Competition Opens for Norway’s First Offshore Wind Areas

Southern North Sea II

Southern North Sea II, located in the North Sea near the maritime borders with Denmark and Germany, is designated for fixed-bottom offshore wind with a total capacity of 3000 MW. Following debates over facilitating power export abroad, the government previously decided to divide Southern North Sea II into two phases of 1500 MW each. Currently, applications are open for an area of 605 square kilometers, where the installed capacity should be between 1400 and 1500 MW.

The project area for the first phase of Southern North Sea II will be allocated by auction. Applicants wishing to participate in the auction must submit a prequalification application by August 4, 2023. The expected timeline for the offshore wind project in Southern North Sea II is as follows:

• Announcement: March 2023
• Period for submission of questions: April 17 to June 1, 2023
• Deadline for submission of prequalification application: August 4, 2023, at 12:00
• Expected publication of detailed auction rules: August 2023
• Expected decision on prequalification: October 2023
• Expected auction date: December 2023

In the prequalification process, applicants are assessed based on the following three criteria: implementation capability (60%), sustainability (20%), and positive local impacts (20%).

• Implementation Capability: Applicants must meet the technical competence, financial strength, and relevant health, safety, and environmental (HSE) requirements of the Offshore Energy Act. Requirements include having equity equivalent to at least 20% of the estimated investment cost and a turnover of 40 billion kroner in each of the last three years. There are also requirements for a project concept, project plan, and financing plan to ensure sufficient progress in the project.
• Sustainability: Applicants are assessed based on four sub-criteria: carbon footprint, coexistence, waste, recycling and reuse, and nature and environment. Applicants must quantify the estimated carbon footprint and document a plan for coexistence.
• Positive Local Impacts: The government wants offshore wind in Southern North Sea II to contribute to industrial development, especially in the supply chains. Under the sustainability criterion, applicants are assessed based on the following three sub-criteria: competence development, small and medium-sized enterprises, and development of the supplier industry.

Applicants must meet all prequalification criteria to proceed in the process. Within each prequalification criterion, a score from 1-10 will be given, based on a discretionary evaluation of the sub-criteria (except for the sub-criteria about project manager integrity and HSE, which will be assessed as met/not met).

The best application within each prequalification criterion will receive 10 points, while a score reflecting relevant differences relative to the best application will be given for other applications.

After the Ministry has ranked the applicants who meet the prequalification criteria, between six and eight applicants will be allowed to participate in the auction.

Conducting the Auction:

• The auction will be conducted as an English auction with open bidding.
• The Ministry proposes setting a reservation price that indicates the starting point for bidding and will submit a proposition to the Norwegian Parliament with a proposal that this should be set at 66 øre/kWh.
• In the event of a tie, the competition will be decided based on the ranking in the prequalification process.

The support model for Southern North Sea II has not been finalized. The Ministry will ask the Norwegian Parliament for authority to enter into a bilateral difference contract. A more detailed description of the support model and difference contract will be published later.

Market participants  have already raised concerns about the reservation price proposed by the Ministry. Given the significant transmission costs incurred by the developer, a price of 66 øre/kWh is likely well below the current LCOE (lifetime energy cost). Industry participants have noted that this might result in few or no bids falling below the reservation price. It will be exciting to follow developments on this issue as the new year approaches.

Utsira Nord Offshore Wind Project

Utsira Nord is located in the North Sea off the coast of Haugesund. The location makes the area particularly suitable for floating offshore wind. The area is divided into three project areas, where the installed capacity in each project area should be between 460 MW and 500 MW. The project areas and capacity may be adjusted.

The competition for Utsira Nord will be conducted as a qualitative competition without prequalification. The expected timeline for Utsira Nord is as follows:

• Announcement: March 2023
• Period for submission of questions: April to June 1, 2023
• Deadline for application submission: September 2023
• Expected allocation of project areas: December 2023

Applicants will be evaluated based on five qualitative criteria: Cost Level 2030 (30%), Innovation and Technology Development (20%), Implementation Capability (30%), Sustainability (10%), and Positive Local Impacts (10%).

• Cost Level 2030: Applicants must present the lowest possible cost estimate for a 500 MW floating offshore wind project fully operational by 2030. In addition to the cost estimate being as low as possible, the estimate will be evaluated based on its realism.
• Innovation and Technology Development: Under this criterion, applicants are evaluated based on potential for cost reductions and dissemination potential. Among other requirements, applicants must provide an estimate of potential cost reductions from 2030 to 2035.
• Implementation Capability: Applicants must meet the technical competence, financial strength, and relevant health, safety, and environmental (HSE) requirements of the Offshore Energy Act. Requirements include that the project company must have equity equivalent to at least 20% of the estimated investment cost, and that the applicant (consortium collectively) must have a turnover of 30 billion kroner in each of the last three years. There are also requirements for a project concept, project plan, and financing plan to ensure sufficient progress in the project.
• Sustainability: Applicants are evaluated based on the same four sub-criteria as Southern North Sea II.
• Positive Local Impacts: Applicants are evaluated based on the same three sub-criteria as Southern North Sea II.

After the application deadline, the ministry will rank the applicants. The three applicants with the highest scores will be allocated their own project area. Winners will choose their preferred project area in order based on the highest score.

As part of the concession process, a competition for state aid will be conducted. The ministry will propose that the competition be conducted through bilateral difference contracts as a support mechanism. They will also propose setting a cap on state aid and that a reservation price be set during the auction. Projects awarded state aid will receive support for a project up to 500 MW.

The ministry will propose that one of the three projects allocated a project area does not receive support this time. However, it is planned that the relevant applicant can retain exclusivity for the area for a period, to further develop and mature the project. They will then be able to apply for support from the regular support apparatus or participate in the competition for support at a later announcement of a new area opened for offshore wind (the ministry has indicated that this could happen in 2025).