ORRICK OFFSHORE WIND ENERGY UPDATE and OUTLOOK January 2020 II

ORRICK OFFSHORE WIND ENERGY UPDATE AND OUTLOOK January 2020 II

II The global offshore wind market has grown nearly 30 percent per year since 2010 and is projected to be a US$1 trillion industry over the next two decades.

Markets around the world are seeing significant increases in offshore wind activity driven by more evolved regulatory structures and cost reductions due to technological advancements and growing competition. In 2019, wind (both onshore and offshore) led overall renewable energy investment with US$138.2 billion globally and offshore wind capacity investment was up 19 percent compared to 2018.

In the United States, offshore wind energy is progress in China with well over a gigawatt quickly transitioning to a viable and game- (GW) of installed offshore wind capacity changing market sector. The 30 megawatt and many more projects planned or under (MW) Block Island wind project off the construction. Half of all global offshore wind coast of Rhode Island has completed its installed in 2018 was located in China, which third full year of operation. The first large- is currently projected to be the market leader scale offshore wind project off the coast for installed offshore wind capacity by 2021. of Massachusetts is in an advanced stage While these markets, and others, are seeing of project development. A demonstration exciting growth in this space, countries project is under construction by Dominion around the world continue to chase the Energy in Virginia. Numerous power mature offshore wind energy platform in purchase agreements (PPAs) and offshore Europe. Europe now has a total installed wind renewable energy credit (OREC) offshore wind capacity of approximately 20 contracts have been awarded with coastal GW, with more than 4,500 offshore turbines states from Maine to California in various in 11 countries. Offshore project installation stages of offshore wind program planning. and investment continues at an impressive Things are moving quickly and energy rate, with nearly a gigawatt of installed investors from North America, Europe and offshore wind capacity in the UK in 2019 and Asia are lining up to get involved. more than 5 GW of new project contracts in In a number of Asian countries, offshore the pipeline at record low prices. Countries wind is on a similar trajectory. Taiwan’s 128 such as Denmark, Belgium, Germany and MW Formosa 1 project recently achieved France are also advancing their offshore completion, with the first demonstration wind programs. turbines in commercial operation since A significant, steady buildout of offshore 2016. Japan’s Offshore Wind Promotion Act wind energy in the decade starting in 2020 and lucrative feed-in-tariff (FIT) regime are is all but certain across Europe, Asia and resulting in accelerated progress towards the U.S., as well as in other regions that a robust Japanese offshore wind project are just beginning to plan how and when platform, similar to the progress made in to capitalize on the immense potential of onshore wind and solar energy in Japan over offshore wind energy. the past few years. There is also significant

1 Continuing Decline Bloomberg New Energy Finance reported Maryland project and Deepwater’s Skip Jack a second-half 2019 global benchmark price project is US$132/MWh. And the price on the in Offshore Wind of just US$78/MWh, a 32 percent drop from Long Island Power Authority’s PPA for the Energy Prices the previous year. In June 2019, the planned South Fork project is reported at US$160/ 600 MW Dunkerque project off the coast of MWh for the first 90 MW and US$86/MWh One of the reasons for the increasing global France announced a strike price of just €44/ buildout of offshore wind is the decreasing for the additional 40 MW. The New Jersey MWh. And the United Kingdom’s contracts price curves that we have seen in Europe OREC price for Orsted’s Ocean Wind project for difference auction scheme accepted and are now seeing in United States power is US$98.10 (year 1). And in New York’s recent bids from three offshore wind projects at purchase transactions. The trend is similar OREC awards, NYSERDA announced average approximately US$50/MWh in 2019. to that of U.S. onshore wind and utility-scale all-in development costs of US$83.86 and solar over the last 10 years. Prices in the U.S. are not far behind. The expected average OREC costs of US$25.14/ National Renewable Energy Laboratory MWh for the Empire Wind and Sunrise Wind The rapid decline in prices around the world (NREL) analyzed the planned 800 MW projects (note that the projects retain energy for the power from new offshore wind Vineyard Wind project off the coast of sales revenue). Pricing on the recently projects is driven by a number of factors, Massachusetts, ran a bottom-up cost awarded Revolution Wind PPAs for power including market competition, increasing estimate, and found the price premium for supply to Connecticut and Rhode Island was supply chain efficiency, technology the U.S. market as compared to the more $94 and $98.43, respectively, and the recently advances, and improving forecasts of established European markets might be less performance based on operational history. awarded Mayflower Wind PPA for power to significant than had been widely expected In the coming years, these factors are Massachusetts utilities is forecasted to be or might otherwise be presumed. The year 1 projected to continue driving prices below the original price cap of $84.23. price under the Vineyard Wind PPA signed in downward. Although various numbers and July of 2018 is US$74, escalating to US$118 When comparing prices, it is important to projections are available, nobody debates in year 20 for the first 400 MW, and US$65 consider such factors as the allocation of the declines are already striking. The U.S. in year 1 for the second 400 MW. This price energy and capacity revenue, tax benefits Department of Energy (DOE) released a does not factor in the project’s revenue from (ITC/PTC and local credits), price escalation report in 2018 that found power prices in tax benefits and revenue from capacity sales factors, and whether the cost of transmission European offshore wind auctions and PPAs outside of the PPAs. is included. dropped from approximately US$200/ MWh for projects commencing operation By way of contrast, the initial price under between 2017 and 2019 to approximately Deepwater’s Block Island Power Purchase US$75/MWh for projects expected to Agreement was US$244. The pricing of begin operation between 2024 and 2025. the Maryland OREC program for US Wind’s

