Belgium: The Way Towards A Competitive Bidding Process For New Offshore Wind Farms In Belgium

Last Updated: 23 September 2019
Article by Mathieu Raedts and Nora Wouters

Ten years ago, the first Belgian offshore wind turbines started producing electricity, benefiting from financial support mechanisms established by the government to ensure the economic viability of these projects. This sector has now matured and propelled Belgium into becoming one of the European market leaders.

By 2020, Belgium's nine offshore wind farms should produce nearly 10% of national consumption, using an installed capacity of 2,300 MW.

In order to meet the challenge of a nuclear phase-out scheduled for 2025 as well as  ambitious climate change goals, the federal government has established a new legislative framework designed to achieve a wind energy capacity of 4 GW, which will open up a promising future in the North Sea. This article is intended to shed light on the framework's key provisions and to provide a view on what lies ahead.

New area for electricity production from renewable sources

Since the current areas allocated for wind farms (located near the Dutch border) no longer provide sufficient space for new projects, it is necessary to assign new territorial areas for the production of renewable energy in the North Sea.

The Royal Decree of 22 May, 20191, sets out the marine spatial development plan for the Belgian part of the North Sea for the period 2020-2026 and defines a new 281km² area located on the French border, with the objective of achieving an additional renewable energy capacity of at least 1.75GW.

In Belgium, offshore space is scarce. Therefore, regulatory authorities have obliged wind farm developers to use the given area as intensively as possible. In average, the capacity density of the Belgian wind farms range from 12 to 15 MW/km², while other European countries, benefiting from more offshore space, have allowed for a lower capacity density2. Turbine spacing is key because of the wake effect: wind turbines placed within the wake of a neighbouring turbine will produce less power3.

For this reason, the sector requested more space, arguing that this would reduce the potential for financial support, since the parks would be more efficient, but the Royal Decree did not provide for more square kilometres at this time.

Although it is very early to consider a third phase, the fact remains that some areas currently reserved for military training could potentially accommodate future projects.

It should also be noted that, although the primary objective is clearly to provide space for new wind farms, the legal framework does not limit the area to this single production source and covers all renewable sources, so that it would theoretically be possible to develop solar or storage projects together with wind energy.

A competitive bidding procedure for future wind farms

The Law of 12 May, 20194, amending the Electricity Law of 29 April, 19995,(the "Electricity Law") introduced a competitive tender procedure for the construction and operation of offshore renewable sources.

Thus far, the financial support mechanisms for wind parks, based on a subsidy for each MWh produced, have been defined after the granting of the domain concession to an operator. The challenge was to define an amount that would allow the operator to generate a reasonable profit on the basis of the investments made, while avoiding excessive subsidies. This cost is ultimately borne by the final consumer, via a surcharge on transport tariffs.

The Guidelines on State aid for Environmental Protection and Energy (EEAG) require a competitive bid process as of 1 January 20176. Therefore, the award system used by Belgium became challengeable under European legislation.

Nevertheless, for existing concessions granted before the entry into force of the obligation to go through a competitive tendering procedure, the European Commission authorized the government to set a level of support , provided of course that the next procedures are carried out on the basis of a competitive tender7.

The government confirmed this change of approach at the Council of Ministers on 27 October 20178 and in a policy note endorsed on 31 August 20189.

The Law of 12 May, 201910, sets out the new framework and imposes a competitive bidding process before a domain concession is granted, with a maximum period of 30 years, including construction, operation and dismantling.

A Royal Decree will be needed to determine the competitive bidding procedure and the conditions for granting concessions. It must include:

  • the details of the procedure and the content of the specifications, ensuring appropriate publicity, effective competition and equal treatment of all candidates;
  • the selection criteria to be met by the candidates (linked to the technical, organisational, financial and professional capacity of the candidates);
  • the criteria under which a ranking will be established;
  • the general conditions for the use of the plots;
  • the activities that the holder of a domain concession can develop alongside the production of renewable electricity;
  • the terms of the concession waiver and the related compensatory indemnity; and
  • the extent to which, and the modalities by which, citizen participation can be provided for.

The duration of the support may not exceed 15 years and the successful bidder will have to bear the costs associated with the dismantling.

In its note on the support mechanism for the construction of offshore wind farms11, the Belgian regulator (the CREG) provides guidance to the government to ensure strong competition and the presence of many bidders. Among others, the CREG:

  • confirms the relevance of a subsidy per MWh;
  • proposes to keep the support formula as simple as possible;
  • wishes the formula to be objective and applied consistently to all future parks;
  • calls for the preservation of green certificates (see below);
  • accepts the idea of an advance system of payment to generate a fixed income for the first few years;
  • calls for short deadlines between the call for tenders and the date on which the winner is certain to obtain the concession;
  • requests that all documentation be available in English;
  • proposes the auctioning of lots with a capacity between 300 MW and 500 MW; and
  • provided that a maximum area is guaranteed, pleads for three successive calls for tenders of two lots each.

