | 2 min. read

Offshore wind developers may have to pay increased option fees to lease areas of the Scottish seabed for their projects following a review by Crown Estate Scotland.

Crown Estate Scotland paused its offshore wind seabed leasing programme, ScotWind, last month so that it could review its structure, in response to high levels of interest and record bids for rights during Round 4, the equivalent seabed leasing process in England and Wales, which was recently concluded. It has now announced changes to the process in response to that review.

The deadline for applications has also been pushed back, from 31 March to 16 July 2021.

The review potentially increases by tenfold the amount which could be paid by developers for seabed areas under ScotWind, from £10,000 per km2 of seabed to a maximum of £100,000 per km2 of seabed. ScotWind will, however, retain the same basic pricing structure for option agreements.

Cook Alan

Alan Cook

Partner

Crown Estate Scotland has been required to re-align its duty to maximise value from the use of the seabed with its broader goal of facilitating a sustainable renewables sector which offers supply chain opportunities to local industries.

Applicants must now be able to meet 25% of the commitments in their supply chain development statement in order to request a lease, up from the previous 10% minimum commitment; and further 'change of control' provisions will apply where awarded options are re-sold. Crown Estate Scotland intends to publish additional technical information for prospective applicants by the end of April.

Offshore wind expert Alan Cook of Pinsent Masons, the law firm behind Out-Law, said: "It is unsurprising that Crown Estate Scotland has undertaken a move like this, in response to the significantly higher than expected valuations put on seabed areas by bidders in Round 4, but the industry will be caution of the potential impact on the cost competitiveness of Scottish offshore wind when it comes to bidding for contracts for difference".

"Crown Estate Scotland has been required to re-align its duty to maximise value from the use of the seabed with its broader goal of facilitating a sustainable renewables sector which offers supply chain opportunities to local industries. The adjusted approach will be closely scrutinised by prospective bidders for seabed areas, who will now have to revisit their previous assessments of bid strategy and seabed valuation," he said.

Completion by Crown Estate Scotland of its review coincided with an announcement from The Crown Estate, its counterpart in England and Wales, that it is starting to design a new leasing opportunity for early commercial-scale floating wind projects in the Celtic Sea, off the coast of south Wales and the south west of England. The leasing process will focus on projects of around 300MW, up to three times larger than any rights previously awarded to floating wind in the UK.

The UK government has set a target of 1GW of floating offshore wind to be installed by 2030, as part of an increased offshore wind overall target of 40GW by the same deadline. Last year, The Crown Estate awarded rights to developers Blue Gem Wind for a proposed 96MW floating wind project, known as Erebus, in the Welsh waters of the Celtic Sea as part of its 'test and demonstration' programme for the technology.

The Crown Estate is also working up its approach to best support smaller, pre-commercial floating offshore wind projects. It will publish further details in the coming months.

Alan Cook said: "Floating wind had not been a feature of The Crown Estate's recent Round 4 leasing round, as they felt the technology was not sufficiently proven - as opposed to ScotWind, where it will be a significant element of the projects which are awarded seabed areas".

"This move by The Crown Estate is recognition that, notwithstanding the approach taken for Round 4, floating wind is set to be a significant feature of offshore wind development in UK waters, and will open up development opportunities in deeper waters previously unavailable for fixed foundation offshore wind projects. Opening further seabed areas to potential development is an important step on the road to the UK meeting its offshore wind targets and broader net zero commitments over the next several years," he said.