Bjørn-Erik Leerberg July 4 2022 Norway's answer to energy transition in new geopolitical age: recent developments Advokatfirmaet Simonsen Vogt Wiig AS | Energy & Natural Resources - Norway Bjørn-Erik Leerberg Energy & Natural Resources IntroductionDramatic changes to energy supply security driven by geopolitical upheavalEnergy supply squeeze and energy transition challengesRegulatory foundation for offshore renewable energy activitiesFirst steps towards offshore wind farms in Norwegian exclusive economic zoneIntroductionOn 24 February 2022, the energy supply situation in Europe changed dramatically due to the Russian invasion of Ukraine. The European Union and allies of the North Atlantic Treaty Organization have urged Norway and other energy exporters to increase production to mitigate the remaining shortfall.This article is part of a series examining recent energy developments in Norway.(1) In particular, this article explores how Norway is dealing with its new situation as a major source of energy to Europe. The geopolitical shift following the Ukraine crisis demands new solutions. This series of articles examines how Norway is aiming to navigate these new unruly waters.Dramatic changes to energy supply security driven by geopolitical upheavalRegardless of the supply crisis having arisen before the Russian invasion of Ukraine, both Europe and Norway will need more renewable energy to manage their energy transition. Offshore acreage will once again represent the promising province for Norway's energy production expansion. On 9 February 2022, Prime Minister Støre of the Labour-led minority government announced the first steps for awarding acreage for wind power projects in the North Sea. The government proposal was far from uncontroversial for industry, consumers, environmentalists and the political opposition.In an attempt to respond to the criticism, the government then published a white paper in early May 2022.(2) The white paper sets out long-term energy policy aims, among which were the following three identifiable aims:increase domestic hydropower generation by allowing a larger number of small-scale hydropower projects;predominantly convert offshore petroleum production to offshore renewable energy rather than electricity supplied from the shore; andincrease Norway's overall electricity generation capacity substantially by expanding offshore wind production to respond not only to the transition from offshore petroleum, but also the increase in Norway's longer-term electricity needs.The target set for 2040 was the approval of offshore wind power projects with a total generating capacity of 30 gigawatt hours.Energy supply squeeze and energy transition challengesWith the accelerating energy transition and new technology partly made available by the research, development and operation of offshore oil and gas infrastructure, Norwegians are yet again hunting the high seas to exploit its economic potential in new areas. In a way, to satisfy the increasing demand for renewable energy, Norwegians are returning to their roots. The wind and the waves may yet again provide kinetic energy – while it was previously used for vessel propulsion, it may now be used for the generation of electricity. The United Nations Law of the Sea Convention governing ocean space forms a solid legal base for coastal states' re-exploitation on another renewable source intrinsically linked to ocean space – the wind.Offshore wind triggers commercial, industrial, consumer and special interest. The scope, speed and nature of developments are playing directly into the heated debate surrounding the European energy supply crisis and the highly unusual and extremely high electricity prices faced by Norwegians.Will initial projects be commercially viable without hybrid offtake that would enable additional Norwegian export of electricity from renewable sources? If not, the question remains as to who shall pay for the subsidies required: it will likely not be smooth sailing. A recent press conference by the prime minister failed to allay ruffled feathers.Regulatory foundation for offshore renewable energy activitiesAs far back as in 2010, a government initiative to regulate offshore renewable energy production culminated with the promulgation of the Law relating to Renewable Energy Production at Sea (Havenergilova).(3) Havenergilova regulates, among other things, any offshore renewable energy generation or utilisation project that is not part of an offshore petroleum production project. It is worth noting that Havenergilova has a wider scope than only regulating offshore electricity generation. The legislation thus has to cater for other needs and risks than those associated with windmills. Offshore windmills are only the preliminary power generation projects expected to become reasonably commercially viable at scale given the increasing demand for electricity generation from renewable sources.The regulatory structure and concessionary approach to acreage management(4) has taken substantial cues from the existing upstream petroleum regime currently subject to the Petroleum Act 1996 and sundry regulations. The health, safety and environment regime applicable to projects governed by Havenergilova will draw substantially on experience with the regulation of offshore petroleum activities. Such rules take into account that offshore wind is subject to many, but not all, of the operational risks seen in offshore oil and gas production.Proposals for amendments to Havenergilova(5) and the King in Council Regulations 2020 (Havenergilovforskrifta)(6) will enable offshore energy production concessions to be granted to prequalified legal entities. The same applies for acquisition of participating interests in petroleum production licenses. There is, however, one substantial deviation from the petroleum regime in the new offshore energy concession regime. The government intends that concession acreage for offshore wind power projects may be