North Sea offshore wind Developments in the Netherlands
This updated briefing focuses on the legal framework and recent developments in offshore wind in the Netherlands. We expect to publish more updates in the coming months to keep you informed on important developments.
1. Introduction 1.1 First Borssele tender Dong wins 1.2 History - Energy Agreement 1.3 Government Road Map implemented in new legislation 1.4 Specific legislation 2. Designated Wind Areas and Sites 2.1 Wind Areas 2.2 Sites and Site Decisions 2.3 Final Wind Farm Site Decisions Borssele I, II, III, IV and V 3. Offshore wind licensing 4. Subsidies (`SDE+') 4.1 SDE+ Decree 4.2 Ministerial Regulation for the Second Borssele Tender 4.3 Application procedure and requirements 4.4 Post Award Changes Policy Rules 5. Offshore grid and TenneT 5.1 Development Framework investment plan realisation cost recuperation 5.2 Route and planning TenneT 5.3 Liability TenneT 5.4 Contractual framework TenneT 5.5 Subsidy OTS 5.6 "Offshore Code" Requirements for Generators (`RfG') 6. Tax considerations
The Loyens & Loeff Energy Team
3 3 3 4 4 5 5 7 8 9 10 11 11 12 13 14 14 15 16 17 17 17 18
Offshore wind in the Netherlands is rapidly developing into a significant investment opportunity for the coming years. The European and national renewable energy targets have resulted in new legislation coming into force that must cater for the procurement of an additional 3500MW of offshore wind capacity in the North Sea. For this purpose, a new regulatory and subsidy framework has been designed and put into operation to facilitate the construction and operation of 3500MW. Between 2016 and 2019 five subsequent tenders will be organised of 700MW each.
Tender date Closed
September 2016 2017 2018 2019 Total
Capacity 700MW 700MW 700MW 700MW 700MW 3500MW
Designated Areas Borssele, Sites I & II Borssele, Sites III, IV and V Hollandse Kust: Zuid-Holland 1 Hollandse Kust: Zuid-Holland 2 Hollandse Kust: Noord-Holland
1.1 First Borssele tender Dong wins
The first tender (Borssele Sites I&II) came to a spectacular end when the winner, Dong, was announced with its record breaking bid of ct 7.27/kWh. The tender outcome resulted in the Dutch government claiming that this Borssele wind farm is the cheapest worldwide. The fact is that the bid price submitted by Dong was ct 5.1/kWh lower than the maximum tender amount, which resulted in a in a cost reduction of 2.3 bn over the 15-year period that the SDE+ subsidy is available.
A total of 38 bids were submitted for the first Borssele tender.1 Soon after the result was made public, news reports came out stating that of that 38 bids, 21(!) had been submitted by different Dong companies in a complicated bidding strategy. As will be discussed in 4.2 further below, this strategy is no longer possible as a result of a regulation change for Borssele III & IV.
1.2 History - Energy Agreement
On 6 September 2013, around 40 Dutch private and (semi-)public parties reached a covenant on the development of renewable growth in the Netherlands, the Energy Agreement. The Energy Agreement implements a comprehensive climate and energy policy programme aimed at long-term sustainability, and sets out agreed short to medium-term measures in ten `pillars'. One if these pillars is the increase of renewable energy production from the current 4.3% to 14% in 2020.
1 A list of the bidders can be found at: http://english.rvo.nl/subsidies-programmes/sde/sde-offshore-wind-energy or directly via this alternative link
The long-term goal of a fully climate-neutral (also known as `zero-carbon') energy supply is set for 2050. Short to medium-term measures and milestones are defined for the period from 2014 to 2023, with 2020 being the year when, in line with the EU Renewable Energy Directive, 14% of gross final energy consumption shall be produced from renewable sources and 16% in 2023. The Dutch government is responsible and accountable to Parliament for the adoption, execution and evaluation of policy measures set out in the Energy Agreement. The Netherlands Enterprise Agency (Rijksdienst voor Ondernemend Nederland, RVO) has been assigned to implement this policy.
This percentage of renewable energy production currently being 5.5%, the requisite steep increase of energy production from renewable sources calls for a drastic intensification of the deployment of largescale renewable energy production (notably onshore and offshore wind) and a further increase of decentralised generation (e.g. solar energy and biomass) in the coming years.
