Renewable Energy Production Offshore – A Basic Framework in Place
On 11 March this year, the Norwegian Parliament passed the new Act on renewable energy production at sea, and on 1 July the Act formally entered into force. A historic moment in Norway as it establishes the legal path to future development of renewable energy production offshore; a future which may combine forces from two of Norway’s world leading industries: The offshore petroleum industry and the onshore hydroelectric power industry.
The new Act on renewable energy production at sea (the Act) constitutes a new legal framework governing and regulating the exploitation of renewable energy resources on the Norwegian Continental Shelf (NCS) ; an area that has not been covered by any complete legislation until now. Although the Act covers a wide range of production methods; the Act is primarily designed to handle production of electricity by utilising offshore wind turbines, which presently is considered the most realistic scenario for large scale renewable energy product¬ion.
The legislative process
The draft bill was submitted to the Parliament by the Ministry of Petroleum and Energy (the Ministry) last summer. The report with recommendation from the Parliament’s Energy and Environmental Committee was presented in the beginning of March this year, and the Act was subsequently adopted by the Parliament. Compared with the final sanctioned version, few changes were made to the Ministry’s submitted proposal, and all changes were of a non-material character.
Although a basic framework is now in place, it still lacks detailed regulations. The legislator confirms that several essential issues need to be further regulated at a later stage when the matters have matured. And based on signals from the government, it may still take several years before that happens, hence for the moment making the new Act more a political guideline than a practical administrative tool.
The fundamental principle
The fundamental governing principle of the Act is that the right to exploit renewable energy resources at sea belongs exclusively to the government of Norway, and that renewable energy activities require a license granted by the Ministry. The same principle applies for converting and transferring electricity produced thereby. The government is entitled to annex these rights pursuant to international law . (The renewable energy resources as such, however, are not subject to any ownership.)
A system of concessions
The central part of the Act is the licensing system, granting permission to develop and operate facilities for renewable energy production and facilities for converting and transferring electricity at sea.
Opening of acreage available for licensing
Before any license may be granted for renewable energy production offshore, or for converting or transferring electricity generated thereby, a specific area on the NCS must have been explicitly opened up for licensing. Such opening of acreage requires that an environmental impact assessment (EIA) is prepared. The assessment shall cover the environmental impact as well as other consequences of renewable energy production for the society in general.
Most likely it will take a few years before any acreage is opened and regular licenses are granted. The explicit signal from the government is that a report on areas suitable for development shall be presented in second half of 2010 that a strategic EIA on particular selected areas shall be carried out in 2011, and that status and plan for further work, i.e. a further developed strategy, will be presented to the Parliament in 2012. Only then, an opening of acreage and regular licensing round will be realistic.
The licensing system
The Act distinguishes between two main categories of licenses: The licenses granting rights to build, own and/or operate facilities for production of electricity by exploiting renewable energy resources at sea; which we may refer to as production licenses, and the licenses granting rights to build, own and/or operate facilities for converting and transferring electricity; which we may refer to as transmission licenses. In addition, a license is required for exporting or importing electricity to or from another country; which we may refer to as export/import licenses.
Applying for a license
After the King in Council has opened up acreage for the purpose of granting licenses, persons qualified to apply, as further described below, may submit applications for such licenses. It is not clear in detail how this will be carried out, and it is expected that the process will be further worked out in regulations to be issued later by the Ministry. The licenses will formally be granted by the Ministry, and any later transfer of a license will require Ministry approval.
Who may become a licensee
The licenses may only be granted to legal persons incorporated pursuant to Norwegian law and registered in the Norwegian Register of Business Enterprises. Furthermore, the Act opens up for granting licenses to several persons jointly. In such cases, joint ventures may be established and an operator acting on behalf of the other licensees may be appointed. The concept of joint ventures was not, however, evaluated in the preparatory works. But should this become relevant in practice, the Ministry has been given sufficient authority to issue regulations and stipulate conditions for establishing such a regime.
Detailed plan for development and operation
After a person has been granted a license, but before any construction or installation work may commence, the licensee is required to submit a detailed plan for development and operation (DPDO) to the Ministry for approval. A DPDO shall describe technical matters and circumstances related to safety and environmental conditions, and generally supplement the license to the extent specified. Before approving the DPDO, an environmental impact assessment (EIA) for the development must also be approved. The DPDO is meant to be supplementary to the license in such a way that they together constitute the total scope for a development and establishes the terms and stipulates the conditions according to which the activity may be carried out.
Valid period for a license
A production or transmission license may be granted for a maximum of 30 years from the time of commission; not from award of the license. The time limit stipulated for these licenses are meant to include the expected lifetime of an offshore turbine (presently approximately 20 years). A licensee may apply for an extension of the license period, which should normally be granted.
Area fee, administration fees, guarantees etc.
The licensee may be required to pay area fee for the area used (occupied) for production of renewable energy. Presently, this provision appears prohibitive to activity as the development of energy facilities offshore in fact will require considerable subsidies from the government when starting up, in particular floating devices, and the expected profitability is marginal. No detailed policy has yet been drawn up regarding the calculation of the area fee. However, imposing an area fee may be sound to a certain extent, as it is likely to inspire licensees to utilize available acreage more efficiently and to motivate due progress of development projects; in particular when considering the license periods starting from commissioning.
Safety and Decommissioning
It is a general principle laid down in the Act that all development, operation and decommissioning of energy facilities shall be conducted in such way that a high level of safety may be maintained, and further improved in accordance with technical development. The Ministry may issue regulations about safety, emergency preparedness, safety zones, marking and other measures concerning navigation. Unless otherwise decided by the Ministry, all facilities shall be removed when decommissioned, and the licensee shall in due time prior to the end of the license period submit a decommissioning plan to the Ministry.
Compensation to Norwegian fishermen and other general liability
The Act also includes provisions concerning liability towards Norwegian fishermen for loss or damages caused by renewable energy activities. For fishing areas being occupied by such activities, the Act stipulates liability on a non-fault basis for the government to the extent that the affected fishing is thereby made impossible or considerably more difficult. The government may, however, claim recourse from the licensee if the licensee should have prevented the loss. The licensee is generally liable on a non-fault basis for any other loss or damages caused by the activities.