An Update on the Celtic Sea Floating Offshore Wind Programme

The Crown Estate, together with the UK Government, has provided an update to industry ahead of the opening of the fifth leasing round for the Celtic Sea floating offshore wind programme (“LR5”) later in 2023. The update follows extensive work by The Crown Estate to understand the many competing demands on the Celtic seabed as well as investment in test projects, pre-consent surveys, environment assessment and grid design.

In support of the Government’s ambition to deploy up to 5GW of floating offshore wind by 2030, The Crown Estate has identified four focused project development areas in the Celtic Sea (each, a “PDA”) with projects in the PDAs aiming to deliver up to an aggregate of 4GW of electricity.

Consistent with the UK Government’s stated aim to develop a strong supply chain for offshore wind in the UK and reflecting The Crown Estate’s intention to generate wider social and economic benefits through developing the PDAs, The Crown Estate is proposing to revise the bid assessment criteria for LR5.

In this post we summarise the stages in the tender process, highlighting the new assessment criteria.

Pre-qualification

Following the publication of a pre-launch information memorandum, developers who wish to participate in LR5 must first progress through the “pre-qualification” stage by meeting each of the criteria (assessed on a “pass/fail” basis) described in the pre-qualification questionnaire. Alongside the standard legal criteria (such as tax compliance and anti-bribery provision), a bidder (who can bid either as a single entity or a consortium) must also meet new technical and financial criteria. 

It must: 

(i) have transferable experience in offshore construction and offshore development project management, attributable to the developer. If bidding as a consortium, different members together may demonstrate the relevant experience; 

(ii) have signed an up-to-date health and safety policy that is compliant with UK legal requirements and guidance; 

(iii) report health and safety enforcement actions in the past five years (and provide evidence of mitigation measures preventing reoccurrence (if applicable)); and 

(iv) demonstrate its financial strength by meeting the revenue ratio and net assets balance tests, and one of the (a) operating profit margin; (b) interest cover ratio; or (c) current assets to liabilities ratio tests.

The bidders who are successful at this stage will move onto “Invitation to Tender Stage 1”.

Invitation to Tender Stage 1 (“ITT1”)

As with previous leasing rounds, the bidders must provide documents such as a development schedule and a consenting and stakeholder engagement plan at ITT1. At this point, The Crown Estate will also re-examine the bidders’ financial capabilities to ensure that the bidders have sufficient cash for development of the wind farm.

The Crown Estate is also proposing to include a new criterion requiring that the bidders demonstrate how they will secure access to ports in a way that would ensure timely delivery of the projects. It is also proposed that the bidders no longer need to submit supply chain investment plans.

Given the focus on generating social value, The Crown Estate has also introduced social value-related questions (on which the bidders will be assessed on a “pass/fail” basis) to assess commitment to: 

(i) delivering employment and training opportunities; 

(ii) tackling inequality in skills and pay in the workplace; 

(iii) delivering environmental benefits; and (iv) working with communities.

Given the nature of these questions, we expect that if The Crown Estate decides to implement these social-value questions into the ITT1 process, it will need to provide the bidders with further guidance on how these criteria will be assessed and what the bidders would need to demonstrate to achieve a “pass” in respect of these criteria. The Crown Estate has noted that the successful bidders’ delivery on the above will be monitored on an ongoing basis. All the bidders who successfully pass ITT1 will progress to ITT2.

Invitation to Tender Stage 2 (“ITT2”)

The bidders who proceed to ITT2 can bid on a maximum of two PDAs through an ascending clock auction in which prices are escalated in each auction round in line with demand. This auction format is new and with its introduction, The Crown Estate is seeking to ensure greater price transparency. It is proposed that The Crown Estate will set the reserve price for each PDA, following which the levels of demand and price increases will be revealed to all the bidders at each auction round, but bids cannot exceed the bidder’s available level of cash determined in ITT1.

There will be a minimum of three winning bidders (one of which could, therefore, win two PDAs).

Entry into agreement for lease

Successful bidders will enter into an agreement for lease with The Crown Estate (the “AfL”) for a maximum period of 10 years. The form of the AfL will differ from previous leasing rounds as it will be updated to incorporate the social values described above. The Crown Estate has not yet released the updated form of the AfL.

Next steps

The de-risking of the grid connection is an important factor for potential floating offshore wind developers. The Crown Estate has noted that it is working with Ofgem and the Electricity System Operator on regulation and the Holistic Network Design to integrate the approach to connecting more offshore wind farms to the grid. The Crown Estate requested feedback to the proposals outlined above by 28 July which will guide the final tender proposal to be announced for LR5.   

More broadly, The Crown Estate is also looking to make greater use of the UK’s seabeds for captured carbon storage.

Please do get in touch if you would like any more detail on The Crown Estate leasing process for offshore wind or seabed carbon storage.

Linklaters has market-leading expertise across geographies and sectors to advise clients on the full spectrum of climate and sustainability-related mandates. We regularly advise on offshore wind farm projects across the globe and have market-leading experience. We acted on the first offshore wind farm financing in 2004 and have been at the forefront of all the developments in the market ever since, including floating offshore wind.