1.3 Government Road Map implemented in new legislation
To implement the objective in the Energy Agreement, on 26 September 2014 the Dutch Minister of Economic Affairs (MEA) sent a letter to Parliament providing the "Road Map" for reaching the objectives and targets for offshore wind, as determined in the Energy Agreement. The Road Map contains the following key features: - Designation of TenneT as operator of the export cables (offshore grid operator); - New designated offshore wind areas and sites; - New regulatory framework for a combined production licence and subsidy application.
1.4 Specific legislation
These key features required significant legislative changes and even a new bill on offshore wind: the Offshore Wind Energy Act (`Wet Windenergie op Zee'), (OWEA). The OWEA entered into force 1 July 2015.
Pursuant to OWEA a licence is required for the construction, exploitation and removal of a wind farm in the Dutch territorial sea or the Dutch Exclusive Economic Area. OWEA sets out the conditions for a license application.
The designation of TenneT as operator of the Offshore Transmission System (OTS), including its statutory liabilities for delays and faults, have been inserted in an amendment of the Electricity Act 1998.
Specific rules have been laid down in Ministerial Regulations to arrange for the applicability of the subsidy scheme for sustainable energy, the SDE+, to offshore wind
These and other legislative developments are discussed further below.
2. Designated Wind Areas and Sites
2.1 Wind Areas
Pursuant to the Water Act, the MEA and the Minister of Infrastructure and Environment jointly lay down the national water policy in a `National Waterplan'. In the National Waterplan 2009 -2015, the ministers designated two Wind Areas in the North Sea, Borssele and IJmuiden, where licenses for wind farms could be applied for. In the abovementioned Road Map, however, the MEA no longer mentions IJmuiden and introduces (next to Borssele) two new Wind Areas: Hollandse Kust Zuid-Holland and Hollandse Kust Noord-Holland. To cater for the inclusion of the new Wind Areas Hollandse Kust Zuid-Holland and Hollandse Kust NoordHolland, a new National Waterplan 2016-2021 (NWP2) was adopted on 14 December 2015. NWP2 will be in force from 22 December 2015 until 22 December 2021. Part of the NWP2 is the inclusion of an (additional) area between 10 - 12 nautical miles (18.5 - 22.2 km) as areas offshore of `Hollandse Kust'. This is part of an amendment of the national structure vision (`Rijksstructuurvisie Aanvulling Hollandse Kust'). A draft structure vision, including an environmental impact assessment (milieueffectrapportage, EIA) areahas been published and opened for consultation until 29 September 2019. It is envisaged that a definitive structure vision will be published at the end of 2016.
The map below shows the existing wind farms plus capacity (blue),2 the selected Wind Areas (red),3 the envisaged additional wind energy areas (shaded orange), the envisaged tendering year and the procedural steps in the application process below.4
2 Visible are `Amalia' (Q7, 120MW), the near shore wind farm `Offshore Wind Egmond aan Zee' (OWEZ, 108MW) and `Luchterduinen' (Q10, 129MW). The Gemini wind farm (600MW) falls outside the scope of this map.
3 From top to bottom: Hollandse Kust Noord-Holland, Hollandse Kust Zuid-Holland and Borssele. 4 The procedural steps described are: 1) The government selects the licence areas; 2) The government designates the exact
location of the wind farm; 3) the applicant submits a construction plan 4) the applicant with the best plan is awarded the licence and SDE+.
2.2 Sites and Site Decisions
An essential element of the new regulatory framework is the central role of the government in the planning and zoning of offshore wind. The OWEA provides that the MEA5 shall appoint certain Sites ("kavels") within the designated Wind Areas, by `Site Decisions' ("kavelbesluiten"). A Site Decision will not only determine the location of the wind farm within the Wind Area but will also (inter alia) include: - a description of required measures aimed at remedying, reducing or compensating the effects of
building and operating a wind farm - a description of temporary measures and facilities to build the wind farm -geographical dimensions of the wind farm and the route of the connection cable -the results of the soil survey, the ecological soil survey, the archaeological and cultural-heritage survey
and other ecological surveys performed by the State. Accordingly, the Site Decision provides information for private parties to choose the best available technique within the (environmental) constraints applicable and to enable them to optimise their combined bids for a licence and SDE+ (the licensing regime is explained in more detail below).6 The Borssele Wind Area (as shown in the map below) lies outside the 12 nautical mile zone. In the Borssele Wind Area five Sites have been indicated. Site I and Site II, are the Sites that have been the subject of the First Borssele Tender of April/May 2016. Sites III, IV and V will be tendered out in the Second Borssele Tender, starting 15 September and closing 29 September. In total four wind farms in the Borssele area will be built, with an aggregate capacity of 1400MW (see map below). One smaller area (Site V) is dedicated for innovation purposes with only two turbines.