The specifications and the competitive tendering procedures will be published in the Belgian Official Gazette and the Official Journal of the European Union at least six months before the deadline for the submission of tenders.

Shift of the cost of the preliminary studies

Drawing inspiration from already tested models, particularly in the Netherlands, the Belgian state will carry out the necessary studies relating to the location of the installations, which will then be communicated to the bidders. This is clearly a change from the old system, which placed the burden and costs of these studies on the bidder.

However, in view of the tendering procedure, it is important to provide all candidates with clear and precise information. In addition to the economies of scale, this legal certainty should allow candidates to offer better prices.

The support mechanism

In its present form, the Belgian government has not changed the support mechanism, so the current principles remain applicable.

Under such a scheme, the green electricity production facility continues to benefit from a certificate of guarantee of origin, attesting that the electricity is indeed green electricity, so as to meet the legal conditions.

After that, the installation shall be able to request the allocation of a green certificate for each MWh produced. The Electricity Law contains an obligation on the grid operator (Elia) to buy back these green certificates at a minimum price. The definition of the minimum price has evolved over time.

  • In 2014, the four parks Belwind, Nobelwind, Northwind and C-Power benefited from a minimum price of 107€ / MWh for electricity production from the first 216 MW of installed capacity, and 90€ / MWh thereafter. The support period was set at 20 years.
  • Afterwards, the legislator introduced a formula to define the minimum price. The formula is as follows: Minimum price = LCOE (Levelized cost of energy) − corrected electricity reference price.
  • The LCOE is the remuneration obtained by the electricity producer during the operation of the production capacity. In addition to this formula, the legislator has included the value of guarantees of origin and a network loss factor.

    On the basis of these elements, a Royal Decree of 09 February, 201712, allocated a LCOE of 129,80€/MWh to Rentel and a LCOE of 124,00€/MWh to Norther. The support period was set at 19 years.

  • A Royal Decree of 17 August 201813, sets a LCOE of €79/MWh for the Mermaid, Seastar and Northwester II parks for a period of 17 years. However, the minimum price is only guaranteed during a production volume equivalent to 63,000 hours of full load.
    In order to prevent wind farms from producing at a time of imbalance, no green certificates will be issued during this period. However, this will only apply to the first 288 quarter hours of imbalance in a year.

The energy regulator is responsible for ensuring compliance with the above rules.

The government's ambition is to reduce the level of subsidies and to move towards granting concessions without financial support, or even to obtain payment for the operation of the concession. However, such a scenario does not seem very realistic at this stage and it is highly likely that future wind farms willl continue to benefit from a subsidy, albeit reduced, in the manner defined above.

The impact of the cost of support

The cost of Elia's purchase of green certificates is in the end passed on by the producer to the consumers via a surcharge on his tariffs. In order to limit the cost for the largest consumers and to limit the competitive disadvantage of enterprises, the government has developed a mechanism that provides for a decrease of the surcharge according to the volume of consumption and a ceiling of €250,000.

The days of the cost allocation in its current form are numbered. The European Commission has been very critical about the system and urged the federal government to amend the Electricity Law. A number of proposals were put forward but the government endorsed none of them. Finding an alternative mechanism will be an urgent task for the next government.

A connection to the grid via the Modular Offshore Grid

The Modular Offshore Grid (MOG), the first grid project at sea in Belgium, was inaugurated on 10 September 2019. This offshore connection allows wind farms to connect to the grid. The costs incurred by the network operator for the studies and execution of the MOG extension will be covered by the network operator's tariffs.

A Royal Decree will be needed set the final date by which the extension of the MOG is to be put into service. Concession holders will be compensated in the event that all or part of the extension of the MOG is not in service on the scheduled date or in the event of unavailability after the entry into service of the MOG. These costs are passed on to the network tariff, unless the operator is guilty of gross or intentional misconduct, in which case the costs must be borne by Elia. In the latter case, the compensation paid by Elia may not exceed the annual remuneration resulting from the operation of the MOG.

The location of the connection points and the technical specifications will need to be included in the specifications of the competitive bidding procedure.

It is worth stressing that currently the producer is responsible for measuring the production of the windfarm. In a study dated 20 December, 201814, the CREG recommended granting support to energy injected into the grid, which would provide an incentive to reduce electrical losses between the allocation and the connection point to the transmission grid.

The timeline

The two main unknown factors are the date of publication of the Royal Decrees implementing the legislative changes and the speed of adaptation of the transport network.

On the one hand, the absence of a government does not encourage a quick decision on the content of the Royal Decrees specifying the terms of the call for tenders.

On the other hand, Elia seems to indicate that the work to be done on the transmission network to absorb the additional production capacity in the North Sea shall not be effective until 2026.

The sector advocates a rapid implementation of these two elements, arguing that a too long downtime will inevitably have negative consequences on companies, which will not be able to support a long standstill period. The industry itself is ready to provide green electricity as early as 2024 if the government acts quickly.

Also from a government perspective, the pressure is high. The prospect of a nuclear phase-out in 2025 increases tenfold the urgency of benefiting from additional production capacity, especially since the capacity remuneration mechanism will have little effect before 202515. In addition, Belgium has been singled out several times by the European Commission, which considers that the country is not making enough effort in the field of renewable energy. In June 2019, the Commission considered that the draft National Energy and Climate Plan submitted by Belgium was not sufficient and that Belgium should set itself a target for renewables to make up 25% of national consumption16.

Pending greater clarity and potential acceleration, investors will be tempted to explore the possibility of exporting their expertise elsewhere in the North Sea, in countries where ministers have signed a declaration to increase wind energy production17.

Conclusion

It is inevitable that Belgian offshore wind energy is bound to grow in the coming years. With these developments, the bidding procedure will be more transparent and open, which will promote competition and push prices down.

Several calls for tenders will be launched in Belgium in the coming years.

It will be essential to monitor the implementation measures and Elia's position on network development in order to fully understand the submission procedures and timeline.

The question remains open as to whether the next government wishes to have additional capacity before 2025 or whether it can tolerate delays, as requested by the the grid operator.

Footnotes

1 Royal Decree of 22 May 2019 on the establishment of the marine spatial development plan for the period 2020 to 2026 in Belgian marine areas, implementing Directive 2014/89/EU, Directive 92/43/EEC and Directive 2009/147/EC

2 Between 6- 8MW/km²

3 See https://vasab.org/wp-content/uploads/2018/06/BalticLINes_CapacityDensityStudy_June2018-1.pdf

4 Law of 12 May, 2019, amending the Law of 29 April, 1999, on the organisation of the electricity market in view of introducing a competitive tender procedure for the construction and operation of production installations in the maritime areas under the jurisdiction of Belgium and ratifying the Royal Decree of 11 February 2019 amending the Royal Decree of 16 July 2002 on the introduction of a mechanism for the promotion of electricity generated from renewable energy sources

5 Law of 29 April, 1999, on the organization of the electricity market, as amended

6 Article 3.3.2.1. of the Communication from the Commission — guidelines on state aid for environmental protection and energy 2014-2020

7 See SA.45867 The Belgian federal regime governing renewable energy certificates and aid to the Rentel and Norther wind farm projects and SA.51306 individual aid to 3 offshore windfarm projects (Mermaid, Seastar and Northwester2)

8 https://www.presscenter.org/files/ipc/media/source6892/OFFSHORE_1.pdf

9 http://presscenter.be/fr/pressrelease/20180831/appel-d-offres-offshore-parcs-eoliens-a-partir-de-2020

10 See point 4

11 Note on the support mechanism for the construction of offshore wind farms after 2020, 20 December 2018: https://www.creg.be/sites/default/files/assets/Publications/Notes/Z1880NL.pdf

12 Royal Decree of 09 February 2017 amending the Royal Decree of 16 July 2002 on the establishment of mechanisms for the promotion of electricity produced from renewable energy sources

13 Royal Decree of 17 August 2018 amending the Royal Decree of 16 July 2002 on the establishment of mechanisms to promote electricity produced from renewable energy sources

14 See point 11

15 The Law was adopted in April 2019 (Law of 22 April, 2019, amending the Law of 29 April, 1999, on the organization of the electricity market establishing a capacity remuneration mechanism) but the implementing decrees have yet to be drafted and submitted to the European Commission to ensure their compliance with state aid rules. It is therefore unlikely that the new legislation will be operational on time to finance additional capacity by 2025

16 Commission recommendation of 18 June, 2019, on the draft integrated National Energy and Climate Plan of Belgium covering the period 2021-2030

17 Joint statement on the deliverables of the energy cooperation between the North Seas Countries, 20 June, 2019, https://kefm.dk/media/12744/joint-statement-on-the-deliverables-of-the-energy-cooperation-between-the-north-seas-countries.pdf

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