The UK Crown Estate has presented a revised tender design for Offshore Wind Leasing Round 4.
Offshore Wind Leasing Round 4, which will make at least 7GW of new seabed rights available to the market, is designed on the basis of a three-stage tender process, involving a pre-qualification stage (PQQ) to assess competence of bidders; an invitation to Tender Stage 1 (ITT 1), which evaluates project bids submitted by developers; and invitation to Tender Stage 2 (ITT 2), which uses option fees proposed by bidders as the final determinant of project award.
One of the key updates to the tender design made since the latest market update in April is the introduction of a multi-cycle bidding process at ITT Stage 2, to award projects in sequence through daily bidding cycles.
According to the seabed manager, this approach will increase transparency within the bidding community, ensuring that developers have information about the price, location and capacity of awarded projects at each stage, and can therefore review and adjust their bidding strategy as the process progresses.
Another update is the introduction of an annual payment approach for option fees, subject to an initial three-year commitment. Option fees give exclusive rights to a defined area of seabed for offshore wind development. According to The Crown Estate, this will reduce the upfront capital requirement on developers, helping to open the process to a broader pool of potential bidders and share development risk, since option fee payments for the full development cycle only apply where projects are progressing.
The Crown Estate has also introduced rental discounts to help incentivise innovation in a form of 50% rental discount on up to 10% of the project capacity for the first five years of operations for projects with a qualifying innovation. Developers will also have the opportunity to propose hybrid projects, such as those which integrate offshore wind generation with interconnectors, or other energy sources.
Bidding Area caps have also been confirmed, to help ensure geographic diversity of Round 4 projects. Tender rules will ensure that projects are awarded in at least three separate seabed Bidding Areas, with a maximum of 3.5GW of project within any one area, helping to ensure geographic diversity of the Round 4 project pipeline.
Developers will retain the opportunity to form a consortium where desired, enabling organizations to pool their capability and strengths. However, in light of the move to a multi-cycle bidding process, The Crown Estate confirmed a simplification of consortia rules, restricting organisations to participation to a single bidding entity rather than multiple, in order to mitigate risks of information asymmetry during the bidding phase and thereby protect the integrity of the process.
“Our proposed tender design, initially presented to the market and stakeholders in November last year, would assess the technical capability of potential bidders and their proposed projects, before using option fee as a means of determining project award,” Jonny Boston, Business Development Manager at The Crown Estate, said.
”This approach will help to ensure that capable bidders and the strongest possible projects come forward for new leasing, within a process that is objective, fair and transparent.”