5 This competence is shared with the Minister of Infrastructure and Environment. 6 The costs related to the establishing of the Site Decisions may be charged to the recipient of the production license.
2.3 Final Wind Farm Site Decisions Borssele I, II, III, IV and V
On 8 April 2016, the final Site Decisions (in Dutch) for all of the Borssele Wind Area were published in the Government Gazette (`Staatscourant'). The Site Decisions were subject to the possibility for direct appeal with the competent administrative court until 20 May 2016. As no appeals against the Site Decisions have been lodged the Site Decisions became irrevocable as per that date. However, it soon appeared that the coordinates of the sites had not been included correctly in the Site Decisions for Borssele III, IV and V. New decisions amending the Site Decisions III, IV and V had to be drawn up. Public consultation on the draft amendment decision ended 11 August 2016. The final amendment decision is open for review from 2 September to 14 October 2016.7 Only interested parties that have submitted an opinion on the draft amendment decision can file an appeal against this decision until 14 October. As no opinions have been lodged against the amendment decision, no appeals can be lodged anymore and this effectively meansthat the amendment decision is irrevocable and therefor that the Site Decisions III, IV and V are final and binding.
The bandwidth given for turbine selection has been determined at 6 10 MW. The Site Decisions will contain provisions limiting the construction noise in view of sea hog populations residing in the North Sea. Furthermore the Site Decisions provide that production shall be suspended during bird and bat migrations.
The Site Decisions III and IV provide inter alia - for the following technical requirements: - the exact coordinates of the Sites (after the amendment decisions have become irrevocable); - the coordinates of the inter-array cables to the Borssele Bta Platform; - the obligation that the rotor blades will not cross the Site delineation; - a maximum number of turbines of 60 for Site III and 63 for Site IV; - a maximum aggregate rotor surface (swept area) of 1.430.772 m2 for Site III and 1.461.542 m2 for
Site IV; - a minimum distance between the turbines of 4 times the rotor diameter; - a minimum tip height (lowest) of 25m above Mean Sea Level (MSL) and - a maximum tip height (highest) of 250m above MSL. - The permitted foundations for the wind turbines are:
- monopile; - tripod; - jacket; - gravity based; and - suction bucket. -The licensee shall make a demonstrable effort to design and operate the wind farm in such manner that it will actively attribute to the local and regional economy.
7 Wijzigingsbesluit Kavelbesluiten PDF
Abandonment and decommissioning obligations are also part of the draft Site Decisions. The wind farm must be removed within two years upon cessation of the exploitation. The Site Decisions will provide for the obligation on the licence holder to provide financial security of EUR 120,000 (indexed) per MW, to be furnished at commissioning, for the lifetime of the wind farm.
The RVO website provides technical data, maps and results from Site investigations to the extent available.8 The Project and Site Description (PSD) of August 2016 can be downloaded there. The PSD summarises: - a description of the surroundings and characteristics of Sites III and IV; - all data collected by RVO regarding the physical environment of the Borssele area; -a selection of constraints, technical requirements and grant related issues that are deemed to be most
relevant for development of the Borssele area; - the process for the SDE+ grant and permit and the legal framework; and -unofficial translations of the SDE+ Regulation, the Water Decree and sections from the draft Site
decisions that stipulate the abovementioned Regulations for the wind farm.
3. Offshore wind licensing
In order to be allowed to build and operate (and ultimately: remove) a wind farm, one has to apply for a license under the OWEA. The licence application procedure is a combined application procedure with the application for SDE+ subsidy. As the licence will only be issued within the Sites, the respective (separate licences currently required under the Nature Conservation Act, the Flora and Fauna Act and the Water Act are no longer required. A licence will be awarded for a maximum period of 30 years (including construction and removal). The licence is transferable subject to MEA's consent.
