Financial capacity and financing plan among prequalification criteria for licence applicants, but no framework outlined for taking security by lenders.
Today, Friday 11 June 2021, the Norwegian prime minister, Erna Solberg, and the Minister of Petroleum and Energy, Tina Bru, presented the long-awaited white paper on long term value creation from Norwegian energy resources (the "Energy Report"). A guidance on licence applications for offshore wind power installations was released simultaneously. The Energy Report sets an ambitious target for long-term development of energy resources in Norway, and the guidance addresses key issues in the licencing process for would-be applicants.
We did not expect the two reports to provide much guidance on how the future regulatory framework would be structured in order to ensure the availability of third-party financing of offshore wind installations, and in this respect the reports did not disappoint. Any mention was limited to a paragraph in the Energy Report noting the need expressed by some for the ability to take security over offshore installations. The Ministry concluded (our translation):
The Ministry of Petroleum and Energy will therefore consider whether to allow for taking security over installations with a licence under the Ocean Energy Act in order to accommodate for financing of offshore energy project through charges over licences, installations and cables. The Ministry of Petroleum and Energy will further consider the need for a statutory basis for taking security and the potential establishment of a registry of rights to installations for offshore renewable energy production, etc.
In other words, it appears there has been no further development on this matter from the discussions leading up to the amendments to the regulation under the Ocean Energy Act adopted about half a year ago.
Adding to this, the guidance seems to create some new uncertainty on how the future will look like for financing of offshore wind developments. And some challenges may occur already at the prequalification stage.
First, a licence applicant in the prequalification stage shall document that it has sufficient financial capacity as well as a plan for how to finance the project during all stages. The financing plan must be further detailed in the application. Whereas this is unlikely to be a substantial issue for the largest participants, it may prove challenging for some players relying on external financing for the construction of their installations as there is uncertainty on whether future projects will be "bankable" due to a lack of an appropriate legal framework. The guidance does not shed further light on how applications should document or describe their financing plan.
Second, and perhaps a bit disturbing, is the unqualified statement in the guidance that a sale of the offshore installation or a direct or indirect transfer of ownership interests in the successful applicant will require the consent of the Ministry. No indication is given as to how this would tie into the debate on taking security over offshore assets. This will be a fundamental question to address in order to ensure the availability of a secondary market for offshore installations.
In terms of financing offshore wind installations, the reports published today were underwhelming, especially when acknowledging that key to ensuring a lender friendly environment is providing a robust legal framework for taking security. Such legal framework is lacking today. Kluge and other market players have raised concerns that measures should be taken early in order to prepare a system for taking security which is adapted to the commercial needs of potential lenders. It is obvious that a solution is not on the agenda for the time being, and with the upcoming election this autumn, we are not overly optimistic that there will be any development in the near future.
For those who read Norwegian, our comment in rett24.no this spring explains some of the challenges facing project lenders looking to take part of the development of offshore wind installations along the Norwegian coastline and provides a few suggestions on how a legal framework for taking security could be structured.