The Crown Estate has presented the outcome of its tender design work for Round 4, the UK’s next round of offshore wind leasing
The update follows more than 18 months of engagement with the market and stakeholders since November 2017, when The Crown Estate first announced its intention to explore the potential for new offshore wind leasing in the waters around England, Wales and Northern Ireland.
In light of the feedback received at several stages through this process, and having assessed a range of potential alternative models, The Crown Estate has now confirmed the tender process for Round 4. It said this has been developed to deliver a fair, balanced and competitive tender, which balances a broad range of interests.
The Crown Estate business development manager Jonny Boston said, “The UK offshore wind sector, the world’s leading market, has matured and evolved significantly since our last major leasing round, over a decade ago.
“In light of this, and building on continued market and government appetite, we have been working closely with industry and stakeholders over many months, listening to their feedback to help inform the design of Leasing Round 4.
“Our goal has been to design a process that is attractive, accessible and fair, supports the sustainable development of the seabed and ultimately delivers a robust pipeline of new projects that will help the UK’s transition to a low carbon economy.
“Today’s update confirms the tender design for Round 4, giving developers as much information as possible, to inform their planning ahead of launch later this year.”
Offshore Wind Leasing Round 4, which will make at least 7 GW of new seabed rights available to the market, is designed on the basis of a three-stage tender process.
The first stage is a pre-qualification stage (PQQ) to assess competence of bidders. This stage assesses potential bidders’ technical competence against requirements such as project management, grid connection and consenting, as well as their financial strength.
The second stage, an invitation to tender stage 1 (ITT 1), evaluates project bids submitted by developers and will consider project compliance with tender project-specific financial and technical assessments.
The third stage, invitation to tender stage 2 (ITT 2), which uses option fees proposed by bidders as the final determinant of project award, reflects the more mature market context, ensuring that the award of projects is made on an objective, fair and transparent basis, which is accessible to a broad range of bidders.
A number of updates to the tender design have also been confirmed. A multi-cycle bidding process (at ITT Stage 2) will be introduced, to award projects in sequence through daily bidding cycles. The Crown Estate said this approach will increase transparency within the bidding community, ensuring that developers have information about the price, location and capacity of awarded projects at each stage, and can therefore review and adjust their bidding strategy as the process progresses.
The Crown Estate is also introducing an annual payment approach for option fees, subject to an initial three-year commitment. Option fees give exclusive rights to a defined area of seabed for offshore wind development. By introducing staged annual payments, it is reducing the upfront capital requirement on developers, helping to open the process to a broader pool of potential bidders and share development risk, since option fee payments for the full development cycle only apply where projects are progressing.
Rental discounts will be used to help incentivise innovation. A 50% rental discount on up to 10% of the project capacity for the first five years of operations for projects with a qualifying innovation, helping to incentivise and support developers interested in trialling new technologies. Developers will also have the opportunity to propose hybrid projects, such as those which integrate offshore wind generation with interconnectors, or other energy sources.
Bidding area caps have also been confirmed, to help ensure geographic diversity of Round 4 projects. Tender rules will ensure that projects are awarded in at least three separate seabed bidding areas, with a maximum of 3.5 GW of project within any one area, helping to ensure geographic diversity of the Round 4 project pipeline.
Developers will retain the opportunity to form a consortium where desired, enabling organisations to pool their capability and strengths. However, in light of the move to a multi-cycle bidding process, The Crown Estate confirmed a simplification of consortia rules, restricting organisations to participation to a single bidding entity rather than multiple, in order to mitigate risks of information asymmetry during the bidding phase and thereby protect the integrity of the process.
Mr Boston added, “Our proposed tender design, initially presented to the market and stakeholders in November last year, would assess the technical capability of potential bidders and their proposed projects, before using the option fee as a means of determining project award. This approach will help to ensure that capable bidders and the strongest possible projects come forward for new leasing, within a process that is objective, fair and transparent.
“Following extensive engagement with the market, we have now further refined our tender design, in light of the feedback received. The updates announced today include introducing a new multi-cycle bidding process, to provide greater price and locational transparency for prospective developers at each stage.
“We have also announced an adjustment to our option fee approach, introducing annual rather than upfront payments to help open Leasing Round 4 up to a broader pool of potential developers, and ensure that payments only apply where projects are progressing.”
This latest event represents The Crown Estate’s final planned engagement activity with the market. At the point of launch, the areas of seabed being made available to market will also be confirmed. Following launch, The Crown Estate will hold a ‘Bidders’ Information Day’ to provide potential market participants with full details of end-to-end leasing process, including detailed instructions and supporting information for each stage – ensuring that market participants have sufficient time and information to finalise their bidding strategy ahead of invitation to tender.
Responding to the announcement, RenewableUK head of policy and regulation Barnaby Wharton said, “It’s crucial that leasing for new offshore wind sites supports the right level of ambition to meet our net zero emissions target, while ensuring value for consumers.
“By moving to multiple bidding rounds for new offshore wind sites, The Crown Estate has recognised a more transparent process is needed to avoid adding unnecessary costs. That is welcome and should be the principle which guides The Crown Estate in implementing this new leasing process.”