In order to obtain a licence, the applicant must demonstrate that the construction and exploitation of the wind farm shall comply with the requirements set in the Site Decision and that the envisaged construction and exploitation of the wind farm is financially and technically practicable and economically feasible within the term stated in the licence. Furthermore, the applicant must demonstrate that building and exploitation can commence within 4 years after the effective date of the licence.
The application for the licence must be submitted to RVO (acting on behalf of MEA) during the period in which the relevant SDE+ application must be submitted, i.e. for Sites III & IV ultimately on 29 September 2016, at 16:59 hrs. If more competitive applications are submitted for one licence that are all in compliance with the statutory requirements, the licence shall be issued to the party to which the SDE+ is granted. Both decisions (licence and SDE+) are taken simultaneously.
4. Subsidies (`SDE+')
SDE+ is an operating subsidy and is granted on the basis of a tendering procedure and is administered by RVO. SDE+ compensates producers for the unprofitable component of renewable energy compared to energy from fossil fuels.
This is illustrated below where the `Tender amount' represents the sum of the investment and operational costs plus a reasonable profit, divided by the projected production volume, as submitted by the applicant. The correction amount represents the fluctuating market power price during the life time of the project. The Base amount is set by the MEA for the duration of the subsidy period. The `Base energy price' is the bottom price set by the MEA to mitigate the subsidy in the event the `Correction amount' should fall below the Base energy price.
Correction amount fossil energy
Base energy price
No additional subsidy
For the Second Borssele Tender (Sites III and IV) the maximum tender amount has been set by the MEA at EUR 119.75/MWh. The Base energy price (floor price) has been set at EUR 30/MWh. Pursuant to 40% cost reduction agreed in the 2013 Energy Agreement, the maximum tender amount will decrease in future tenders. Because the wind farms are assumed to account for 85% of the total costs (and 15% for the offshore grid), the costs for the wind farms in future tenders will decrease by 0.85 * EUR 5/MWh = EUR 4.25/MWh. The maximum tender amount for Noord Hollandse Kust Zuid has already been established at EUR 115,5/MWh.
4.1 SDE+ Decree
The general SDE+ subsidy scheme has been laid down in the SDE+ Decree,9 that is based on the Subsidy Framework Act of the Ministry of Economic Affairs. The SDE+ Decree provides the general rules and regulations that are applicable to the respective types of eligible forms of sustainable energy production, including offshore wind. In paragraph 3.3 of the SDE+ Decree, the tendering system is regulated that will be applied in respect to offshore wind. It provides that a maximum tender amount will be determined in a Ministerial Regulation that equals the average costs per kWh for a certain category of production installations and in the case of offshore wind for each individual Site.
Pursuant to an amendment of December 2015 of the SDE+ Decree by the MEA of 29 November 2015, no subsidy will be granted during periods of negative energy prices (unless the duration of such a period is less than six hours).10
The SDE+ Decree allows for a carry-forward of produced kWh in excess of the volume eligible for SDE+, to future years where production volumes do not reach the projected volumes. Banking of produced kWh in below the eligible volume was already permitted.
The winner of the SDE+ subsidy tender cannot transfer the subsidy award decision prior to commissioning of the wind farm without the consent of the MEA.
4.2 Ministerial Regulation for the Second Borssele Tender
The Ministerial Regulation (MR) concerning SDE+ for the Second Borssele Tender was published in the Government Gazette (Staatscourant) of 8 July 2016 and will enter into force 15 September 2016.
Pursuant to the MR, the SDE+ is granted on the basis of ranking, whereby the ranking takes place on the basis of the tender price (lowest price = highest ranking). Qualitative requirements are limited to the minimum nominal capacity (at least 331MW for Site III and 351MW for Site IV minus the capacity of the smallest turbine in that windfarm) and the maximum nominal capacity (maximum 380MW).
The applicant must demonstrate that its equity capital exceeds 10% of the total investment costs of the production installation(s).11 For the calculation of the equity capital of the applicant, the equity capital of its consenting parent company may be taken into account. A new requirement is that the equity capital of a parent company can only be taken into account for a maximum of two subsidiary applicants. This new provision aims to avoid that a multitude of companies will be used to submit different tender bids, as was a remarkable feature of the bidding strategy of Dong for Borssele I and II.
9 Besluit stimulering duurzame energieproductie, Bulletin of laws and decrees 2007, 410, as amended. 10 Government Gazette 1 December 2015, no. 43976 11 To be demonstrated by the most recent Annual Accounts.
