Norway's answer to the energy transition

| Innsikt

For years, Norway has been a net exporter of electricity generated from its hydropower projects. It is also one of Europe's largest suppliers of natural gas. Regardless of the current supply crisis, Europe as well as Norway will need more renewable energy to manage their energy transition. Offshore acreage will once again the promising province for Norway's energy production expansion. On an Oslo key side Tuesday 9 February, Prime Minister Støre of the Labour lead minority Government announced the prioritised first steps for awarding acreage for wind power projects in the North Sea. The Government proposal was far for uncontroversial for industry, consumers, environmentalists and the political opposition.

Maritime activities a natural habitat for Norwegians

Norway is a maritime nation with an extensive coastline. A coastline dotted with towns and hamlets form where the inhabitants for generations have ventured onto the high seas to trade and exploit its natural resources. Today several hundred thousands of Norwegians work in ocean related industries, traditional once such as coastal and high seas fisheries and transportation, newer once such as aquaculture and oil & gas activities.

The international legal regime for maritime space

The economic exploitation of offshore living and non-living resources and associated activities were at the front of discussions land leading up the United Nations Law of the Sea Convention (UNCLOS) signed at Montego Bay, Jamaica in December 1982. UNCLOS enabled coastal states such as Norway to establish an Exclusive

Economic Zones (EEZ) reaching up to 200 nautical miles and in some cases exercise continental shelf jurisdiction even beyond 200 nautical miles measured from the base lines drawn along points at the outermost islands forming the Norwegian coast.

UNCLOS establishes the rights of a coastal state exclusive right and jurisdiction to explore for and exploit the living and non-living natural resources of its exclusive economic zone, including «…the production of energy form the water, currents and the winds».[1] However, such economic activities the coastal state shall «…have due regard to due regard to other states right and obligations…»[2] and other lawful uses of the sea[3]. High seas freedoms, such as the freedom of navigation, a customary public international and treaty based principle, is among fundamental right upheld in the exclusive economic zone.

Source: Kartverket

Energy supply squeeze and energy transition challenges

With the accelerating energy transition, technology partly made available by the research, development and operation of offshore oil & gas infrastructure the Norwegians are yet again hunting the high seas to exploit it economic potential in new areas. In a way, to answer to satisfy the increasing demand for renewable energy, the Norwegians are returning to their roots. The wind and the waves may yet again provide kinetic energy, previously used for vessel propulsion, now for the generation of electricity. UNCLOS governing ocean space forms a solid legal base for coastal states’ re-exploitation on another renewable source intrinsically linked to ocean space – the wind.

Regulatory foundation for offshore renewable energy activities

As far back as in 2010, a Government initiative regulate offshore renewable energy production culminated with the promulgation of the Law relating to Renewable Energy Production at Sea (LOV-2010-06-04-21 Havenergilova). Havenergilova regulates among others any offshore renewable energy generation or utilization project not part of an offshore petroleum production project. It is worth noting that Havenergilova has a wider scope than only regulating offshore electricity generation. The legislation thus have to cater for other needs and risks that those associated with windmills. Offshore windmills are only the preliminary power generation projects expected to at scale become reasonably commercially viable given the increasing demand for electricity generation from renewable sources.

The regulatory structure and approach to acreage management concessionary approach[4] has taken substantial ques from the existing upstream petroleum regime currently subject to the 1996 Petroleum Act and sundry regulations. The HSE regime applicable to projects governed by Havenergilova will draw substantially on experience with the regulation of offshore petroleum activities, too. Such rules taking into account that i.e. offshore wind are subject to many, but not all of the operational risks seen in offshore oil and gas production.

Proposed for amendments to Havenergilova[5] and Havenergilovforskrifta will enable applications for an offshore an offshore energy production concession will be granted to prequalified legal entities. The same applies for acquisition of participating interests in petroleum production licenses. There is, however, one substantial deviation from the petroleum regime in the new offshore energy concession regime. Government intends that concession acreage for offshore wind power projects may be awarded based on auctions or on other objective non-discriminatory conditions. Petroleum production licences, however, have to date only been awarded based on detailed applications setting out detailed work obligations. In the summer of 2021 with a 20 August deadline, Government circulated for public comment proposals for amendments to Havenergilova and Havenergilovforskrifta. The previous minority centre-right coalition Government lost the general election in September. The new minority centre-left Government has not yet tabled a proposal to Stortinget required supplementing Havenergilova and Havenergilovforskrifta to implement the proposed prequalification and auction award procedures. However, the new Labour-led Government in the press release for the 9 February 2022 press conference, reiterated with regard to prequalification and auctions, its intention to follow the systematic of the proposals indicated in the consultation document circulated by the previous Government and submit to Stortinget during this spring session a proposal for amendments to Havenergilova.