2 Structure of Energy • MARYLAND • NEW YORK Maryland passed the Maryland Offshore New York set a goal for offshore wind Purchase Transactions Wind Energy Act in 2013, amending the energy of 9 GW by 2035, with the (PPAs and OREC state’s renewable portfolio standard to procurement led by the New York State include Maryland ORECs. In 2017, the Energy Research and Development Transactions) Maryland Public Service Commission Authority (NYSERDA). NYSERDA’s OREC Two different transaction structures have (MDPSC) awarded the state’s first OREC program has NYSERDA procuring ORECs been utilized for the purchase and sale of agreements to the 120 MW Skipjack and from the project owners on behalf of offshore wind energy and related products 248 MW US Wind projects. Then in 2019, load serving entities, which in turn in the United States. Starting with the Maryland increased the requirement for are required to purchase ORECs from early PPAs for the Bluewater Wind project energy obtained from offshore wind by NYSERDA. Project owners retain all in Delaware and the Cape Wind project in 2030 by an additional minimum of 1.2 energy and capacity revenues generated, Massachusetts, the majority of offshore GW. The 2017 awards set forth OREC while the ORECs act as an additional wind energy transactions have been agreed prices and maximum OREC quantities for support mechanism. In 2019, New York’s upon using traditional bilateral PPAs with the two winning bidders. The Maryland first solicitation of proposals for offshore the state utilities. These PPAs have been OREC program requires “retail electricity wind power, two projects were selected: similar to utility PPAs for U.S. onshore suppliers” (as defined by state law) to the 816 MW Empire Wind (Equinor) and wind and solar, but with customized and purchase ORECs from the project owners the 880 MW Sunrise Wind projects (JV of highly negotiated transaction terms related in accordance with guidance set out Ørsted A/S and Eversource Energy). The to offshore wind and project-specific by the MDPSC. To be eligible for OREC projects have an expected average OREC considerations, including for pricing, project payments, the project owners must sell cost of US$25.14/MWh and an average timeline, transmission, permitting and all energy, capacity and ancillary services all-in development cost of US$83.36/ variations in project size and technology. associated with the OREC into the MWh. NYSERDA’s procurement methods Utility PPAs have been used for the recent regional PJM Interconnection-operated operate separately from that of public offshore power purchase transactions in markets and then distribute the resulting power authorities, including the Long Massachusetts, Connecticut, Rhode Island proceeds to the electricity suppliers Island Power Authority and its 20-year and for the South Fork project in New York. purchasing the associated ORECs from PPA with the South Fork Wind project. an escrow account. The MDPSC set With New York law mandating 9 GW of The second transaction structure is for the an initial price schedule equivalent to offshore wind by 2035, further NYSERDA purchase and sale of ORECs, representing US$131.93/MWh for US Wind and the procurements are likely. the environmental attributes associated with Skipjack projects. one megawatt-hour of electricity generated from offshore wind resources and consumed • NEW JERSEY Both PPAs and OREC transaction structures by retail customers. The OREC transaction The New Jersey Board of Public Utilities are expected to be utilized in upcoming structure has been utilized for the recent (NJBPU) has implemented an OREC procurements of U.S. offshore wind. procurements of offshore wind energy in program and funding mechanism similar Maryland, New Jersey and New York. to Maryland’s program to support New Jersey’s offshore wind goals of 3.5 GW of offshore capacity by 2030. In 2019, New Jersey selected the 1.1 GW Ocean Wind project being developed by Ørsted with According to the Department support from PSEG, marking the largest of Energy, offshore wind has single procurement of offshore wind in the potential to generate the U.S. to date. The NJBPU requires New more than 2,000 GW of Jersey’s electricity supply companies to purchase ORECs from the selected capacity per year. That’s project according to a set percentage almost double the nation’s of kWh of energy sold in the state. current electricity use. Even The program’s “OREC administrator” if only one percent of that facilitates the OREC payments to the potential is captured, it project and transfer of ORECs to the would mean that offshore electricity suppliers required to purchase the ORECs, as well as the transfer of wind could power nearly revenues from the projects’ sale of 6.5 million U.S. homes within energy and products into PJM back to the next decade. the ratepayers.

