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The Crown Estate sweetens the deal for floating offshore wind

The Crown Estate has unveiled a new floating offshore wind seabed leasing process that promises to sweeten the deal for project developers considering bidding for prime acreage in the Celtic Sea.

If the billing is to be believed, Round 5 will be a “game-changer” for the UK’s offshore wind industry and “transformative” for nearby communities. That’s according to Gus Jaspert, The Crown Estate’s managing director, marine, who told E-FWD the new process is designed to foster greater collaboration across a diverse mix of marine stakeholders in order to accelerate deployment and power sector decarbonisation.

Jaspert said the Crown Estate wants to move away from the “relay race” approach, whereby development progresses sequentially and only once the “baton” has been handed over by the previous runner. He cited the example of port expansions not getting built until contracts are in place, which only happens when a developer wins a Contract for Difference (CfD). “We are trying to accelerate the whole system so that people can plan for the wind farm and [progress multiple workstreams] at the same time.”

We are pursuing a whole host of measures that will drive advancements and realise the full potential of this sector

Gus Jaspert, managing director, marine, The Crown Estate

While further details are awaited in some key areas, the fact remains that the UK’s seabed landlord appears to have listened to stakeholder feedback and adapted its approach accordingly.

The Crown Estate is offering three fixed-boundary project development areas (PDAs) each offering up to 1.5 GW of potential capacity in some of the “best waters” and “most commercially attractive areas” in the Celtic Sea – close to supporting infrastructure and grid connections in South Wales and South-West England.

De-risking and expediting sites

Several big departures from previous seabed leasing rounds were set out in an information memorandum for Round 5. An up-front habitat regulations assessment will conclude ahead of invitation to tender, increasing certainty for bidders. The consenting process will be further expedited by pre-consent surveys being undertaken to directly inform early-stage project engineering design, financing, and environmental impact assessment.

For the first time, the Crown Estate is engaging with both National Grid ESO and the National Grid Electricity Transmission (NGET) to produce a set of design recommendations for the electricity grid to enable power offtake, helping to de-risk offshore project design and delivery.

ESO’s design recommendations, due by the end of March 2024, are expected to detail the voltage, capacity, location and availability of landfall infrastructure. This means developers are “not starting from a blank piece of paper” when they sign the agreement for lease.

In another first, lease agreements will support offshore electrolysis by allowing hydrogen pipeline exports rather than electricity injection into the transmission system, should developers prefer the H2 option. However, power exports are expected to be the preferred option, Jaspert said.

Frontloading commitments

Another big departure is the introduction of social and environmental value criteria in assessing bid offers. The Crown Estate’s rationale for doing this speaks directly to concerns voiced by numerous wind industry voices to E-FWD around the importance of engaging with supply chains well before the CfD allocation stage – by which point it is too late to leverage investment and stimulate capacity building.

Gus Jaspert, managing director, marine, The Crown Estate

“Because our leasing process comes early in the offshore wind project development cycle, it provides a key opportunity to establish early incentives for Bidders to play their part in creating the foundations for new social and environmental value to be created,” the memorandums states.

Bidders will need to submit plans for apprenticeships, skills development, ‘NEETs’ (young people not in employment, education or training), community impact and engagement, volunteering, and a social value “method statement”. All of these commitments will be enshrined in the seabed lease contracts and subject to periodic monitored and delivery enforcement.

Notably, the environmental criteria do not include decarbonisation of the wind supply chain. However, the Crown Estate will require developers to provide Scope 1, 2, and 3 greenhouse gas emissions data from their projects. It is also exploring opportunities “to support the deployment of zero or low carbon vessels for operations and maintenance, and the implementation of circular economy opportunities, such as life extension, full removal, and recycling,” Jaspert said.

Tearing off the blindfold

The seabed lease bidding system has also undergone significant reform. The old sealed bids tender has been replaced by an ascending clock auction. Prices will be escalated from an opening value over a series of discrete “auction rounds”, with option fee bid prices and volume for each PDA communicated back to bidders.

This approach “maximises opportunities for granular price and market value discovery, allowing Bidders to offer their best proposals in a fair and transparent process, avoiding some of the issues a sealed bid approach may bring.”

The lack of transparency and dynamic bidding in a sealed bid auction also risks over- or under-valuation because participants cannot see others’ bid prices. It also encourages strategic bidding – whereby information asymmetry allows participants to bid according to their private assessment of the market value or the likely bids of competitors.

Significant work has gone into improving the value to developers of the seabed rights on offer in Round 5. Asked whether this is likely to yield higher bid prices, Jaspert demurred. “We wanted to create an open and transparent approach [that allows bidders to] see how bidding is developing, set their own price and pay fair value. They will need to price that themselves.”

Accelerating port infrastructure

Coastal regions around the Celtic Sea will need significant investment to build capacity for turbine marshalling, manufacturing foundations and providing other support services. The Crown Estate is attacking this challenge head-on with two major initiatives.

“Because no port in the vicinity of the Celtic Sea can currently provide GW-scale integration services to developers, we will require Bidders to nominate their preferred integration ports and make early commitments to those ports to support their timely development,” the Round 5 information memorandum states.

A turbine being towed out to the Kincardine offshore wind farm. Credit: Principle Power
A turbine being towed out to the Kincardine offshore wind farm. Credit: Principle Power

The seabed landlord is also planning to invest directly in portside infrastructure via a pilot £10 million fund in 2024 focussed on the Celtic Sea Supply Chain Blueprint – a new piece of research quantifying the economic opportunities of developing 4.5 GW of floating wind capacity in the region that will be published early next year.

An extra £40 million has been earmarked to be deployed over time on further opportunities nationally. Further details will be set out in the first part of 2024. Asked whether the Crown Estate will be taking equity stakes in assets that deliver a financial return or merely subsidising them, Jaspert clarified that “we are not in the business of subsidising anything”.

Achieving momentum and balance

The Crown Estate is evidently keen to re-inject momentum into the offshore wind sector, which is has been through a torrid summer of project delays in the UK and cancellations in key global growth markets. Its remit as the seabed landlord grants it a pivotal role in enabling project development and directing investment into debottlenecking supply chains.

Unencumbered by the election cycle, it also has the privilege of being able to take long-term decisions that strike a balance between addressing climate change, biodiversity loss, supporting economic growth and helping communities become more resilient and inclusive.

But there are limits. Asked whether the UK will this time reap the economic benefits of floating wind, rather than becoming the go-to destination for overseas manufacturers to install equipment and repatriate profits, Jaspert said this question has been front of mind as his team designed Round 5.

“The simple answer is that we don’t want to do anything that slows down development because it goes against global trade rules. It’s not as simple as saying you must build [or manufacture] in this country. We don’t go against WTO rules. [But we are pursuing] a whole host of measures that will drive advancements and realise the full potential of this [sector].”

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