Source: Figur 0-1 NVE SEIA Report 2012

 

Consistent with requirements of the law[6] the Norwegian Energy Directorate in 2012 published the required Strategic Environmental Impact Assessment (SEIA) report. More detailed administrative and procedural rules followed by the 2020 King in Council Regulations (FOR-2020-06-12-1192 Havenergilovforskrifta). A week after these regulations Government pursuant to Havenergilova [7]passed Royal Decree of 18 June announcing the opening of two areas in the North Sea referred to as Utsira Nord[8] in the North Sea due west

Haugesund and Sørlige Nordsjø II[9] due southwest of Farsund. The water depth at Utsira Nord (average depth within the contemplated acreage is 267 m) will require floating production. Areas in Sørlige Nordsjø II are located in shallower water (with an average water depth of 60 m). Developers my in the latter area construct installations fixed to the seabed or use floating production facilities.

Certain constraints on future activities in the areas opened were included in the 18 June Royal Decree opening Nordlige Nordsjø II and Utsira Nord. A Sørlige Nordsjø II offshore energy concession may not comprise acreage over which there is a production licence. Sørlige Nordsjø is located within APA Round acreage. APA Round acreage means Acreage in Predefined Areas open for annual production licence applications.

Government will In Utsira Nord, not award acreage overlapping the Norwegian armed forces offshore live-firing training area referred to as END253. In Utsira Nord, but less in Sørlige Nordsjø II there may also be imposed restrictions on the delineation of acreage to carter for safety of navigation, while in Sørlige Nordsjø II fisheries may equally influence acreage awards. In both areas, but more so in Sørlige Nordsjø II, there are particular environmentally sensitive matters to consider, which may affect delineation of acreage. Among those matters mentioned are the migration of birds. Culture heritage aspects may also require imposing particular obligations on future concessionaires.

First steps towards offshore wind farms in the Norwegian EEZ

On the 9 February, the Government announced in in Oslo harbour key side press conference the initiation of the first phase of offshore wind projects to be located in Sørlige Nordsjø II area, other areas to follow. The Lead by Prime Minister Støre the Ministers present (Energy, Trade& Industry and Finance) a number of policy initiatives were unveiled. In parallel with the press conference, the Energy ministry launched a proposal for the graticulation of the acreage proposing to divide Sørlige Nordsjø II into three concession areas. Government suggests dividing Utsira Nord into two alternative ways, into three concession areas or alternatively four concession areas. The proposal was circulated for public comment with a deadline of 29 March 2022. The award of acreage would be subject to an auction in which prequalified entities may participate most likely to follow the autumn of 2022. During the spring session of Stortinget, there will also be submitted proposed amendments to Havenergilova and adjustments adopted to Havenergiforskriften. There will be acreage left between each concession area and established a corridor between each area so that that it enables each concession area sufficient flexibility with regard to its development without negatively affecting development in other concession areas.

Reception of Government proposals have been mixed

The initiative has been met with some scepticism albeit the first project would result in the construction and operation of windmills producing 1500 MW with an annual production of up to 7 TWh a year, able to supply in excess of 460.000 households.

The opposition claims this is a 50% reduction of the policy goals set by the previous minority government headed by Conservative Party leader Erna Solberg. This by some observers will result in Norway with its exceptional access to large offshore areas within its exclusive economic zone (slightly above 2 million m2 – see map below) will fall behind in the renewable energy transition race. Norway should not be timid.

The Government is called upon to give full speed ahead, not throttle down. Secondly, industry, environmentalist as well as some opposition politicians are sceptical for a variety of reasons. Acreage selection prioritizing of selecting Sørlige Nordsjø II with limitations on production capacity and offtake is criticised by industry and the opposition on both sides of the political spectrum. Capacity and offtake limitations will most likely create sub-commercial projects requiring subsidises. Several are critical development speed considered much slower than desirable to face off competition from surrounding North Sea states.

Hybrid offtake solutions from offshore production is controversial

The Prime Minister made it clear that all power generated by the first phase projects shall be landed in Norway. By this decision, Government has at this first stage rejected so-called hybrid landing solutions. Industry and the opposition consider that the projects without hybrid offtake solutions will not become economic and thus require tax-payer financed subsidies.

The question of hybrid-structured wind power projects has become increasingly politically contentious. At the core of the debate is the unusually high electricity prices experienced throughout this winter. Prices are partly result of the energy supply squeeze experienced in Europe. No one expects the high electricity in Norway, and the high natural gas and electricity prices in Europe (NCS natural gas production is exported contributing to 25% of Europe’s total natural gas supply needs) to abate in the near term. There is a growing popular movement calling for Government price-interventions and for rapid increases in domestic electricity production and transmission capacity. Several voices on the right- and left wing are demanding that Government curtail the electricity export, as well as a reduction in hydropower supply to substitute gas turbines form power supply on offshore petroleum production facilities, are all high on the agenda.

