
The U.K. has not undertaken a major seabed leasing round for offshore wind projects since 2009, when 32 GW were awarded. |
For the first time in a decade, the U.K. is preparing to auction off new areas of its seabed for offshore wind development, and the agency in charge of the process has admitted that record high prices being paid for seabed leases along the U.S. East Coast influenced its structure.
Three developers — including Equinor ASA and a joint venture of Royal Dutch Shell PLC and EDP Renováveis SA — bid a collective $405.1 million for three sites off the coast of Massachusetts last December. "We are simply blown away by this result," Walter Cruickshank from the U.S. Bureau of Ocean Energy Management said at the time.
Nearly a year on, the shockwave from that process is being felt not just in the U.S., but on the other side of the Atlantic, too. "People have been a bit unnerved about those prices [from Massachusetts]," said Munir Hassan, head of the energy group at law firm CMS Cameron McKenna Nabarro Olswang LLP in London.
The result is likely to have been partly down to bidders wanting first-mover advantage in the fledgling U.S. offshore wind market. But Jonny Boston, business development manager at the Crown Estate, which owns the U.K. seabed and is running the country's upcoming lease auction, said it gave the organization and the U.K. market at large "a lot to think about."
"We have undertaken more pre-tender engagement on round four than any other leasing round we've undertaken, partly because of that significant market event and the price signals that were coming through from around the world," Boston said in an interview Oct. 10, a day after the Crown Estate hosted an information day for bidders that attracted 130 industry representatives.
The significant change for the U.K. seabed lease sale — the country's fourth in total but first since 2009 — is the move toward more objective selection criteria, replacing the previous score-based approach that Boston said favored the incumbent players, mainly European utilities. "It's harder to differentiate ... between bidders now ... because it's such a mature market," he added.
Instead of the scored approach, prospective developers will compete on price — bidding into the auction with an option fee that is paid annually over 10 years — as part of a new multicycle auction process.
Developers will submit bids for a site within four designated development zones in the North Sea and Irish Sea, with one winner selected each day. The location, capacity and price of the winning bid will then be revealed, giving the market a price signal ahead of the following day's auction. The process continues until 7 GW of projects are awarded, with the round's maximum capacity set at 8.5 GW.
It was in November 2018 that the Crown Estate first proposed to use option fees. A month later, Massachusetts happened. "We want to retain price ... as the ultimate determinant of which projects get through," Boston said. "Clearly, we're aware of what's happened in Massachusetts and the sentiment around that."
It remains to be seen whether prices in the U.K. will reach similarly dizzy heights as those along the U.S. East Coast. If they do, market players say this will juxtapose the wider narrative in the offshore wind sector around cost reduction, of which the U.K. has been a leading force.
"That cost-saving pressure is just incessant and continuing," said Alan Cook, partner at Pinsent Masons LLP, "and to build new costs into the process, with an expensive bid for the entitlement to a new area, is a bit of a conundrum that developers are going to have to try and balance."

