Will It Be Worth the Wait? Finland to Establish a Competitive Tendering System for Offshore Wind Power in the Exclusive Economic Zone

The Finnish Government has on 3 October 2024 issued a Government proposal for a new Act concerning offshore wind power in the Finnish exclusive economic zone (EEZ). The previous open-door policy for the EEZ was de facto closed in May 2024, when the Government rejected all applications for exploitation rights to offshore wind power areas submitted under the Act on the Exclusive Economic Zone of Finland. Under the proposal, the Government will seek out areas suitable for windfarms and the Finnish Energy Authority will organise a competitive tendering of the areas.

As part of scoping out the areas suitable for offshore windfarm development, the Government will conduct a Strategic Environmental Assessment (SEA) pursuant to the Directive 2001/42/EC of the European Parliament and of the Council of 27 June 2001 on the Assessment of the Effects of Certain Plans and Programmes on the Environment as transposed into Finnish legislation. At best, the SEA could ensure that areas that involve concerns as regards coexistence with ship traffic, fishery, cumulative impacts with other infrastructure or material environmental concerns will not be proposed forward for the auction. This in turn may come to increase social acceptability, which could reduce the number of appeals during the permitting process and consequently speed-up the permitting process.

Although not included in this proposal, in order for this being worth the wait and for windfarms in the EEZ to be operational well before 2035, it would be important for the Government to also look at how the windfarms will be connected to the grid and to ensure that the Finnish harbours remain available for this type of large-scale offshore construction as well as to ensure that the courts have adequate resources for the swift handling of any appeals.

The Government is further planning to introduce new legislation on real estate and income taxation within the following weeks (44/2024), utilising its taxation rights in the EEZ as permitted under the UN Convention on the Law of the Sea. The objective is to ensure that the taxation of offshore wind power in Finland's EEZ corresponds to the taxation of offshore wind power within Finland's territorial waters.

The key change brought about by the proposal would be a state-driven model where the Government would decide which areas would be subject to tendering. After deciding which areas are suitable, the tendering of these sites would be organised by the Energy Authority. This represents a significant change from the previous approach, where project developers applied for project rights to areas they had independently selected and scouted in the EEZ.

Pursuant to the Government proposal, a stronger role for the Government in the selection of areas is expected to improve the coordination of maritime activities and to reduce the impact of offshore wind power on commercial fishery.

The tendering between project operators would be based on qualitative criteria (to be determined later on) and price. The Government proposal notes that the qualitative criteria could concern the tenderer's financial condition, experience, expertise, and other abilities to advance the project as well as the environmental impact of the project, the promotion of the project's acceptability, the promotion of the flexibility of the energy system, safety, and factors required by EU regulations, e.g. the EU's Net Zero Industry Act (EU) 2024/1735.

The winner of the competitive tendering would have the exclusive right to apply for an exploitation permit from the Government for the area specified in the tendering process. The exploitation permit would grant an exclusive right, for a limited period of time, to carry out research on the site and to exploit it for the project as well as to apply for the other permits needed. Pursuant to Section 16 of the proposal for new legislation, the exploitation permit must be applied for no later than four months after the tendering decision has become legally final. However, neither winning the tender nor holding the exploitation permit would guarantee the execution of the project, as other permits, such as a water management permit pursuant to under the Water Act (587/2011), would also be required.

Pursuant to the Government proposal the Energy Authority could decide to organise a re-tendering for the same offshore wind power area if the winner will not apply for the exploitation permit within this timeframe. If the winner does not wish to utilise their rights and start advancing the project, the area could be rebid once without a separate decision from the Government.

The Government proposal outlines that in order to participate in the tender process, participants in the tendering process must pay a non-refundable participation fee to the Energy Authority by the deadline for submitting tenders. The amount of the participation fee will be determined by a decree.

Additionally, participants must provide a participation guarantee by the same deadline to ensure their commitment to the project. Participants that take part in multiple tenders being held simultaneously would only need to provide one participation guarantee. The Energy Authority will release the participation guarantees of the non-winning tenderers within three months of the tender decision. For the winning tenderer, the guarantee will be released once a promotion guarantee is provided.

The winning tenderer must, according to the Government proposal, provide a promotion guarantee within three months after the exploitation permit has been granted. The aim of the promotion guarantee is to ensure the continued active development of the project and compliance with the permit's qualitative and time-specific permit conditions. The promotion guarantee is released when the offshore wind farm has been commissioned.

Once the offshore wind farm is operational the exploitation permit holder will pursuant to the Government proposal be required to pay the Government an exploitation fee.

The Government proposal includes significant restriction regarding who can win and participate in the tendering process. A tenderer could participate in multiple simultaneous tenders, but it could only win one and it would need to present a priority order for the areas it is tendering for. According to the Ministry of Economic Affairs and Employment, the envisioned legislation focuses on risk-sharing from the perspective of project completion. However, from the project developer's standpoint, it also involves the challenge of prioritising projects with incomplete information. Additionally, it is proposed that a single project developer could not hold more than three offshore wind power areas under development in the EEZ at the same time.

At least currently, there are only a handful of developers that have the knowhow, or the financial position needed to take an offshore windfarm in the EEZ from development to the operational phase. Even if the restriction has been lessened from the spring 2024 draft proposal, the Government should evaluate whether this type of restriction on a legislation level is needed as the Energy Authority could, during the on-going tendering process, evaluate if the applicant has the knowhow and financial position necessary to take several projects forward from one tendering process and the Government could be mandated to do the same in the exploitation permit phase.

Pursuant to the Government proposal, the Government could, upon the exploration permit holder's application, transfer the exploitation permit to another corporation or entity if there are no compelling reasons to suspect that the transfer would compromise national security, the operation continues in accordance with the exploitation permit conditions, and there would be no reason to suspect that the transferee would be unable to comply with the exploitation permit conditions. From the perspective of corporate transactions, it is positive that the possibility of obtaining an advance decision on the transfer from the Government has been included in the Government proposal.

If you have any questions about this Legal Alert, please feel free to contact the undersigned or your regular Borenius contact.