Offshore wind farms and electricity export cables – crossing agreements

This statement seeks to clarify why The Crown Estate seeks written consent from a third party when permitted cables or pipelines are crossed by a wind farm export cable.

Background

When the subsea electricity export cable(s) from an offshore wind farm directly cross or enter the restriction zones of permitted subsea cables or pipelines of a third party, the owner of the wind farm export cables (the "crossing party") will usually be required to obtain the written consent of that pre-existing third party, referred to here as the "crossed party".  This is to ensure the crossed party's legal interests are protected and The Crown Estate has complied with any obligations under the interests it has granted to third parties in/over its seabed/foreshore.  Not to obtain the crossed party's consent will almost certainly breach those obligations.

Where consent is required, The Crown Estate requires written confirmation from the crossed party that it has consented to the crossing (a template confirmation letter included in the useful documents link above).  The onus is on the crossing party to obtain such consent from the crossed party. Often the crossing party and the crossed party will enter into a crossing agreement between themselves, although the Crown Estate does not need to see this agreement.

The OFTO process

EU legislation prevents electricity generating and transmission assets being held and operated by the same party and this has led to a separation of the assets involved in offshore wind farms.  This means that with all but the smaller offshore wind farms (and more recently structured transactions to accommodate the OFTO Process) the transmission assets, namely the export cables (plus offshore substations) are to be surrendered from any pre-existing wind farm lease.  The rights for these to be in place are then immediately re-granted by way of a lease of rights to an Offshore Transmission Owner (OFTO), following a competitive tender process administered by Ofgem.  Meanwhile the array of wind turbines and inter-array cables are leased to the wind farm operator by way of a new lease excluding the transmission assets.

The Crown Estate has sought to work closely with Ofgem, the respective wind farm lessees and the selected OFTOs through the process of separating the assets and the granting of new leases, to ensure timely completion of matters. Some confusion has arisen around the consent from third parties for the crossing of their assets under the OFTO process and this Position Statement seeks to add clarity on this point.

Under the OFTO process, when a wind farm lease is surrendered and new (separate) leases are granted for the wind farm site and transmission assets, confirmation that the crossed party has given its consent to the new lease of the transmission assets will be required by The Crown Estate.  Even though there is unlikely to be any change in the physical assets on the seabed, this consent is required because:

  1. The previous crossing consent(s) from the crossed party are typically personal to the original party and/or the original lease/licence and cannot be passed on to the new owner and new lease.   There are some exceptions  (for example where a crossing agreement can be validly novated) and each agreement would need to be checked on a case-by-case basis; and
  2. The grant of a new lease for transmission assets will create a new legal agreement which 'crosses' other existing agreements (when the physical asset were actually installed is not relevant).

For these reasons the OFTO and its agents are strongly encouraged to engage with the crossed parties early on in the process to ensure their consent is in place and no delay is caused.  Confirmation of this consent is needed before the new lease/licence can be granted by The Crown Estate.

In some cases the novation of an existing crossing agreement, or the grant of a new crossing agreement may not be possible until the transmission licence has been granted and the preferred bidder appointed as the OFTO. Nevertheless, engaging early on with the crossed parties and finalising the form of crossing agreement may prevent undue delay.

Summary

In most cases The Crown Estate cannot grant a lease of rights to an OFTO without confirmation that the OFTO has secured consent from crossed parties for those sections of cable which directly cross or fall within the restriction zones of existing assets.  If the terms of the lease, or licence in favour of the crossed party requires the consent of that party to the grant of the OFTO lease, then The Crown Estate will wish to ensure that it acts appropriately with regard to this existing requirement.

It maybe that a crossing agreement between the two parties will already contain clauses permitting assignment/novation to a third party subject to satisfying certain financial covenant strength tests.  Again, we strongly encourage engagement between the wind farm lessee, the successful OFTO bidder and the third (crossed) party at the earliest opportunity to resolve such issues as covenant strength and liability obligations, so that they do not delay the grant of the lease at a later stage.

The Crown Estate will work with the parties to highlight where consent for crossings is needed.

Reviewed
May 2012