Norwegian electricity generation, supply and interconnectors

Some years back Norway expanded its electricity interconnector capacity. At that time, due to the nature of Norwegian hydropower generation, the interconnectors would enable Norway to export electricity in excess of domestic supply. Norway was at that time adequately supplied through it extensive hydropower generation capacity. Generation capacity was also very flexible. It was possible to curtail production almost instantly and without incident, when cheaper electricity was available from other power generating facilities. The thinking was that the interconnectors would enhance Norwegian security of supply.

Source: Fiskeridirektoratet Figur 2: Fisheries in Sørlige Nordsjø II 2018-2020

 

The Norwegian supply situation and therefore high electricity prices caused partly by extensive export of Norwegian hydropower through submarine interconnectors. The combination of Lower levels of water in Norwegian reservoirs, inadequate electricity transmission capacity, the electrification of offshore petroleum production installations to reduce emissions, the explosive growth in electric vehicles have internally contributed to the explosive increase in Norwegian electricity prices. Externally the shortage of natural gas for power generation in Europe, shut down of nuclear power and coal fired power stations, combined with slower than expected development of and shortfall in production of electricity from variable renewable generation such as wind, have substantially exacerbated the supply squeeze. The price increase has been particularly sharp in the southern part of Norway, from where all submarine interconnectors are connected.

To soften its critics Government has instructed the Norwegian Energy Directorate (NVE) to evaluate the implications of connecting offshore wind projects to Norway as well as to foreign markets. Then Hybrid developments would have opened the possibility to land electricity by submarine cables to Norway as well as to foreign destinations. NVE will have to look into alterative grid solutions and their respective effect on the grid and electricity supply situation as a whole.

Concerns with the effect on other marine interests and the environment

Environmentalist are concerned and claim that particularly projects in Skagerrak, placed across major trekking routes for migratory birds. Sørlige Nordsjø II is not far off those routes, other evaluated not yet prioritised acreage may be even more sensitive from a bird migration point of view. Other environmental aspects are of also concern. Government admits in its circulated proposal for the graticualtion of the areas that though data has been updated to 2018 there are «[…] limited knowledge of the environmental value of the areas, in particular with regard to Utsira North.»

The fisheries associations are concerned with the projects tying up large areas comprising acreage suitable for marine harvesting. With chapter 9 of Havenergilova on compensation to Norwegian fisheries in place, Government is in position to implement compensation mechanism for acreage limitations imposed of fisheries activities and damage to fishing gear and equipment.    Comparable mechanisms implemented with substantial success were from the mid-1980s in relation to offshore petroleum activities. It ensured an efficient system for timely and adequate conflict resolution settling compensation to fisheries suffering loss from limitations on economic activities or damage to gear or equipment. The functionality of a multi-party conflict resolution board resulted in a relatively low level of conflict between fisheries and offshore petroleum activities.

 

[1] UNCLOS Part V, see Article 56 (1) (a).

[2] UNCLOS Article 56 (2).

[3] UNCLOS Article 297 (1) (a).

[4] Havenergilova chapter 1 section 1-2 defining scope of application and section 1-3 on the state’s right to exploit offshore energy resources, chapter 3 on concessions and concessionaires, chapter 4 on project relevant environmental impact assessments, chapter 9 on compensation to fisheries, as well as several miscellaneous provisions included in chapter 10.

[5] A new section 2-3 is proposed included in Havenergilova stipulating prequalification requirements, that competitions for acreage will be the norm and that Government may require compensation for the award. A new chapter 2a in Havenergilovforskrifta will supplement the proposed amendment to Havenergilova.

[6] Haverengilova section 2-2 second para.

[7] Havenergilova section 2-2 fifth para.

[8] Utsira Nord defined by the following coordinates: 4° 16 ’09» E, 59° 26′ 53″ N; 4° 40′ 25″ E, 59° 28′ 56″ N;         4° 24′ 27″ E, 59° 04′ 10″ N and 4° 48′ 44″ E, 59° 06′ 18″ N.

[9] Sørlige Nordsjø II defined by the following coordinates: 4° 20′ 48″ E, 56° 49′ 24″ N;5° 10′ 05″ E, 57° 05′ 36″ N;

5° 29′ 51″ E, 56° 44′ 17″ N; 5° 02′ 01″ E, 56° 35′ 30″ N and 4° 38′ 29″ E, 56° 29′ 02″ N.