awarded based on auctions or on other objective non-discriminatory conditions. Petroleum production licences have to date only been awarded based on detailed applications setting out detailed work obligations.In Summer 2021, with a 20 August 2021 deadline, the government circulated for public comment proposals for amendments to Havenergilova and Havenergilovforskrifta. The previous minority centre-right coalition government lost the general election in September 2021. The new minority centre-left government has not yet tabled a proposal to Parliament (Stortinget) to supplement Havenergilova and Havenergilovforskrifta to implement the proposed prequalification and auction award procedures. However, the new Labour-led government, in a press release on 9 February 2022, reiterated with regard to prequalification and auctions its intention to follow the systematic proposals indicated in the consultation document circulated by the previous government and submit to Stortinget during Spring 2022 a proposal for amendments to Havenergilova.In 2012, consistent with the requirements of the law,(7) the Norwegian Energy Directorate published the required Strategic Environmental Impact Assessment report. More detailed administrative and procedural rules followed through the publication of Havenergilovforskrifta. A week after these regulations, the government – pursuant to Havenergilova(8) – passed a royal decree on 18 June 2020 announcing the opening of two areas in the North Sea, referred to as:"Utsira Nord"(9) in the North Sea, due west of Haugesund; and"Sørlige Nordsjø II",(10) due southwest of Farsund.The water depth at Utsira Nord (the average depth within the contemplated acreage is 267 metres) will require floating production. Areas in Sørlige Nordsjø II are located in shallower water (with an average water depth of 60 metres). Developers in the latter area construct installations fixed to the seabed or use floating production facilities.Certain constraints on future activities in the areas opened were included in the royal decree. A Sørlige Nordsjø II offshore energy concession may not comprise acreage over which there is a production licence. Sørlige Nordsjø is located within "APA Round acreage" (ie, acreage in predefined areas open for annual production licence applications).In Utsira Nord, the government will not award acreage overlapping the Norwegian armed forces offshore live-firing training area referred to as "END253". In Utsira Nord, but less in Sørlige Nordsjø II, there may also be imposed restrictions on the delineation of acreage to cater for safe navigation, while in Sørlige Nordsjø II fisheries may equally influence acreage awards. In both areas, but more so in Sørlige Nordsjø II, there are particular environmentally sensitive matters to consider, which may affect the delineation of acreage. This includes the migration of birds. Culture and heritage aspects may also require the imposition of particular obligations on future concessionaires.First steps towards offshore wind farms in Norwegian exclusive economic zone On 9 February 2022, the government announced the initiation of the first phase of offshore wind projects to be located in the Sørlige Nordsjø II area, with other areas to follow. Led by Prime Minister Støre and the ministers present (ie, the ministers of petroleum and energy, trade and industry, and finance), a number of policy initiatives were unveiled.In parallel with the press conference, the Ministry of Petroleum and Energy launched a proposal for the graticulation of the acreage, proposing to divide Sørlige Nordsjø II into three concession areas. The government suggests dividing Utsira Nord in two alternative ways – either into three concession areas or four concession areas. The proposal was circulated for public comment with a deadline of 29 March 2022.The award of acreage would be subject to an auction in which prequalified entities may participate. This will most likely take place in Autumn 2022. During Parliament's Spring 2022 session, it is also expected that proposed amendments to Havenergilova and Havenergiforskrifta will be submitted. There will be acreage left between each concession area and a corridor established between each area so that that each concession has sufficient flexibility with regard to its development without negatively affecting development in other areas.For further information on this topic please contact Bjørn-Erik Leerberg at Simonsen Vogt Wiig Advokatfirma by telephone (+47 21 95 55 00) or email ([email protected]).The Simonsen Vogt Wiig Advokatfirma website can be accessed at www.svw.no.Endnotes(1) For the first article in the series, see "Norway's answer to energy transition in new geopolitical age: background".(2) "Meld. St. 11 (2021–2022)".(3) LOV-2010-06-04-21.(4) See Havenergilova – in particular:chapter 1, section 1-2, defining scope of application;chapter 1, section 1-3 on the state's right to exploit offshore energy resources;chapter 3 on concessions and concessionaires;chapter 4 on project relevant environmental impact assessments;chapter 9 on compensation to fisheries; andseveral miscellaneous provisions in chapter 10.(5) A new section 2-3 is proposed to be included in Havenergilova, stipulating:prequalification requirements;that competitions for acreage will be the norm; andthat the government may require compensation for the award.A new chapter 2a in the Marine Energy Regulations will supplement the proposed amendment to Havenergilova.(6) FOR-2020-06-12-1192.(7) Haverengilova, section 2-2, second paragraph.(8) Havenergilova, section 2-2 fifth paragraph.(9) Utsira Nord is defined by the following coordinates:4° 16 '09" E, 59° 26' 53" N;4° 40' 25" E, 59° 28' 56" N;4° 24' 27" E, 59° 04' 10" N; and4° 48' 44" E, 59° 06' 18" N.(10) Sørlige Nordsjø II is defined by the following coordinates:4° 20' 48" E, 56° 49' 24" N;5° 10' 05" E, 57° 05' 36" N;5° 29' 51" E, 56° 44' 17" N;5° 02' 01" E, 56° 35' 30" N; and4° 38' 29" E, 56° 29' 02" N.