Legal developments in offshore wind energy in the Netherlands; part 4

Introduction

On 19 May 2015, the Minister of Economic Affairs has informed the House of Representatives on recent developments in relation to the tenders for offshore wind energy, the first of which is scheduled to open in December 2015, and the maximum tender amounts and subsidy for offshore wind energy. In addition, the draft site decision for Borssele II has now been published for consultation, which will be open until 21 May 2015.

This publication addresses these new developments.

Time schedule

According to the Minister, the preparatory work for the envisaged offshore wind tenders is on schedule. If however, the Offshore Wind Energy Act (Wet windenergie op zee) will not enter into effect on the envisaged date of 1 July 2015, the site decisions for Borssele I and II (currently scheduled for late November 2015) and the first tender will be postponed until a later date.

The second tender round in relation to the Borssele sites III and IV shall open in October 2016. The subsidy award for this tender is planned to take place before the end of 2016. The following three tenders will open in respectively 2017, 2018 and 2019, with the objective to each time award the subsidy in the same year.

Changes to the draft Tender Regulation 2015

In his letter the Minister addresses some of the changes in the draft Tender Regulation 2015 (Regeling windenergie op zee 2015), that appear to originate from the public consultation that took place in April (see our previous publication on the Tender Regulation 2015).

First of all, the equity capital requirement that needs to be satisfied by all applicants and serves to demonstrate that the development and operation of the wind park is financially feasible, has been increased from 5% to 10% of the total investment of the wind park. Also the amounts of the two bank guarantees, that are required pursuant to the implementation agreement between the subsidy receiver and the Minister of Economic Affairs, have been increased; the amount of the first bank guarantee has been increased from EUR 5,000,000 to EUR 10,000,000 and the amount of the second bank guarantee has been increased from EUR 25,000,000 to EUR 35,000,000.

A new element is that the subsidy application should include not only a plan for the development and operation of the envisaged wind park, but also a financing plan. Under the draft version of the Tender Regulation 2015, a financing plan was not required since it was felt too early to ask for such a plan and the bank guarantees would provide sufficient comfort regarding the financing of the park.

The letter does not seem to provide a complete overview of the amendments made to the Tender Regulation 2015. Based on the input to the consultation we expect there to be more new elements and changes.

Maximum tender amount 2015-2019

Under the Energy Agreement for Sustainable Growth an annual reduction of 0.5 euro cent/kWh of the cost price of offshore wind energy was agreed, starting with a cost price of 15 cent/kWh in 2014 (and therefore 14.5 eurocent/kWh in 2015). However, it should be noted that these costs and cost reductions were based on average costs and did not take into account location specifics. Moreover, these calculations included the costs for the offshore connection, which will now no longer be allocated to the wind park developer but will be paid by TenneT.

At the request of the Ministry, ECN (Energy research Centre of the Netherlands) has calculated the below costs for the different locations, excluding the grid connection costs, in relation to 2015.

Based on these calculations the maximum tender amount for the Borssele sites in 2015 shall amount to 12.4 eurocent/kWh. ECN has furthermore calculated that the basic electricity price (floor price) shall amount to 2.9 eurocent/kWh.

In order to translate these calculations to the maximum tender amounts for the years 2016-2019, the cost reductions agreed under the Energy Agreement have to be taken into account. In order to do so, ECN has assumed that the connection costs will generally constitute 15% of the overall costs of the wind park. As a consequence, 15% of the envisaged cost reduction of 0.5 eurocent/kWh is accounted to TenneT and 85% to the wind park developer, resulting in an annual cost reduction for the wind park developer of 0.425 eurocent/kWh. This results in the maximum tender amounts for the different sites in the period 2015-2019 as set out in the table below.

Maximum capacity and voltage level

When the STROOM Act, that will formally appoint TenneT as the TSO for the offshore grid and will constitute the legal basis for the development of the offshore grid enters into effect (currently scheduled for 1 January 2016), the Minister shall publish a framework for the development of offshore wind energy, including important technical and functional requirements in relation to the offshore grid. Since this will not be ready in time for the start of first tender, the Minister has announced in his letter to the House of Representatives, that for the first tender the maximum capacity per site shall be 380 MW (although TenneT will only guarantee a capacity of 350 MW) and that the voltage level shall be 66 kV.

Innovation

The Minister also addresses another important element of the Energy Agreement: innovation. In order to stimulate innovation, the second tender will not regard the full grid capacity of 700 MW, but only 680 MW. The remaining 20 MW will be made available in a separate tender, to be governed by different terms and conditions, for two innovative wind turbines that shall be connected to the TenneT platform.

