Auctions are common in Europe
Auctions for rights are somewhat unusual within the Norwegian energy sector, but the rationale behind using auctions is to foster more competition among potential projects. This competition allows technological advancements and scale benefits to be reflected in the bids, with the project requiring the least support (or the highest bidder) winning the right to develop the area.
In countries like the Netherlands, Germany, Denmark, and England, auctions have become the standard method for offshore wind projects in recent years. Initially, these countries implemented support schemes with so-called feed-in tariffs, where developers were guaranteed a fixed price for the power they were to deliver. Over time, these schemes evolved into a more market-based design of support, awarded through auctions.
Unclear frameworks in Norway – Can we look to Denmark?
There is still much uncertainty regarding the frameworks for conducting the Norwegian auction for offshore wind. The proposal presented on Friday suggests that the government intends for auctions to be the main model for allocating areas for offshore renewable energy production, and that the process for allocating areas will start with a call for tenders from the department.
The Ministry then plans a prequalification process where participants must meet certain requirements for financial capacity, technical competence, and health, safety, and environmental standards before they can participate in the auction. The exact requirements Norwegian authorities will set for financial capacity, technical competence, and health, safety, and environmental standards remain uncertain. It may be beneficial to examine how Danish authorities handle these aspects.
Before the auction for the Hesseløe offshore wind farm in 2021, Danish authorities had a consultation on the following minimum requirements for prequalification:
- The applicant must have an equity ratio of 20% or higher in the latest annual report, or a current long-term debt rating of BBB- or higher, and in addition
- the applicant must have an annual total turnover that at a minimum corresponds to twice the estimated value of 800 MW installed capacity at Hesseløe.
If the applicant consists of several applicants, the average cumulative annual total turnover of all units must pass the threshold for total turnover. (However, each individual actor must still meet the requirement for a satisfactory credit rating).
Furthermore, several requirements are proposed to document the applicant’s technical experience, including experience from;
- development of at least one large-scale offshore wind farm with a capacity of 150 MW or more, and
- development of at least one offshore AC transformer station serving an offshore wind farm, completed within the last five years.
What About Norway?
If similar requirements are imposed in Norway, most companies will need to collaborate with several other companies to provide both sufficient financial security and the necessary technical experience. Based on current knowledge about the groups that have now “joined forces” to compete for concessions, it is likely that many will meet the requirements set by the Norwegian authorities.
A different issue is whether there will be room for the somewhat smaller technology companies in the first round of allocations, especially for wind farms within Sørlige Nordsjø II. An auction process where the highest bidder is awarded the concession does not favor the development of immature technology. Therefore, the projects at Utsira Nord might be more appealing to those with innovative new technologies to offer.
The article was first published in Finansavisen June 2021 (norwegian).
