Contributors
Only a few weeks are left until the end of 2023 when the Crown Estate is expected to publish the Memorandum of Information (MOI) for the first ever dedicated leasing round to Floating Offshore Wind (FLOW) in the Celtic Sea.
But we already got a flavour of how the tender will look like through major updates the Crown Estate gave in July and - following stakeholders' feedback - in October.
Both announcements point out a number of changes compared to previous updates and auctions that highlight the unique and at times proactive features of the tender design and its importance in enabling the commercialisation of the FLOW technology.
Let's have a closer look below on what the tender design currently looks like.
Round 5
The Celtic Sea Round, now named "Offshore Wind Round 5", is the next leasing opportunity in the English and Welsh seabed. Round 5 will initially award 10-year option agreements – by way of Agreements for Lease (AfLs) with successful bidders paying option fees in annual instalments.
Like previous Rounds and in line with statutory requirements, developers should not expect buffer times added to the duration of the AfLs, for example, because of grid delays.
Capacity of up to 4.5 GW equally shared in three final PDAs
In July, the Crown Estate identified four refined Project Development Areas (PDAs) within two of the five areas announced in October 2022, in close proximity to each other and to the coasts of Pembrokeshire and Cornwall.
While the outer boundary surrounding the PDAs remains the same, Round 5 will tender three larger PDAs of an estimated capacity of up to 1.5 GW each, increasing the overall auction capacity from 4 GW to 4.5 GW.
This change will allow greater flexibility to developers to overcome technical constraints by adapting their designs as well as maximise the best use of the already busy Celtic seabed.
Successful bidders will still be able to develop the areas up to a maximum of three projects or phases of at least 300 MW each.
Pre-consent de-risking
To tackle delays and risks in project development related to the consenting process, the Crown Estate has taken several steps including:
- Bringing forward the plan level Habitat Regulations Assessment (HRA) with the aim to have it completed before Invitation to Tender Stage-1 (ITT-1)
- Investing in environmental surveys to gather Environmental Impact Assessment (EIA) quality datasets with specialist vessel and aerial surveys underway
- While the datasets will only be available to successful bidders, the Crown Estate plans to release in October comprehensive technical specifications of the surveys, which will allow candidates to get "a complete picture" of the data given to successful bidders
- Sharing with the MoI materials that will help candidates to shape their bids including a summary characterisation report for each PDA; detailed site selection methodology; summary of marine stakeholder engagement and associated outcomes; and Holistic Network design (HDN)
- Working closely with the Government to resolve competing spatial interests.
Network Design
Although the surveys don't cover connection and cable routes, the final PDA size and location is of paramount importance for accelerating network design.
National Grid can now resume the Holistic Network Design Follow Up Exercise (HND FUE) for the Celtic Sea. The recommendation that will follow will provide developers with visibility of the offshore network design.
Replacing SCIPs with port integration and social value commitments
Perhaps the most important change to be introduced in Round 5, is that prospective developers no longer need to produce supply chain investment plans (SCIPs).
Instead, in a major shift that resonates with stakeholders' feedback, they will need to demonstrate port integration and social value commitments during ITT-1.
Port integration is the "gateway", the first step for the development of local content and supply chains.
Having in place port infrastructure to assemble wind turbines will reduce risks for the development and delivery of the project and will enable the implementation of the social value component.
The bidders have to evidence which ports they plan to use; when they need to access those ports; and how access to and port capacity will be secured.
Until the MOI sheds more light on the ports integration component, developers and port stakeholders have to collaborate.
This collaboration will allow ports to invest early in the necessary infrastructure to build and float the 4.5 GW wind turbines in the Celtic Sea, and this investment will in turn set the foundations for the construction of future FLOW projects.
The social value model (SVM) question set is the second component for enabling local content and supply chains.
It is broadly based on the SVM questionnaire used by the government, and for the purposes of the tender, developers must show in a "firm and binding" way how the proposed projects will help deliver positive social impact in key four areas of the SVM:
- Local employment and training opportunities
- Workforce inclusion in project delivery
- Environmental benefits including net zero targets and nature recovery
- Working with and delivering benefits to communities.
Like SCIPs, the progress of successful bidders to deliver port integration and social value commitments will be monitored throughout the project development.
More transparency through the ascending clock auction
Bidders that successfully pass PQQ and ITT-1 will be able to place bids during Invitation to Tender Stage-2 (ITT-2) through the ascending clock auction.
The auction will start with a reserve price; any changes in demand and (increased) price will be revealed to all bidders, ensuring more transparency. It is likely increments between the final PDAs will be different.
The Crown Estate clarified in the recent update each bidder will win only one PDA, restricting the previous scope of one bidder for two PDAs.
Therefore, the auction will have three successful developers. As announced in July, candidates will not be able to place bids exceeding the available level of cash as determined in ITT-1.
A dynamic round 5
The design of Round 5 is dynamic and evolving. The Crown Estate has adopted an open dialogue process with prospective developers and stakeholders in a continued effort to de-risk the Celtic Sea FLOW opportunity through the auction process.
However, the Crown Estate's efforts need further support beyond the auction structure. For the port integration and social value components to be successful, a robust finance framework is necessary: more money directed into ports infrastructure to implement early investment decisions; and a better design for Contracts for Difference (CfDs) to guarantee enough revenue to deliver a project.
The zero bid results for offshore wind projects in the recent CfD allocation round 5 (AR5) has already shaken investor confidence in the Celtic Sea Round, with one of the demonstration projects in the area now been set back for at least one year.
But the Government keeps falling short of industry's expectations, which continues to voice the need for major reforms.
Offshore project development has become more costly in recent years, especially with inflation increases and supply chain shocks; and slower with planning and grid delays leading to yet more cost and risk.
The upcoming regulatory changes in areas such as National Policy Statements or the Energy Bill might add extra complexity to the Celtic Sea tender puzzle.
While those changes, along with the recent announcements about putting in place a Spatial Plan and a transformative grid connection plan, are in principle positive, more clarity is needed on how they will be implemented to provide more investment certainty to prospective bidders and to project design.
Despite the challenges, developers should keep going with the FLOW. Round 5 still presents a great opportunity for the Celtic Sea Region to transform, grow, and become a world leader in the deployment of FLOW.
Our energy and natural resources team are experienced in helping resolve commercial and planning challenges around major energy developments. If you have any questions about how the changes to Round 5 prior to October will impact your planning, please listen to our podcast from August with our partner Chris Towner.