As was mentioned above the eventual winner Dong submitted 21 of the total of 38 tender bids for Borssele I and II, using separate bidding vehicles. From an explanation given by Dong, it appears that Dong feared `rogue bidders' to bid on one Site only with a very low price. As combined bids would be ranked on the average of the two bidding amounts, Dong feared that it would lose its combined bid against such rogue bidders. Therefore it submitted multiple combined bids, each holding a very low bid on one Site and an evenly high bid on the other Site, each combined bid evening out in an average of ct 7.27/kWh. Possibly, another reason for Dong to submit so many bids may have been that Dong anticipated that the list of tender submissions that RVO would publish after the award, would show the names of the bidders in ranking order. However, contrary to earlier announcements, RVO has decided not to publish the list in ranking order as it wanted to avoid the possibility for Dong to calculate auction prices of other applicants.
4.3 Application procedure and requirements
Applicants may submit their bids starting 16 September 2016 but before 29 September 2016, 17:00 hrs. Bids are allowed for one Site only, for both Sites separately or for both Sites bundled together. Therefore, one applicant can in theory - submit three bids: one for Site I, one for Site II and one bundled for Sites I&II.
In order for a bundled bid to win, it must be ranked higher for both Sites than the highest non-bundled bid or it will lose in whole. In case more bundled bids are ranked higher than the highest ranked individual bid, the bundled bids are ranked on the basis of the average price per kWh of the respective bids. In the event that the same applicant submits the highest unbundled bids for both Sites but its equity capital is less than 10% of the total investment costs of both production installations, he will be granted SDE+ for one Site, to be selected by him (up front) in the application. In case of two or more winning bids, the ranking will be established by MEA by drawing lots.
The application must be filed together with seven mandatory schedules. These schedules must include: -a Project Plan (including lay-out, brand and type of the turbine, etc. and including the number of
turbines and their coordinates, a timeline, axis height, tip height); -Wind report (conducted by an independent expert organisation); -Operating Budget (calculated); -Annual Report (entails most recent report; may include parent company; as well as all parties within
the partnership); -Financing Plan (including an explanation on how to release the equity capital and the apportionment
between equity capital and loan capital); -A table with wind turbine data and locations; - A table with cable route data
Two additional schedules can be required subject to the specific situation of the applicant: - a statement of intent by the financier(s); - an overview of all the participants of the partnership, individually signed by the participants.
The MR provides for the maximum tender amount of EUR 0.11975 / kWh (EUR 119.75/MWh the Base energy price is set at EUR 0,030/kWh (EUR 30/MWh).
The decision to grant the SDE+ subsidy is issued under the conditions precedent that (i) within two weeks an Implementation Agreement is entered into between the State and the applicant, for which a model is attached to the MR, and (ii) within four weeks a EUR 10 million bank guarantee is provided. Failure to timely provide this bank guarantees will result in the runner-up to be selected.
The model Implementation Agreement provides for the obligation for the "Entrepreneur" (the producer) vis--vis the Dutch State to commission the production installation within 5 years after the SDE+ decision. If the Entrepreneur decides to withdraw within one year, a penalty of EUR 10 million will be due. A second bank guarantee in the amount of EUR 35 million must be provided ultimately on the last day of the first year of the subsidy grant. It contains a penalty arrangement for delays in commissioning of the production installation of EUR 3.5 million per month of delay. It explicitly stipulates that the Entrepreneur is not entitled to invoke any rights against the State under the Borssele research reports that have been made available by the State.
The SDE+ decision (and the decision to grant the licence) is to be made within 13 weeks after 12 May 2016. The subsidy award decision is subject to objection and administrative appeal, without any statutory decision terms.
4.4 Post Award Changes Policy Rules
On 8 April 2016, the MEA published Policy Rules regarding the application of article 62(3) of the SDE Decree for offshore wind energy production. Article 62(1) states that the recipient shall realise and exploit the production installation in accordance with the plan as submitted in the Subsidy application. Article 62(2) states that the obligation in section (1) applies until the determination of the subsidy (see below paragraph 5.8.2). Section 62(3) provides that the MEA may, upon prior request, grant an exemption from the obligation in section (1), for the delay, the essential change or the stopping of the realisation or exploitation of the production installation in deviation of the plan. Conditions may be attached to the exemption and the exemption shall not be granted insofar this would mean that the recipient will commission the production installation later than one year after the time period determined pursuant to article 61(1) of the SDE Decree.
