The government Department of Business, Energy and Industrial Strategy (BEIS) published a consultation on Wednesday 7 February proposing amendments to its guidance for developers and operators of offshore renewable generating stations and transmission assets in respect of decommissioning programmes. The focus of the amendments is on providing greater clarity around the decommissioning cost estimates that developers must provide in their programmes and the financial security they must provide. This article provides a brief summary of the proposed changes.
Under section 105 of the Energy Act 2004 (EA04), BEIS can require any person developing or operating an offshore renewable energy installation and/or its electric lines to submit a decommissioning programme for approval. The programme must set out the measures required for retiring the relevant apparatus and restoring the site, along with an estimate of the costs and time periods for those measures. Under section 106 EA04, BEIS can make its approval of a decommissioning programme subject to conditions, including the provision of financial security in relation to the programme. The requirements of EA04 are in addition to any decommissioning obligations imposed under the marine licence and lease for the project. In practice, de-commissioning conditions or requirements are routinely imposed on marine licences and development consent orders, and these often require the approval of a de-commissioning programme before works can commence.
Guidance on the decommissioning programme requirement was first issued in 2006 and updated in 2011. BEIS is proposing to update the guidance further now that “industry and regulators’ understanding and practical experience of decommissioning have developed considerably”. The focus of the proposed amendments is on costs estimates and financial security, but BEIS ultimately intends to carry out a full review of the guidance.
Proposed amendments to the guidance
The amended guidance sets out a number of clarifications with respect to developers’ estimates of decommissioning costs:
- The estimate must be broken down to show costings and contingency for all stages of the decommissioning, including vessel day rates and waste disposal costs;
- The developer should not set off any assumed scrappage value against its cost estimate;
- CPI inflation should be applied to the estimate;
- The costs of activities within territorial waters should include VAT;
- The developer should include in its programme an indication of how it intends to finance its decommissioning costs; and
- Independent audit of the costs estimate may be required.
The consultation leaves open the possibility that this part of the final guidance may exclude OFTOs due to “aspects of the OFTO regime that warrant treating the decommissioning of these projects in a different way”.
The amended guidance is also more prescriptive on the forms of financial security for decommissioning costs that are likely to be acceptable to BEIS. A cash deposit (in an account where BEIS has control over withdrawals) is generally acceptable; such a deposit must be made in full pre-construction unless BEIS considers the risk of government step-in to be low, e.g. where the developer can demonstrate a reliable long-term income stream for the project (such as a CfD). The updated guidance sets out the requirements for a letter of credit or performance bond to be acceptable, and confirms that PCGs and insurance will rarely be considered to provide adequate security.
Further guidance is also provided on test centres, mid-term programme reviews, environmental assessments and post-commissioning reports.
The consultation closes on Friday 2 March. Offshore wind developers and OFTOs will be closely scrutinising the amendments to the guidance. The consultation is also highly relevant to a broad range of other stakeholders – for example, the amended guidance expressly binds tidal lagoon developers, and BEIS specifically invites comments from persons interested in impacts on the environment and other marine activities.