Belgium adopts legal framework on tenders for new offshore electricity production installations
01 May 2019
On 4 April 2019, the Belgian Parliament adopted a law introducing a competitive bidding procedure to award domain concessions for new offshore wind farms. In addition to setting out a general framework for the competitive bidding procedure, the law aims to further reduce subsidies granted to offshore wind electricity production while recognising that new wind farms are essential to achieving Belgium’s renewable energy targets under its EU and international commitments.
Under the current support scheme, the domain concession holders for offshore wind farms receive renewable energy certificates from the Belgian federal energy regulator (the CREG) for each MWh of offshore electricity production. The domain concession holders can then sell these certificates to the transmission system operator Elia at an LCOE-based price. The exact mechanism and formula to calculate the support have evolved over time, depending on the date of financial close of the offshore wind farm.
The support scheme was approved by the European Commission in 2016 notwithstanding that the concessions were not awarded on the basis of a competitive bidding procedure. In principle that procedure is required by the Guidelines on State aid for environmental protection and energy as of 1 January 2017. The European Commission accepted a deviation from this principle, on the basis that the concessions had been awarded before that date. However, in the European Commission decision of 2016, Belgium committed to introduce a competitive bidding procedure that includes all types of offshore renewable energy for concessions awarded in the future.
New legal framework
In line with its obligations under EU law, the Belgian Federal Parliament adopted a law on the organisation of a competitive bidding procedure for the construction and operation of offshore renewable electricity production installations on 4 April 2019.
The law aims to establish general principles for the competitive bidding procedure for awarding domain concessions to future projects of offshore electricity production. The installations will be located in a new zone in the North Sea, close to the French border.
Note: map based on the current planning
Under the law, producers of electricity will be chosen on the basis of a competitive bidding procedure that has to ensure transparency, effective competition and equal treatment of all candidates. However, the government will choose the type of tender and implement the law. The preparatory discussion considers three non-exhaustive options:
- Option A: the government can organise a tender with subsidy or a "zero bid" tender (as in the Netherlands). In a zero bid tender, the candidate builds the offshore renewable electricity production installation without a subsidy.
- Option B: the government can set-up a competitive bidding procedure with a fixed price for which the candidate will operate the installations (e.g. a UK-style strike price based system).
- Option C: the government can organise an auction by which the selected candidate does not receive a subsidy but will have to pay the public authority in order to build and operate the installations (such a system is one of the options provided under Dutch law).
In a note on relevant principles approved by the Council of Ministers on 31 August 2018, the Minister for Energy Affairs and the State Secretary for the North Sea identified 4 key objectives: (i) the development of additional renewable wind energy capacity of at least 1.75 GW, (ii) achieve a maximum of energy delivered to the grid (in GWh), (iii) at a minimum (direct and indirect) cost for the electricity consumer, and (iv) the supply of supporting services to the grid (balance, storage etc.).
Further to that note, the CREG published a report on the design of the future subsidy scheme dated 20 December 2018 (available in Dutch and French). When implementing the law, the report may be a source of inspiration for the government. In this report, the CREG identifies a short lead time between the bid and the award as a key issue for a competitive bidding process. In terms of the tender amount to be submitted by the bidders, the CREG favours an amount in EUR per MWh of net electricity injected into the transmission grid. Furthermore, the CREG has a preference for a system based on advance payments, similar to the system that will apply to SeaMade and Northwester 2.
Another feature of the law is that it establishes a technology neutral system, i.e. it applies to offshore wind energy as well as other sources of offshore renewable energy such as tidal energy, solar, etc. This is to bring the law in line with the Guidelines on State aid for environmental protection and energy and Belgium’s commitment contained in the aforementioned 2006 European Commission decision.
In order to further reduce the required subsidy levels, the government will conduct the necessary studies with regard to the location of the installations. The results of these studies will be certified and made available to all candidate bidders.
The law introduces the notion of a ‘plot’, which is a zone within which offshore renewable electricity can be produced provided it is covered by a domain concession. The objective seems to be to put larger plots on the market. The preparatory discussion of the law explains that in principle plots of at least 700 MW will be put on the market. In its report of 20 December 2018, and taking into account that the new zone would have a capacity of approximately 1,750 MW, the CREG proposed to auction (through a tender) a number of domain concessions for a capacity between 750 MW and 1,000 MW, sub-divided in individual plots with a capacity between 300 MW and 500 MW. The new zone is set to cover approx. 281 km², although the final draft of the Royal Decree delineating new marine zones (unofficial version in English available here) must still be approved.
The permit process will be integrated in the tender process. The winning bidder will obtain the domain concession and also all permits required for the construction and operation of the offshore renewable electricity production installations concerned.
New installations will be required to connect to the Modular Offshore Grid (MOG), which shall be extended for these purposes. The law further provides that the government will establish a liability mechanism in case of delays in the commissioning date for extensions of the MOG or the unavailability of the MOG while operational.
In addition, the law gives the government the possibility of requiring a financial guarantee (e.g. a bank guarantee) to ensure the construction and operation of the installations. This is not unusual as other Member States have also provided for this possibility (e.g. the Netherlands).
As regards eligibility, the law states that the government will define the eligibility criteria of the candidates including their technical, organisational, financial and professional capabilities.
In order to increase public support for the production of electricity from renewable sources, the law provides that the tender procedure may stipulate to what extent and how citizens can financially take part in projects of offshore electricity production. The exact tender procedure, including the conditions and procedure for the award of a domain concession and the general conditions for use of a plot, are to be decided by the government, upon recommendation by the CREG.
Concessions awarded can last for a maximum period of 30 years including the construction, exploitation and decommissioning phase. Any support granted is limited to a 15-year-period. Finally, it is worth noting that the law mandates the government to establish rules concerning the waiver of a domain concession and the surrender fee that will be due in that case. The preparatory works underline the importance of setting a high surrender fee, so that Belgium can meet its EU and international renewable energy targets.
The objective is to organise the tenders by 2022, so that the new installations can become operational by 2025. While adoption of the law shortly before the general election scheduled on 26 May is an important milestone towards reaching this goal, several other steps are necessary to establish a stable and complete regulatory framework concerning the new offshore renewable electricity production installations.
Firstly, the law must be ratified by the King and published in the Belgian Official Gazette. This is expected to take place before the general election. Secondly, as the law only establishes the general principles of the competitive bidding process, the new government following the general election must adopt Royal Decrees and Ministerial Decrees to implement key aspects of the law. Finally, State aid approval by the European Commission may be required.