The Policy Rules govern a change to the construction or operation of an offshore wind farm, in derogation from the plan, insofar as the change relates to the characteristics of the power production installation.
Pursuant to article 3 of the Policy Rules, an essential change within the meaning of Article 62(3) of the SDE Decree is assumed when a proposed significant change with respect to the offshore wind farm will affect: (a) the location of the power generation facility; (b) the nominal capacity of the power generation facility; (c) the extent to which the criteria stipulated under or pursuant to Article 14(1)(d) or (f) or Article 14(2) of
the OWEA will be met; (d) the workability of the plan; (e) the technical feasibility of the plan; (f) the financial feasibility of the plan; or (g) the economic feasibility of the plan.
There will be deemed to be an essential change in respect of the offshore wind farm within the meaning of Article 62(3) of the SDE Decree in any instance where: (a) a change in the number of turbines that form part of the power generation facility; (b) a significant change in the positioning of the turbines; (c) a significant change in the axis height of the turbines; or (d) a change of the type of turbine. An application for an exemption within the meaning of article 62(3) of the SDE Decree will be granted where the Minister would not have rejected the application for a subsidy had the change in question already been taken into consideration in the application for a subsidy when the original application was submitted.
5. Offshore grid and TenneT
By amendment of the Electricity Act 1998 of 1 April 2016, the MEA has formally designated TenneT as the operator of (to be built) Offshore Transmission System (OTS). In this capacity, TenneT is designated to build five standardised platforms of 700MW each, that will each be connected to the onshore high voltage grid by two 220kV-cables. Each TenneT platform will connect two wind farm Sites to shore. The designation of TenneT as the responsible party for the construction and operation of the platforms and the OTS is considered a more (cost) effective approach to connect the wind farms to shore than the usual method whereby each wind farm is individually connected to the onshore grid, as is the case with OWEZ, Amalia, Luchterduinen and Gemini.
5.1 Development Framework investment plan realisation cost recuperation
Following the amendment, the Electricity Act 1998 now provides for a specific legal procedure for the construction of the OTS. The MEA has been empowered to design a `Development Framework', providing indications for locations, sequencing, the maximum capacity, assumptions on life expectancy, the technical connectivity and availability of stimulation measures. On the basis of this Development Framework, TenneT develops an investment plan for the lay out of the OTS within a certain time frame.
The Development Framework sets out the completion dates of the designated parts of the offshore grid (i.e. for Borssele, Hollandse Kust Zuid and Hollandse Kust Noord). From that date the relevant part of the OST shall be (i) ready for commissioning and testing of the wind farms in the relevant Sites, (ii) capable to transport full power and (iii) capable to provide for two-way communication.12 Failure by TenneT to meet those deadlines will result in a statutory liability for TenneT for damages incurred by producers (see the paragraph below on `Liability TenneT').
The current Development Framework must be updated for the Borssele Sites III & IV as the Development Framework currently only provides for an indicative completion date: Q3 2020.
12 See p.24 of the Draft Scenario.
Furthermore, the Development Framework formally sets out the principle of an OTS including its technical (pre)conditions and functional requirements. By setting out these details it will provide clarity and stipulate security towards both TenneT as well as the licence holders of the offshore wind farms. More detailed specifications will be carried out in a Realisation Agreement and a Connection and Transportation Agreement to be entered into between TenneT and the producer (see the paragraph below on `Contractual framework'). Finally, the Development Framework sets out the estimated service life of the wind farms and the offshore grid.
5.2 Route and planning TenneT
On 1 September 2015, TenneT announced that the MEA and the Minister of Infrastructure & Environment had jointly decided on the route for TenneT's export cable from the offshore Platforms to the mainland. Out of six available alternatives, the ministers have selected route 4B (see picture below) based on expected costs, technical feasibility and social basis. This alternative will have the most kilometres in the water (and will cross the seaway to Antwerp) but it will run over land for less than a kilometre to the existing onshore HV substation (also named Borssele, marked with a star). Route 4B is indicated in red in the picture below.
