Government Proposal on the Offshore Wind Power Act for the Exclusive Economic Zone

Authors: Katja Heikkinen, Elisa Panula, and Jenny Karlsson

Government Proposal on the Offshore Wind Power Act for the Exclusive Economic Zone

Overview of the Government Proposal

Earlier this year, the Finnish Ministry of Economic Affairs and Employment circulated a draft Government Proposal (the “Draft Proposal”) regarding the new act on offshore wind power in the exclusive economic zone (the “Offshore Wind Power Act”). The aim has been to update the process for offshore wind power in the Finnish exclusive economic zone (“EEZ”), in order to enhance market competitiveness and transparency. After having received a great number of comments on the Draft Proposal from various stakeholders, the Finnish Government (in Finnish: Valtioneuvosto) presented on 3 October 2024 the final Government Proposal to the Parliament of Finland. In addition to the new Offshore Wind Power Act, amendments are proposed to other related acts, such as the current Act on the Finnish Economic Zone. The acts are intended to enter into force on 1 January 2025.

As described in our previous blog post on the Draft Proposal, exclusivity to wind power production in the EEZ will be granted through a three-step process:

• The Government selects areas for offshore wind power in the EEZ.
• The Finnish Energy Authority (in Finnish: Energiavirasto) arranges a tendering process in which an exclusive right to apply for an exploitation permit for the selected areas is granted for the winning bidder.
• The winning bidder is entitled to apply for the exploitation permit from the Government at the latest within three months from the legally valid competitive tendering decision.

In this blog, Katja Heikkinen, Elisa Panula, and Jenny Karlsson highlight key aspects of the final Government Proposal and certain changes made based on comments received regarding the Draft Proposal.

Area Selection and Tendering Process

Contrary to current practice, where developers have independently identified suitable marine areas within the EEZ, the Government will select the area or areas, taking into consideration above all the overall interests of society, such as use of the sea area for other purposes, grid connection possibilities and costs, projects located in territorial waters, environmental factors, and the suitability of the areas for offshore wind power generation.  In the Government Proposal, it is highlighted that various interests shall be considered when selecting the suitable areas and that it would be possible to hear project developers who already have knowledge on the suitability of the areas based on exploration conducted under research permits granted previously by the Government. The Government may include conditions for the utilisation of an area, but the conditions regarding activities will largely be defined at a later stage in the exploitation permit, which the winner of the tender is entitled to apply for. The selection of areas would be supported by a strategic environmental assessment (“SEA“) conducted by the Government.

The Finnish Energy Authority will organise the tendering process for the areas chosen by the Government, with winners being chosen based on both the price offered (i.e. exploitation fee payable when the wind farm has been commissioned for its intended use) and qualitative factors, such as the bidder’s financial capabilities, experience, expertise, and abilities to advance the project, the environmental impacts of the project, enhancing local acceptance, grid connectivity, safety, and criteria mandated by EU regulation. This means that in the future, the only way to obtain rights to develop offshore wind projects in marine areas will be to participate in a tendering process. The tendering process largely follows procedures for public procurement, notably competitive dialogue and negotiated procedure, which both allow room for negotiation prior to binding bidding. The precise qualitative factors and the weighting of price and qualitative criteria will be determined in a subsequent Government decree, which may also provide more detailed provisions regarding the organisation of the tendering process, selection criteria, and exploitation permit application.

Some of the notable changes made to the Government Proposal based on the comments to the Draft Proposal relate to the additional conditions and/or possible restrictions imposed on the wind farm developers’ possibilities to participate in the tendering process:

• Contrary to the Draft Proposal, there will not be a requirement of three participants. According to the Draft Proposal, the tendering process should have been suspended if there were less than three participants remaining after the exclusion criteria and possible pre-selection criteria. However, this was seen by the project developers to artificially restrict competition and go against the purpose of the legislation and was consequently removed from the Draft Proposal.
• Only one company from a group is allowed to participate in the tender. In the Draft Proposal, it was additionally stated that the participation would not be allowed if an entity, enterprise, or its affiliated group company held exclusive rights (alone or through consortiums) to three or more offshore wind power areas in the territorial waters of Finland, the EEZ, or the sea areas of Åland, where the wind farm is yet to be commissioned. Now, this is limited to the exclusive rights (alone or through consortiums) to three or more offshore wind power areas in the EEZ. Participation is still not allowed if the entity, enterprise, or its affiliated group company have previously won a tendering regarding mainly the same offshore wind area but have not commissioned a wind farm in said area.
• Lastly, if multiple areas are tendered simultaneously, a bidder may only win one area, indicating a requirement to specify the order of priority of areas should a bidder bid on multiple areas. After the due date of the tender, the offer may not be modified at the applicant’s own initiative or withdrawn, save for situations where the tendering process would consist of multiple rounds.

