Introduction

The Government’s renewables targets for 2010 and 2020 present an exceptional challenge for the energy sector. It is widely recognised that the offshore wind industry will play a critical role in helping deliver these targets. In order to do so, the industry must demonstrate its capability and commitment by first developing round two sites to the greatest extent practicable and by then fully participating in round three and subsequent rounds.

A review of round two site consent and development progress, particularly in the Wash strategic area, has highlighted a number of outstanding issues which are causing frustration and delay. We have therefore sought further competition law advice to determine whether there is scope for The Crown Estate to review its procedures in order to help resolve some of these issues and maximise the opportunity presented by round two and to clear the way for round three.

The summary below outlines the basis upon which we have taken the decision to amend our procedures in certain areas. This may have a bearing on your own interests. You should not, however, rely on this advice insofar as your own interests are concerned.

Background

The legal advice we received rests on the assumption that The Crown Estate is a ‘dominant undertaking’ in the offshore wind market by virtue of its capacity to control access of licensees to the seabed. The Crown Estate is under an obligation not to abuse such a dominant position.

For both round one and round two windfarm sites The Crown Estate has had well established rules and procedures in place. These rules deal with how sites and capacity are allocated to developers and on what basis, when adjustments and relocations are permitted, how developers proceed from agreements for leases (and REZ exploration licences) and then to full leases, etc. These rules and procedures are important for fairness and transparency.

Round two wind sites were awarded in the context of Strategic Environmental Assessment (SEA) process an overall capacity limit of between 4 and 6GW was set by DTI. In the event, The Crown Estate over-allocated capacities (by granting an overall total of 7.2GW) in order to cater for any developers withdrawing or in case projects did not go ahead for technical, environmental or other reasons.

It is inevitable that not all possible issues or development constraints could have been foreseen when the round two process was launched in 2003. Thus there are good reasons to recognise that the general understanding and knowledge base at the present time is significantly different from how it was then.

It has been our stated intention to encourage and support the establishment of an offshore wind industry in keeping with government policy. The combination of this government policy, the subsequent SEA round two offshore windfarms capacity allocation by the DTI, the UK Government’s 2010 climate change commitments and our own statutory duty to derive revenue from the Estate underline our firm commitment to reach the round two capacity limit of 6GW. We consider that these considerations justify The Crown Estate, at this stage of the process, in consenting to developers reasonable requests to adapt the rules and procedures laid down at the outset of the round two process.

The Procedural Changes

1.    We will adapt the round two rules and procedures to enable any developer to seek an increase in spatial extent of their site where this is required in order to meet the minimum output agreed in the heads of terms. An increase in spatial extent will only be permitted if there is unutilised space in the option fee banding that applies to the relevant site. This is on the specific proviso that there are significant objective reasons (such as technical or environmental factors relating to the present site which present insurmountable constraints) justifying such adjustments (and which would continue to be subject to the cumulative impacts rule). Any such adjustment would be in addition to the 40% site boundary variation already permitted under the current round two procedures.

2.    We anticipate that developers will wish to adopt a similarly pragmatic approach when reviewing alternatives, some of which may result in unlocking development potential at a lower level than the 75% originally anticipated and agreed to within the heads of terms. We will therefore consider proposals to develop sites at less than the currently agreed minimum output where there are objective reasons for this.

The Crown Estate believes that the procedural changes outlined above provide an opportunity to help progress round two to a conclusion. We remain committed to working with developers in order to provide a suitable, fair and consistent basis for successfully completing the consent process and subsequent development.

We are keen to resolve any outstanding issues over site size and/or location, or agreed capacity output, with developers before the end of October 2007 in order to free up the path for applications to be prepared and submitted. When reviewing possible options please give due weight to relevant wider generic issues, and the prior and competing needs of others. Reaching the government target (at least in terms of valid consents) ahead of a round three programme launch currently scheduled for 2010 would surely present a compelling case for continued support of the offshore wind industry.

Further Information

For further information please do not hesitate to contact: