Legislative Initiative Promoting Offshore Wind Power in Finnish Exclusive Economic Zone is Progressing

Authors: Katja Heikkinen, Minna Juhola, and Jenny Karlsson

Government Proposal in a Nutshell

Based on the Government Programme of 2023, the Finnish Government (in Finnish: Valtioneuvosto) is committed to promoting the green transition and offshore wind power by clarifying rules for offshore wind power in the Finnish exclusive economic zone (“EEZ”). The Government also aims to make Finland a leader in green energy in Europe. Reaching these targets took a leap forward when the Finnish Ministry of Economic Affairs and Employment circulated a draft Government Proposal regarding the new act on offshore wind power in the EEZ (“the Offshore Wind Power Act”) for comments on 23 May 2024. The aim of the new act is to regulate the process through which an exclusive right to exploitation of EEZ areas for offshore wind power will be granted.   

Based on the draft Government Proposal, the exclusivity will be granted through a three-step process:

1. The Government selects areas for offshore wind power in the EEZ.
2. The Finnish Energy Authority (in Finnish: Energiavirasto) will arrange a tendering process in which an exclusive right to apply for an exploitation permit for the selected areas will be granted for the winning bidder.
3. 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, Hannes Snellman’s experienced lawyers Katja Heikkinen, Minna Juhola, and Jenny Karlsson highlight key takeaways of the Government Proposal that they consider to be of interest to offshore developers and investors seeking investment opportunities in the EEZ.

Tendering Process

The first step of the process is to select an area or areas for offshore wind power in the EEZ. This selection would be made by the Government considering 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. The selection of areas would be supported by a strategic environmental assessment (“SEA“) conducted by the Government. It is yet to be seen how the already conducted studies based on the issued exploration permits in the EEZ by several wind farm developers will be taken into account in the selection of areas by the Government.

After the decision on the suitable area(s), the Energy Authority would commence a tendering process. The winner of the tender would be determined based on 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. 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 would 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.

The draft Government Proposal includes a few notable points which may possibly restrict wind farm developers’ possibilities to participate in the tendering process and the development of the Finnish EEZ wind power:

1. Firstly, the tendering process will be suspended if there are less than three participants remaining after the exclusion criteria and possible pre-selection criteria have been taken into consideration or if a minimum level has been set out for the offered exploitation fee and such minimum level has not been reached.
2. Additionally, only one company from a group is allowed to participate in the tender and the participation is not allowed if an entity, enterprise, or its affiliated group company holds 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, or if they have previously won a tendering regarding mainly the same offshore wind area, but have not commissioned a wind farm in said area.
3. 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, the participants would 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.

Exploitation Permit

The winning bidder would be entitled to apply for an exploitation permit from the Government. The exploitation permit would 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. Thus, the currently separate exploration and exploitation permits would no longer be needed for the EEZ according to the draft proposal. In addition to wind turbines and associated buildings, such as substations, the exploitation permit also covers potential hydrogen production plants, but does not cover 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 would 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 draft proposal, the winning bidder would 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.

The act would contain 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 an approval of the Government, which may 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

Currently, the Ministry is requesting comments on the draft Government Proposal, and comments may be given until 4 July 2024. The envisaged timetable for the handling of the Government proposal and first tendering round is as follows:

• The Government proposal is submitted to the Parliament during autumn 2024
• The new Offshore Wind Power Act enters into force at the beginning of 2025, at the earliest
• The new Offshore Wind Power Decree is planned to enter into force in May 2025
• The Government decides the area(s) subject to the first round of tendering in October 2025
• The first round of competitive tendering commences in December 2025
• Decision regarding the winner of the first tendering is made in June 2026

In addition to the Offshore Wind Power Act and Decree, the Finnish Ministry of Finance is preparing a Government Proposal regarding income and real estate taxation in the EEZ, with the aim of proceeding in the same timeline as the Offshore Wind Power Act, and the plan is also to regulate the actual construction and demolition of the offshore wind farm in the EEZ at a later 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 at Hannes Snellman 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.