In its press statement of 29 August 2016, the Port of Antwerp announced that it had filed an appeal against the permit decisions in relation to route 4B. The Port of Antwerp claims that the selected route 4B will impede and endanger traffic on the Westerschelde sea-arm, one of the busiest waterways in the world, and alternative routes have not been sufficiently assessed.
5.3 Liability TenneT
The Electricity Act 1998 provides for statutory liability for TenneT in the event of construction delays or cable unavailability: 1.if the construction of a relevant part of the offshore grid is completed later than foreseen in the
Development Framework as a result of which the producer is unable (in whole or in part) to transport the power produced; or 2.if (after construction completion) the power volumes that cannot be transported exceed transport curtailments due to maintenance that is reasonably necessary for the system on average, as a result of which the producer is unable (in whole or in part) to transport the power produced.
The producer is entitled to compensation of consequential damages and damages resulting from deferred, respectively, lost income. Further rules on the right to compensation and the components eligible for compensation have been laid down by order in council (AMvB) and a Regulation.
Ad 1. Liability for delay The order in council provides that a right to compensation of damages resulting from delays can only exist when the foundations of the wind farm are in place and the producer can demonstrate that the wind farm would otherwise be operational. If (a part of) the wind farm itself is delayed, there is no (full) right to compensation.
Deferred income from both power sales and SDE+ subsidy are taken into account in the calculation of damages in case of delay. Deferred income eligible for damages (net cash at a 7% discount rate) is calculated by multiplying the power volume (kWh) that could not be transported and the Base amount as established in the applicable SDE+ decision (see below), less such deferred income divided by 2.95.
Ad 2. Liability for restricted availability With respect to a right to damages under 2., the order in council provides that maintenance of five days per calendar year per cable is considered "maintenance that is reasonably necessary for the system on average". As it is expected that there will be two cables per platform, the expected maintenance period per year is ten days during which 50% of the transport capacity will be available. Therefore it is provided that a right to damages can exist only when the size of the restricted transport volume is bigger than can be transported in five days under normal circumstances. Only lost income from power sales (not from SDE+) is taken into account for the calculation of damages in case of restricted availability. Lost income is calculated by multiplying the power volume (kWh) that could not be transported and the Base energy price (floor price) as established in the applicable SDE+ decision (see below).
For both liabilities the order in council provides that consequential damages are considered the total of financial consequences that have a causal link with the event from which the right to damages has arisen, including the actual costs incurred to limit the damages and actual additional costs for materials, personnel, storage and property damage to the wind farm. Losses incurred as a result of required dry-out periods are not mentioned.
Further rules to determine wind speed and production profiles have been set in the Ministerial Regulation Damages Offshore Grid (Regeling schadevergoeding net op zee).13 This Regulation determines the
13 Government Gazette (Stcrt.) of 31 March 2016, 2016 no. 16220.
metering stations to establish wind speed, the calculation method for wind speed by vertical and horizontal extrapolation and the calculation method for wind direction. It also provides for a formula to calculate missed energy production in the event insufficient data are available..
5.4 Contractual framework TenneT
Furthermore, TenneT has developed a new contractual framework, consisting of a standard form Realisation Agreement (REA) detailing the technical specifications and timing of the construction of the Connection, and a new standard form Connection and Transport Agreement (CTA). TenneT has organised meetings to consult both the technical and contractual framework with the joint stakeholders. The result of these meetings is a non-negotiable standard document to be filled out and signed by the producer(s) that is(/are) awarded the license(s). The `final' drafts of the REA an CTA (together with the general terms and conditions and two annexes to these agreements) have been published on the TenneT-website in English and in Dutch.14
5.5 Subsidy OTS
The Electricity Act 1998 provides for a subsidy granted to the operator of the offshore grid to cover (the largest part of) the construction costs of the OTS. This subsidy amount is set off against the regulated allowed income of the operator of the OTS. The allowed income is the basis for the calculation of the regulated tariffs. In the case of TenneT, being both the TSO and the designated operator of the OTS, this will mean that the part of the costs which will not be covered by the subsidy will be added to the regulated allowed income and added to the basis for TenneT's overall transportation tariffs. They are then cascaded to distribution system level.
By introducing a subsidy for the offshore grid, the government aims to avoid the situation that the OTS construction costs are transferred (in whole) into TenneT's transportation tariffs. Such transfer would result in higher transportation tariffs which are considered detrimental for the competitive position of national energy intensive industry. The offshore grid subsidy will be funded by the same levy as the regular sustainable energy subsidy scheme (SDE+).
