The legislative proposal for an Offshore Wind Energy Act (Wet Wind op Zee) is currently being reviewed by the House of Representatives (Tweede Kamer). The Act is expected to enter into force on 1 July 2015. The new legal framework for the realisation of offshore wind projects intends to simplify and accelerate the decision-making process for the realisation of offshore wind projects in an effort to achieve the Dutch renewable energy targets for 2020. Under the proposed legal framework, the government shall assume a number of responsibilities for which the project developer is currently responsible. The government shall be responsible for the so called ‘plot decision’ (kavelbesluit), which concerns spatial planning arrangements and an assessment of the environmental and ecological effects of the proposed wind project. The government shall also assume responsibility for the construction of the offshore grid connection.
Project developers shall be required to obtain a permit for the realisation of an offshore wind project that is specified in a plot decision. Different from the previous legal system, the subsidy tender is envisaged to be part of the permit application process and shall be the driver for the choice who will be awarded the right to construct and operate an offshore wind farm. The decision process to award a permit is limited to a test on the financial and technical feasibility of the project.
There are many benefits to the new legal framework. The proposed mechanism whereby the government takes responsibility in relation to the choice of location is definitely an improvement to the previous regime, in which the private sector was responsible for choosing the location for offshore wind and had to ensure that the construction and operation of an offshore wind project was aligned with the other interests and stakeholders (marine traffic, mining activities, fishing activities, cables and conduits, etc.) present in the North Sea. Also, the link between the subsidy and the permit as is currently foreseen, can be seen as an improvement to the previous regime, in which each candidate had to acquire a permit (which was a highly time consuming process) before one could apply for the subsidy. However, while these benefits are apparent, there are a number of issues which are to our opinion not yet sufficiently addressed in the draft legislation, and which require further thought.
The locations for the construction of new offshore wind projects are generally indicated in the Dutch National Water Plan (Nationaal Waterplan). Since these locations may also be important for various mining, fisheries, shipping and other offshore activities, the government shall further specify the precise location of the wind projects in the plot decisions and indicate under which provisions a wind project can be constructed. These provisions can relate – amongst others - to the outlines of the proposed off shore wind project.
An important part of the decision-making process concerns the assessment of environmental and ecological effects. The government shall be responsible for the environmental impact assessment, the appropriate assessment of ecological effects on Natura 2000 sites, and the exemptions pursuant to the Dutch Flora and Fauna Act.
Impact on timing
The goal of the new offshore wind regime is to expedite the permit and subsidy procedures. In order to do so, the legislative proposal assumes that the environmental and ecological effects of the project will be fully assessed before the Minister of Economic Affairs, in agreement with the Minister of Infrastructure and Environment, takes the plot decision.
We note that the technical characteristics, such as the lay-out of the wind project, the choice of specific turbines, and the selection of foundation techniques, shall only be determined by the project developer during the subsequent permit application process. It therefore remains uncertain whether the environmental impact assessment and the appropriate assessment of ecological effects, prepared before such relevant characteristics are known, can provide sufficient information on the effects of the offshore wind project.
In case third parties would initiate appeal proceedings against the permit for the offshore wind project, based on the fact that the environmental impact assessment and/or the appropriate assessment are incomplete, there is a risk that the administrative court will not be satisfied with the level of detail of the environmental impact assessment and the appropriate assessment of ecological effects.
Should the court decide that such an appeal is founded, then this will have an impact on timing. In a best case scenario, the court can suspend the appeal procedure and provide the Minister and the developer additional time to perform further research. In this scenario, the delay is likely to amount to several months.
However, in another scenario, the court can annul the permit granted for the realisation of the wind project. In this scenario (whereby we have not yet taken into account the possibility that the court ruling will also impact the underlying plot decision) the delay is likely to amount to a year or more. Both scenarios will therefore have a negative impact on the timing of realisation of the offshore wind project.
Costs of delay: who will bear the costs?
