You may remember at the beginning of November last year the FT and Telegraph ran articles highlighting the "precarious" position of offshore wind developments as a result of a provision in the developer's lease with The Crown Estate. The relevant provision enables The Crown Estate to terminate all or part of the lease for an offshore wind project at the request of the Secretary of State where the windfarm site is required for oil and gas works, without having to provide any compensation to the developer.
Although The Crown Estate has never exercised this provision in the lease, its existence is a major headache for offshore wind developers, as being forced to abandon a site could result in the writing off of millions of pounds in development costs and future revenues. The consenting timetable for an oil and gas development is far shorter than for offshore wind thus creating a situation whereby developers and their funders may have invested heavily during the consenting process only to be usurped by oil and gas interests at the last minute.
The Government has been eager however to point out that exercising this option would not be their preferred approach. In the Telegraph, a Government spokesperson explained that: “in the very unlikely event that it proved impossible to access an oil or gas find without an adjustment to an already consented wind farm, there is a clause in the wind farm site lease which enables all or part of the site lease to be terminated by The Crown Estate at the request of Government...If it was necessary, a first step to resolving any issue would involve commercial negotiations between the companies to find a reasonable commercial solution to be put to the wind farm owner. It would not be our preferred policy to intervene”.
In addition, Oil and Gas UK, representing the oil and gas industry also commented very swiftly and positively that the two industries are collaborating with a view to these conflicts being avoided.
The Government highlights the case of Warwick Energy, who found a commercial solution to working alongside its neighbouring oil and gas companies. However Baroness Parminter, who raised this issue during the Second Reading of the Energy Security and Green Economy Bill (the Energy Bill) on 22 December 2010, warned that whilst this may not have been a problem to date, "offshore projects currently under development are much larger, further offshore and within known oil and gas provinces. If we do not address this issue soon, it will come back and bite us."
Renewable UK, the trade and professional body for the UK wind and marine renewables industries, has appealed to the Government to take action to resolve this issue and create a more level playing field between the UK oil and gas and renewable energy sectors. Their aim is to assist these two industries in sharing the seabed and reduce the risk and cost that this lease provision creates for the offshore renewables industry.
The proposed solution has been to table an amendment to the Energy Bill restricting the ability of the Secretary of State to consent to an oil and gas development in an area where an offshore wind project agreement for lease or lease is in place unless the developer has first given their consent, thus preventing a forced intervention by the Government. Renewable UK hopes that this amendment will give the banks and developers the needed confidence to invest.
So can the parliamentary process be used to resolve this issue and restore faith to the risk averse offshore renewable industry? With 144 licences being granted in the 26th Oil & Gas Licensing Round last year, developers and funders alike will be hoping so.