Legal developments in offshore wind energy in the Netherlands; part 5

Just before the summer recess of Parliament important progress has been made with respect to the preparation for the upcoming offshore wind energy tenders organized by the Dutch State.

This Newsflash provides an overview of the status of the key elements of the regulatory package for offshore wind energy that is currently being developed and addresses recent amendments to the following regulations:

• the final version of the Implementation Regulation with respect to the Offshore Wind Energy Act, that was published on 3 July 2015 and addresses, inter alia, the wind permit procedure; and
• the final version of the Tender Regulation 2015, that was published on 3 July 2015 and regards the SDE+ subsidy tender.

Since the final versions of these regulations do not substantially differ from earlier versions, this Newsflash focusses on the new elements that have now been introduced. For a more comprehensive overview of the contents of these regulations reference is made to our previous Newsflashes, in particular part 3 and part 4 of this series of Newsflashes.

Overview status regulatory framework

Offshore Wind Energy Act and its implementation decree

The entering into effect of the Offshore Wind Energy Act on 1 July 2015 constitutes an important milestone in the development of a new regulatory framework for offshore wind energy. The Act contains the key requirements for the site decisions and the wind permits. The permit requirements are further elaborated on in the Implementation Regulation Offshore Wind Energy, which regulation is now also in final form and was published in the Government Gazette on 3 July 2013. It will enter into effect simultaneously with the Tender Regulation 2015, scheduled for 1 December 2015 (however if the site decisions enter into effect later than 1 December 2015, the Tender Regulation 2015 will enter into effect on the date on which both site decisions have entered into effect).

The final version of the Implementation Regulation Offshore Wind Energy only provides minor changes compared to the version that was published for consultation. A new element is that it addresses the assessment of the technical feasibility of an offshore wind energy park (being one of the permit requirements under the Offshore Wind Energy Act). So far this requirement had not yet been specified, since it was felt that the bank guarantees due under the implementation agreement with the Dutch State will provide sufficient comfort that the winning project is technically feasible. The final version of the Implementation Regulation however stipulates that the fulfillment of the Water Decree will be included in the assessment of the technical feasibility of a wind park. This means that, unless the wind turbines are certified, the applicant will have to submit a report by an independent expert ultimately 4 weeks prior to the start of operation of the wind park, proving that the engineering structure of the wind park is solid.

Tender Regulation 2015

Below we will list the most important new elements that have been introduced in the final version of the Tender Regulation 2015, compared to the draft version that was published for consultation.

Subsidy ceiling, basic electricity price and maximum tender amount

The subsidy applications must regard wind parks with a minimum capacity of 351 MW (reduced by the capacity of the turbine with the lowest capacity) and a maximum capacity of 380 MW per site.

The subsidy ceiling shall be € 2.5 million per site and the basic electricity price (floor price) shall amount to € 0.029 per kWh. The maximum tender amount for the first tender shall amount to € 0.124 per kWh.

Bank guarantees and penalties increased

As indicated by the Minister of Economic Affairs in his letter to the House of Representatives of 19 May 2015, the amounts of the two bank guarantees that are required pursuant to the implementation agreement between the subsidy receiver and the Minister of Economic Affairs, have been increased in the final version of the Tender Regulation 2015; the first bank guarantee (to be provided within 4 weeks from the subsidy award) now amounts to EUR 10,000,000 and the second bank guarantee (to be provided within 12 months after the subsidy award) EUR 35,000,000.

In the final version of the Tender Regulation 2015 the penalties have been increased. If the subsidy receiver fails to provide the second bank guarantee in time, a penalty in the amount of EUR 10,000,000 will be incurred. In addition, the subsidy receiver will incur a penalty in the amount of EUR 3,500,000 in case of a delay in the start of operation of the wind park, increased with EUR 3,500,000 for each month that the delay continues. These penalties will be due without any proof of default or summons.

Implications of failure to meet conditions precedent

The subsidy is awarded subject to two conditions precedent: entering into an implementation agreement with the Ministry of Economic Affairs within 2 weeks of the date of the award and providing the abovementioned bank guarantee for an amount of EUR 10,000,000 within 4 weeks from the date of the subsidy award. The Tender Regulation 2015 now clarifies the implications of a failure to meet these conditions precedent: in that event the subsidy will be awarded to next ranked application.

Equity capital requirement increased and clarified

The equity capital requirement that needs to be satisfied by all applicants and serves to demonstrate the financial feasibility of the wind park has in the final Tender Regulation 2015 been increased from 5% to 10% of the total investment of the wind park.

It has now been clarified, that for the fulfilment of this equity capital requirement, the applicant may take into account the equity capital of its parent company or, in case the applicant is a consortium of parties, of all its consortium partners. The fulfilment of this equity capital requirement can be demonstrated by the most recent annual accounts of the applicant, its consortium partners or its parent company, as the case may be. Such annual accounts may, according to the final Tender Regulation 2015, not date back more than 3 calendar years from the year of submission of the subsidy application. Thus, in case of a subsidy application submitted in 2016, the annual accounts may not be older than 2013.

Preliminary proof of financing

The Tender Regulation 2015 that was published for consultation did not require a financing plan as part of the subsidy application. Given the size of the investments involved, it would be unlikely that applicants would be able to provide letters of intent from lenders for the entire amount of the investment already at the time of the subsidy application. Moreover, it was felt that the bank guarantees due by the winning applicant would provide sufficient comfort that the project would be financially feasible. Following the consultation this has however been changed. Under the final Tender Regulation 2015 subsidy applicants are required to provide letters of intent from their lenders, however only if their equity capital constitutes less than 20% of the total investment. In this case, the applicant will have to submit letters of intent from lenders in relation to the difference between the 20% and the actual equity.

Ranking of (bundled) applications

A minor change has been made in the final Tender Regulation 2015 in relation to the ranking of the bids: the subsidy is still awarded to the application with the lowest tender amount. However, if the equity capital of an applicant that has submitted a bundled application does not equal at least 10% of the total investment costs for sites I and II jointly, such applicant shall only be eligible for subsidy for one the sites, i.e. for the site for which it has submitted the lowest tender amount. In case the tender amount is identical for both sites, the Minister of Economic Affairs will determine by lot for which site the applicant is eligible for subsidy.

Compatible state aid

The SDE Decree was authorized by the European Commission as compatible aid on several occasions in the past. Following the recent modification of the SDE Decree, the modifications (including the tender procedure for offshore wind) were notified to the European Commission for approval under the state aid rules, which approval was granted by the European Commission on 7 April 2015. The European Commission concluded that the SDE+ scheme allocates subsidy through a competitive bidding process. As a consequence, individual subsidy decisions with respect to installed capacities in excess of 250 MW will not require notification to the European Commission under the state aid rules.

Contact

The above is intended to provide an overview of important recent developments in relation to the envisaged tender process for offshore wind energy in the Netherlands. It is not intended to be a complete enumeration of all relevant legislation. If you have any questions or remarks regarding this newsflash or would like to receive our previous newsflashes on this topic, please do not hesitate to contact us.