Wind farm capacity on the rise

By mid-2023, offshore wind farms in Dutch territorial waters should in aggregate generate at least 4,500MW power capacity a year. By comparison, the capacity of existing offshore wind farms and those under construction in the Netherlands amounts to approximately 1,000MW.

To increase current capacity by 3,500MW, the Dutch government will tender five wind farm sites of 700MW each between 2015 and 2019. These sites are within three designated zones – Borssele, South-Holland Coast and North-Holland Coast (see figure 1) – and each is divided into two plots (kavels) of 350MW each. Each plot will be tendered separately.

The winning bidder(s) will be granted a permit to build and exploit the wind farm on the designated plot and the related sustainable energy subsidy (SDE+)1 to support a viable exploitation. Dutch transmission system operator TenneT has been assigned to roll out a so-called grid-at-sea, an offshore electricity grid to which all offshore wind farms will be connected.

Because streamlining the permitting and subsidy awarding process and connecting each wind farm to the onshore grid (as envisaged in the Dutch Offshore Wind Energy Act)2 has3

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been pre-arranged, a faster roll-out of (large-scale) offshore wind farms is expected.

The Dutch government will determine the exact location of each plot, which will be laid down in so-called plot decrees (kavelbesluiten). These plot decrees should provide sufficient information (ie results of the soil survey, the archaeological survey, several ecological surveys and the exact geographical dimensions of the wind farm and of the connection grid) for commercial parties to make their best tender bid.4

Tender Borssele I (plots 1 and 2) – provisional timelines

The first tender relates to Borssele plots 1 and 2 of 350MW each and is expected to be open for submissions from 1 December 2015 until 31 March 2016.

After the close of the bid, the Dutch government must determine the winning bidder within 13 weeks. The decision should therefore be made before 1 July 2016. This period may be extended by 13 weeks until 29 September 2016 at the latest.

The legislative proposals underpinning the new approach and tender procedures are at advanced drafting stage. The plot decrees for all Borssele plots, determining the exact location and size of each plot, are expected to be adopted in August 2015 after which any interested party will be entitled to submit objections within six weeks. It is likely that such objections and appeals will be filed, in particular by parties representing the tourism industry (coastal hotels) and ecological activist groups.

There are also likely to be judicial appeals against the final plot decrees (expected to be issued in November 2015). Interested parties will similarly be able to appeal the permit and subsidy award decisions that will be issued to the winning bidder(s). As a consequence, the plot decrees and permit and subsidy award decisions may not be set in stone before the end of Q2 2016, which could potentially affect the general timelines of the first Borssele tender and – if these appeals lead to amendments to the plot decrees and permit and subsidy decisions – to the scope, design and other aspects of the wind farms.

Tender Borssele I (plots 1 and 2) – requirements for application

Applications are only considered if the requirements, under ‘Tender requirements’ below, have been complied with. Subsequently, the qualifying applications will be ranked on the basis of the tendered amount of subsidy per kWh, whereby:

  • the total required subsidy amount represents the difference between the total estimated offshore wind costs minus the estimated revenues, with the latter being equal to the forecasted long-term electricity price multiplied by the total capacity, multiplied by the full load hours, multiplied by the subsidy period. The total required subsidy amount divided by the total kWh constitutes the tender amount;
  • the Dutch government has set a maximum tender amount for the Borssele wind farm zones at 12.4 euro cents per kWh with a base electricity price of 2.9 euro cents per kWh; and
  • if there are two or more applications that have tendered the same lowest subsidy amount, the subsidy will be assigned by lot.

Tender requirements

Each application should comply with the general SDE+ decree, the Offshore Wind Act and the specific offshore wind energy subsidy decrees (Regeling windenergie op zee 2015, Uitvoeringsregeling windenergie op zee and Uitvoeringsovereenkomst regeling windenergie op zee).

The general SDE+ decree sets out the general requirements to any application for a sustainable energy subsidy (SDE+), regardless of whether it concerns offshore wind or any other form of sustainable energy generation. According to the general SDE+ decree, any application should include:

  • a description of the production equipment;
  • the estimated number of full load hours on an annual basis (ie the hours that the wind farm would be operating at full capacity on a yearly basis);
  • a development and exploitation plan, which should contain a detailed timetable that covers all relevant project phases up to realisation;
  • a financial plan setting out the applicant’s funding resources and equity position; and
  • an overview of all consortium members (if the application is made by a consortium).

The Offshore Wind Act requires the applicant to reasonably demonstrate that the construction and exploitation of the offshore wind farm:

  • satisfies:
    • a general practicability test (uitvoerbaarheidstest);
    • a technical feasibility test (technische haalbaarheidstest);
    • a financial feasibility test (financiele haalbaarheidstest);
  • will start within four years from the date that the permit becomes irrevocable;
  • will become economically viable (ie when no longer receiving the subsidy) within the duration of the permit; and
  • will be conducted within the boundaries set by the relevant plot decree.

The financial feasibility test

Detailed information about the criteria will be given in the specific offshore wind energy subsidy decrees referred to under ‘Tender requirements’, above. To that end, the wind energy regulation at sea 2015 (Regeling Windenergie op zee 2015) and the realisation agreement (Uitvoeringsovereenkomst) have been drawn up by the Dutch government, which has to be entered into by the Dutch government and the winning bidder within two weeks from the date upon which the SDE+ subsidy is granted to such applicant. According to the aforesaid regulations and realisation agreement, each applicant will be required, as part of the financial feasibility test, to observe the following rules:

  • the equity amount on its balance sheet should at least be equal to 10 per cent of total estimated investment costs;
  • on winning the tender procedure, the winner has to provide a bank guarantee of €10m. If the winner withdraws within one year from being granted the SDE+ subsidy, a fine of €10m will become due; and
  • before the lapse of the first year after the granting of the SDE+ subsidy, the winner has to take out a second bank guarantee, this time of €35m. If the winner does not realise the project on time, it may become subject to fines of €3.5m for each month of delay with a maximum of €35m.

Restrictions to the permit and subsidy

The minimum capacity per plot amounts to 350MW. The Dutch government has confirmed that electricity generated in excess of 350MW will also be subsidised up to 380MW. TenneT, the grid operator, has expressed its intention to provide grid capacity up to 380MW, but is not prepared to guarantee grid capacity of any production in excess of 350MW.

The maximum term of the permit will be 30 years and the maximum term of the SDE+ subsidy will be 15 years whereby the term of the SDE+ subsidy will start five years after the grant of the subsidy at the latest – irrespective whether actual production has begun at that time.