Draft site decision Borssele II

The site decision finds its legal basis in the Offshore Wind Energy Act. This decision determines the location of the wind park, the projected route of the connection and the preconditions for the development and operation of the wind park. The ecological and third party interests, the fulfilment of certain social functions, as well as costs and the development of an efficient connection are taken into account.

Pursuant to the Offshore Wind Energy Act the site decision may attach terms and conditions, that will, to a large extent, be location specific in order to protect the interests mentioned above.

Given the fact that the site decision is a new instrument, introduced in the Offshore Wind Energy Act that is scheduled to enter into force on 1 July 2015, the Ministers of Economic Affairs and Infrastructure and Environment have decided to organize an additional informal consultation in relation to the draft site decision for Borssele II. This is based on the assumption that the site decision for Borssele I will to a large extent be similar to the site decision for Borssele II. The informal consultation already closes on 21 May 2015. However, parties will have another opportunity to state their views on the draft site decisions during a period of 6 weeks (regardless of whether they have provided input during the informal consultation) during the formal consultation process in August 2015. In addition, it will be possible to appeal the final site decisions.

Site location and scope

The site decision will contain the exact coordinates of the site, which will be determined by the space required for a 350 MW wind park, including the required safety zones, the existing cables and pipes with their maintenance zones, as well as the space necessary for the offshore grid and its maintenance.

The Borssele sites are located close to the Belgian offshore wind parks and according to the draft site decision, the distance between these parks should be at least 1000 meters. This may result in a yield effect that decreases the electricity production of the Borssele wind parks by 4% and an decreased electricity production of the Belgian parks averaging of 2.7%, which is deemed by the Minister to be acceptable.

Pursuant to the draft site decision the rotor blades of the wind turbines need to stay within the exact coordinates of the site. The site decision also determines the minimum rotor surface of individual turbines and the aggregate rotor surface of all wind turbines jointly, it requires the minimum distance between the turbines to be 4 times the rotor diameter, the minimum tip height (i.e. the lowest level at which the highest blade could pass) to be 25 meters and the maximum height to be 250 meters. Furthermore, the wind turbines should be connected with cables to TenneT’s platform Borssele Alpha and the cable route should be located between specific coordinates as set out in the site decision.

Moreover, the draft site decision sets out the permitted turbine foundations (monopile, tripod, jacket, gravity based and suction bucket), provided that the use of a cathodic protection system against corrosion of monopiles does not result in discharge of hazardous substances into the sea.

Cable crossings are not regulated by the site decision and are left to the parties to be agreed on.

Permit duration and decommissioning

Pursuant to the draft site decision, the wind permit will be granted for a period of 27 years: 5 years for development and construction of the park, 20 years for operation and 2 years for decommissioning. The draft site permit explicitly states that the wind park should be removed within 2 years after the end of its operation. A provision on the required financial security for decommissioning will be included in the site decision, which provision has however not yet been included in the draft site decision.

Pursuant to the existing wind permits, the permit holder is required to provide a bank guarantee or alternative security for decommissioning within 2 months prior to the start of construction. Currently, it is being investigated under the new regulatory framework, whether such security can be gradually built up in years 11 to 15 of the operational phase of the park.

Mitigation measures

The draft site decision includes a number of mitigation measures, some of which are currently not yet specified, such as the increase of the minimum capacity of the wind turbines (compared to the bandwidth applied in the environmental impact assessment) to reduce bird-wind turbine collisions, noise reduction requirements to avoid disruption of the habitat of porpoises, seals and fish and the rotation of the turbine blades out of the wind in the event of large bird migration. Other mitigation measures regard noise reduction during pile driving to protect porpoises and seals (such as the use of acoustic deterrent devices, a soft start of pile driving, and the submission of a plan in relation to pile driving) as well as measures to protect bats (including an increase of the cut-in speed of the turbines during a certain period and the rotation of the rotor blades in case of a lower wind speed).

Monitoring and evaluation

The permit holder shall, in as far as deemed reasonable, contribute to the implementation of a monitoring and evaluation plan that shall be developed by the Minister of Economic Affairs.

Contact

The above is intended to provide an overview of important recent developments in relation to the envisaged tender process for offshore wind energy in the Netherlands. It is not intended to be a complete enumeration of all relevant legislation. If you have any questions or remarks regarding this publication or would like to receive our previous publications on this topic, please do not hesitate to contact us.