On 26 September 2008, the Crown Estate issued an invitation to tender for developing offshore windfarms under its third round of leasing (Round 3). The actual invitation to negotiate is confidential, but the key aspects of the Round 3 documentation have been well publicised and this note summarises those aspects.

Those wishing to participate in Round 3 have until March 2009 to respond to the invitation to negotiate. If parties wish to submit joint responses, details of the consortium must be notified to the Crown Estate by February 2009.

Bids will be assessed on the basis of a financial assessment, track record on past projects, and available skills and resources.

The key differences in Round 3 (as compared to Rounds 1 and 2) are the introduction of zone development agreements (ZDAs) and the more central role that the Crown Estate intends to play.

Zone development agreements

Round 3 developments will take place within renewable energy zones. Nine renewable energy zones are currently proposed. The exact number and location of these zones remain subject to further revisions as a result of the ongoing Strategic Environmental Assessments and will not be finalised until next year.

Bidders (which may be an individual company or a consortium of companies) will be required to establish a wholly owned subsidiary (the "Partner"). The successful Partner for each zone will enter into the ZDA. Each ZDA will give the relevant Partner the exclusive rights to develop windfarms within the relevant zone. It is envisaged that multiple windfarms will be developed within each zone.

The overriding purpose of each ZDA is to maximise the development of windfarms within the relevant zone. In order to give the Crown Estate oversight over such development, the Partner will be required to give to the Crown Estate both a parent company guarantee and a first ranking charge over all of its shares. Bidders should bear this requirement in mind when considering the structure of their bid or consortium.

The Partner will agree a zone development programme for development of the relevant zone, and a budget for the costs of complying with such development programme with the Crown Estate.

Partners will develop each windfarm project site within their zone through a separate special purpose company. It is to this special purpose company that the Round 3 lease will be granted at the appropriate time. Again, charges over the special purpose company's shares must be given as security for performance. Partners will have the ability to sell some or all of these special purpose companies to third parties following construction.

Crown Estate's co-investment model

The Crown Estate has acknowledged that if it is to facilitate the Government's plans for offshore wind generation, the scale of capacity required will require a different approach to that which was taken for Rounds 1 and 2. With this in mind, the Crown Estate has proposed a 'co-investment model'.

The Crown Estate will meet 50% of the 'development costs' for each zone. These development costs are the costs for obtaining the key development consents – they do not include the construction costs.

The development costs will be agreed with the Partner appointed in respect of each zone,and set down in a budget. Eligible costs will be reimbursed by Crown Estate in accordance with the agreed budget.

Despite the 'co-investment model', responsibility for developing the windfarms within each zone will remain firmly with the successful Partner.

Round 3 lease

In general, the lease documentation is similar to the Round 2 documentation – with the important distinction that the Round 3 lease documentation will be entered into pursuant to the exclusive ZDA for the relevant zone.

As with Round 2, rents are linked to the level of generation from each project and the lease term will be 40 – 50 years. A lease premium will also be payable to the Crown Estate.

Next steps

Interested bidders are encouraged to give the invitation to negotiate their full consideration as soon as possible. The March deadline will come round quickly, and the February deadline is important for those that intend to submit joint bids, which is likely to be common given the size of the potential investment required.