Another issue that may have an impact on timing concerns the alignment of the plot decision with the permit application process. As the environmental impact assessment and the appropriate assessment of ecological effects must be sufficiently up-to-date, the government must ensure that the subsidy tender (and jointly the permit application) process is not initiated too long after the adoption of the plot decision. At the same time, however, the government must ensure that project developers have adequate time and opportunity to design the offshore wind project, call for tenders from turbine manufacturers and construction companies and make financial estimations in preparation of the subsidy tender procedure. To ensure that the timing of the plot decision, the opening of the tender and the permit application is optimized, it would be beneficial if further consultation takes place between the market participants and the government to determine such timing.
An optimized timing prevents project developers from being negatively affected in the situation where too much time has lapsed between the plot decision and the permit application. If too much time has lapsed, there is a risk that the plot decision and the assessment of the environmental and ecological effects must be updated. If an update is required, it is to our mind quite likely that this will cause a (potentially significant) delay in timing in the subsidy and permit process that is to follow.
While we understand from the explanatory memorandum that the government shall assume responsibility for any required update of the plot decision or renewed assessment of the environmental and ecological effects, the legislative proposal does not provide relief for the costs of delay that a project developer may face in such a situation, such as the costs connected to the temporary suspension of the subsidy tender process, the permit application process or an amendment of the arrangements made with construction companies and turbine manufacturers.
The project developer must compete with other market participants to obtain a permit for the exclusive right to construct and operate the wind project. While the Offshore Wind Energy Act contains different mechanisms to select the project developer that shall ultimately obtain the right to develop a particular wind project, the government is generally expected to grant the permit to the project developer that has won the tender procedure under the Dutch subsidy scheme for renewable energy projects.
This tender procedure is essentially designed to select the project developer that shall be least dependent on subsidy payments for the realisation of a particular offshore wind project. Only the project developer that has actually obtained a subsidy for the construction and operation of the wind project shall be granted a permit pursuant to the Offshore Wind Energy Act.
Room for compensation?
The project developer shall subsequently be required to construct and operate the offshore wind project in accordance with the requirements contained in the permit and in the plot decision. Please note, however, that the government shall in principle have the possibility to amend or revoke the plot decision, which may in turn have an effect on the validity of the permit that was granted to the project developer. While the explanatory memorandum provides that the government shall only amend or revoke the plot decision in exceptional circumstances, we note that the legislative proposal does not contain any mechanism that would compensate the project developer for any costs and/or damages in case the lay-out or the operation of the wind project should be changed due to an amendment of the plot decision.
Existing Water Act permits
Several project developers already acquired a Water Act permit for the development of new offshore wind projects. Pursuant to the current draft of the Offshore Wind Energy Act, these existing permits shall only remain valid for those project developers that have already received subsidy payments under the Dutch subsidy scheme for renewable energy projects.
All other existing Water Act permits shall expire when the legislative proposal enters into force. The explanatory memorandum states that there is no genuine expectation that these projects shall actually be realised in the near future due to a lack of subsidy payments. Furthermore, the existing permits are not considered to comply with the new arrangements for offshore spatial planning and grid connection, and would therefore not align with the desired reduction of development costs that is envisioned under the proposed Offshore Wind Energy Act.
Without wanting to discuss in this briefing the validity of such statements, it is important to note that under the previous legal framework for offshore wind, project developers were required to make significant investments to obtain the existing Water Act permits for the development of new offshore wind projects.The fact that no financial compensation mechanism is included in the legislative proposal for the project developers that are currently permit holders, is an issue that requires further consideration by the government.
The new legislative regime as incorporated in the Offshore Wind Energy Act provides for an expedited permitting and subsidy process and an important role for the government in relation to the plot decisions. However, in relation to the aforementioned risks on timing, delay and the lack of compensation, we believe that the new legal framework could still be further improved. For further information, please contact our dedicated Offshore Wind team in the Netherlands.