To take part in the tendering process and to ensure commitment, participants will be expected to pay a tender-specific participation fee (estimated amount being around EUR 13,000) and place a participation guarantee, the amount of which is left open to be determined in a subsequent Government decree. However, should the participant participate in multiple tendering processes held simultaneously, only one participation guarantee is needed. As stated above, a bidder may only win one area, and it would hence be unreasonable for the bidder to place multiple participation guarantees.

As several project developers have already begun the exploration of areas in the EEZ based on research permits granted previously by the Government, the baseline information held by such participants has been identified to possibly lead to an unfair competitive advantage. No solution for said advantage has yet been identified, but the matter may be addressed in the subsequent Government decree. In the Government Proposal, one proposed solution is a two-round bidding process, which would allow for the price level estimated by those who have conducted studies to be conveyed to other participants, and participants would be allowed to raise their bids should they move through from the first round. However, it is noted that with such measures, there is a risk that bidders with less information may offer too high a fee and win the tender, compared to more realistic bids based on better information from companies that have already conducted studies.

Exploitation Permit

The winning bidder will be entitled to apply for an exploitation permit from the Government. The exploitation permit will give the winner a right to explore and exploit the area for wind power and to conduct related surveys, as well as to apply for the necessary permits for the offshore wind power project. In the Government Proposal, it is clarified that should the construction in the tendered area require, for instance, studies to be conducted outside the area, it could be possible to allow for exploration outside of the tendered area in order to ensure that the entire tendered area may be used for construction. In addition to wind turbines and associated buildings, such as substations, the exploitation permit will also cover potential hydrogen production plants but not cabling of the wind farm, which requires a separate permit. The Government would be obliged to grant the exploitation permit provided that the criteria set out in the act are fulfilled.

The exploitation permit will contain certain conditions on, for example, the exploitation fee, compliance with the qualitative criteria of the winning bid, and deadlines for development. The permit would be granted for a fixed period, and the validity may be restricted after a certain period to apply to the areas in which the project is located, as the tendered areas are likely to be larger due to the lack of precise information on the conditions regarding constructability. According to the Government Proposal, the winning bidder will also be expected to give a promotion guarantee (in Finnish: edistämisvakuus) to ensure that the project progresses, with the amount of the guarantee increasing annually as the risks of the feasibility of the project decrease. Compared to the Draft Proposal, the time to set the promotion guarantee has been extended from two months to three months. Further requirements on the promotion guarantee will be defined in the exploitation permit.

The act contains further provisions on the amendment, transfer, and revocation of the exploitation permit, as well as notification requirements regarding, and implications of, potential changes in the ownership structure of the winning bidder. For example, the transfer of an exploitation permit would require the approval of the Government, which may be granted if there are no weighty reasons to suspect that the transfer poses a threat to national security or if it is clear that activities will proceed in accordance with the permit and there is no reason to doubt the transferee’s ability to adhere to the conditions of the exploitation permit. The permit holder could request the Government for an advance decision on the effect of a transfer of the permit. Additionally, the exploitation permit could be revoked by the Government, for example, if there are weighty reasons to suspect a threat to national security, the permit is transferred, wrong information has been given in the tendering process, or the permit holder commits a material breach of the act or the permit conditions.

Timetable and Next Steps

As mentioned, the new legislation is intended to enter into force on 1 January 2025. Comments received in connection with the Offshore Wind Power Act will also be utilised in the preparation of the subsequent Government decree. The preparation of the decree will commence this autumn, with the aim of circulating it for comments in early summer 2025.

The preparation for selecting the first area(s) in the EEZ will commence during the autumn, with the supporting SEA conducted in early 2025 and the final decision on the area(s) to be made by the Government in October or November 2025.

In addition to the Offshore Wind Power Act and decree, a Government Proposal regarding income and real estate taxation in the EEZ is being prepared by the Finnish Ministry of Finance, with the aim to submit the proposal to the Parliament in the upcoming months. In connection with the legislation project, several other development needs in regard to offshore wind in the EEZ have been identified but have not been resolved at this stage.

Hannes Snellman advises clients on a regular basis with respect to, inter alia, the permitting, construction, operation, and financing of energy projects, as well as public procurement questions that relate to energy projects, including onshore and offshore wind. Our experts are closely following the development of the offshore energy sector and the related legislative regimes both in territorial and EEZ water areas. Please contact us should you wish to discuss any related questions.