5.6 "Offshore Code" Requirements for Generators (`RfG')
The Electricity Act 1998 provides the legal basis for the so-called Technical Conditions (Technische Voorwaarden) for network operators and users of the grid, such as the Network Code, the System Code and the Metering Code. On 12 July 2016 the sector organisation of Dutch network operators, Netbeheer Nederland, submitted its proposal to ACM for the inclusion of specific provisions in the Network Code and the System Code, dealing with offshore connections for wind farms. The proposal is based on the European NetCode Requirements for Generators (RfG) that have entered into force on 17 May 2016.15 Interested parties were invited to submit comments on the proposal until 22 August 2016. A final decision by ACM establishing the RfG in the Dutch Technical Conditions is expected this year.
14 Download PDF's Offshore Agreements.zip 15 https://www.entsoe.eu/major-projects/network-code-development/requirements-for-generators
6. Tax considerations
Our Energy Team has significant first-hand experience with the relevant tax aspects of large scale (project finance) structures, including offshore wind. Some of our recent experience includes acting as project tax counsel for the 600MW Gemini offshore wind farm. We advise our clients to ensure that the tender process is entered into with a suitable and efficient tax structure that provides for flexibility for all stakeholders involved. This requires the potential bidder(s) to set-up the legal structure well in advance. After winning the tender, it will be difficult to make any changes to the legal structure. Some other tax items that should be taken into account (and may ideally be discussed in advance with the Dutch tax authorities) are inter alia avoiding VAT pre-financing, claiming exemptions from real estate transfer tax, determining a suitable depreciation profile for tax purposes, and insurance tax issues.
The Loyens & Loeff Energy Team
Shared industry focus
The Energy Team represents the largest full-service energy practice among law firms in the Benelux area. With a history of over 30 years of working with key players on corporate, regulatory, contract and tax matters Loyens & Loeff has concentrated its energy sector expertise in the fully integrated Loyens & Loeff Energy Team, comprising of dedicated lawyers and tax advisers. Each member is a specialist in his or her own field, but all have the energy sector as a shared industry focus. Unlike its competitors Loyens & Loeff is seen to be active (both by market players and by regulatory and tax authorities) in all main energy subsectors, handling transactional, tax advisory and structuring, regulatory and contractual matters across the spectrum of the energy industry, including upstream and midstream oil and gas, power & utilities, energy infrastructure, renewables & sustainability and trade & supply.
Renewables & Sustainability
In recognition of the importance of, and opportunities offered by, the irreversible shift towards a sustainable economy Loyens & Loeff's Energy Team has taken the lead in advising on renewable energy projects and transactions. Sustainability will continue to top the agenda in the coming decades. In recognition of this Loyens & Loeff's Energy Team has dedicated a significant part of its resources to renewable energy and sustainability projects in terms of staff, permanent internal knowhow building to keep abreast of developments in the field, and the sharing of information with clients. One of the hallmarks of our renewables & sustainability practice is that we work with clients on small scale initiatives (notably solar, wind, biomass), the variety and sheer number of which is a typical aspect of the shift towards a sustainable economy, as well as on nationwide landmark projects (large scale district heating, CCS, large scale (offshore) wind power). Testifying to our leading position in this field is our key involvement in the largest wind farm projects to date in both the Netherlands and Belgium.
For more information about this publication, please contact Roland de Vlam at +31 20 578 5517 or any of the following key members of our Energy Team.
Legal Roland de Vlam T +31 20 578 55 17 email@example.com
Max Oosterhuis T +31 10 224 67 30 firstname.lastname@example.org
Tax Waldo Kapoen T +31 20 578 51 14 email@example.com
Alexander Bosman T +31 10 224 65 81 firstname.lastname@example.org
Legal Marc Vermylen T +32 2 743 43 15 email@example.com
Thomas Chellingsworth T +32 2 743 43 77 firstname.lastname@example.org
Tax Natalie Reypens T +32 2 473 43 37 email@example.com
Although this publication has been compiled with great care, Loyens & Loeff N.V. and all other entities, partnerships, persons and practices trading under the name `Loyens & Loeff', cannot accept any liability for the consequences of making use of this publication without their cooperation. The information provided is intended as general information and cannot be regarded as advice.
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