3 Financing Outlook For prefers not to commit more than 12 months strategy will be very important for offshore before the commercial operation date of wind projects utilizing PTCs or the ITC, and U.S. Offshore Wind a project, which is a challenge for offshore projects should expect significant scrutiny of If permitting and supply chain hurdles can be wind. Tax equity will likely accommodate their qualification strategies given the cost met, the financing market for U.S. renewable earlier commitments for offshore wind in of the offshore projects and the expectation energy projects appears to be robust and the range of 18 to 24 months before the that multiple tax equity and debt providers ready to embrace many of the offshore wind commercial operation date. At least one will participate in the financing of these projects mentioned in this update. More than offshore wind project obtained construction projects and will separately diligence the tax 50 financing entities have expressed interest financing prior to having a tax equity credit qualification strategy. Additionally, in financing U.S. offshore wind. This includes commitment (i.e. no committed take- offshore developers should be careful about between 20 and 30 European lenders that out). Also, based on public information, basing their tax credit qualification strategy have experience with offshore wind and the Vineyard Wind project off the coast of on physical work on equipment where the that will likely be a driving force for offshore Massachusetts, has been very well received technology is quickly evolving. For example, wind in the United States. For onshore wind in the tax equity and debt markets. The starting work on offshore turbines is often a projects in the U.S., both debt and tax equity project went to market more than 24 months challenge if better turbines are expected to have traditionally been available for projects before its commercial operation date (COD) be available by the time the turbines will be with strong economic fundamentals in and received offers for more than two times erected. Despite these constraints, it can be place. It can be expected that many of these the tax equity capital it was seeking. expected that a number of upcoming U.S. U.S. onshore wind financing providers will offshore wind projects will be able to utilize Unfortunately, recent efforts to pass a federal also participate in upcoming offshore wind the existing federal tax credits and obtain tax tax credit specific to offshore wind were not project financings. Moreover, many of the equity financing. successful. However, there was success in planned U.S. offshore wind projects feature passing an extension of federal tax credits large project sizes, strong project sponsors for all wind projects which have the potential backing the projects, and better offtake to provide a very significant boost to the contracts than many of the onshore projects offshore wind market. The extension was for in the current market. Accordingly, many a 60 percent PTC or an 18 percent ITC for “A lot of creative solutions lenders and tax equity investors are anxious wind projects that commence construction to fund these projects. are being utilized in U.S. in 2020. Generally, projects must reach renewables financings, such On the debt side, offshore wind projects COD by the end of 2024 to qualify for these as various flavors of bridge are likely to benefit from the low debt rates credits. Fortunately, there are a number of that exist in the current market. Premiums offshore wind projects that are currently financing, vendor equipment for offshore back-leverage are expected expected to reach COD on or before 2024, financing, mezzanine to be about 25 basis points higher than which should be in a position to capitalize financing, and creative for onshore wind, which has rates as low on this extension. We believe some of these tax equity and term debt as 75 basis points above LIBOR. European projects will take action this year to start structures. This creativity lenders will need to be educated on tax construction for PTC/ITC purposes. will be really helpful to equity financings and the intercreditor To qualify for the PTC or ITC, projects need arrangements between tax equity and debt. sponsors seeking to mitigate to start construction by the end of 2020 Many lenders also perceive offshore wind the risks associated with by either incurring at least five percent of to have heightened construction risk, which the long development the qualified project costs (i.e., the five the industry believes will be manageable percent safe harbor) or by commencing and construction cycles of over time as the market is educated. At an physical work of a significant nature either offshore wind projects.” 80 percent investment tax credit (ITC) or on-site or off-site. The five percent safe — Rael McNally, Director of Global production tax credit (PTC) level, a typical harbor is very capital intensive given the Renewable Power at BlackRock capital stack for projects is expected to be size of offshore wind projects, and we Real Assets approximately 50 percent debt, 30 percent anticipate that very few projects will select tax equity and 20 percent sponsor equity. this option. On-site physical work is also The share of debt and sponsor equity will difficult because of lack of access to the site rise as the tax credits phase out. in the ocean and limited ability to do on-site The U.S. tax equity market typically utilizes a work at preliminary stages. Accordingly, partnership flip structure where tax equity is we expect some projects to elect off-site targeting post-tax returns of approximately physical work to commence construction in six to nine percent. Tax equity typically 2020. A financeable tax credit qualification

4 United States Atlantic second RFP process in October 2019 based on reference prices for energy and and was selected to move forward capacity and serves as a type of contract Seaboard with contract negotiations to provide for differences. In the first solicitation Offshore wind project development along 804 MW of offshore wind power to of proposals for offshore wind power, the Atlantic seaboard continues to progress Massachusetts. held July 18, 2019, NYSERDA selected rapidly. Deepwater Wind’s 30 MW/five turbine two projects, the 816 MW Empire Wind Massachusetts is also very active in Block Island project completed its third (Equinor US Holdings, Inc.) and the 880 facilitating development of the local year of commercial operation in December MW Sunrise Wind (a joint venture of supply chain by upgrading the New 2019, providing the sector with a much- Ørsted A/S and Eversource Energy). Bedford Marine Commerce terminal needed tangible precedent for the enormous The selected projects have an expected for offshore wind projects, creating the potential of U.S. offshore wind. Many more average OREC cost of US$25.14/MWh Massachusetts Clean Energy Center’s megawatts of offshore wind energy are in and an average all-in development cost Wind Technology Testing Center that advanced stages of development. of US$83.36/MWh. Previously, and offers turbine blade certification tests for separately from NYSERDA’s procurement The following section provides a high- turbine blade sections up to 90 meters in track since it is a public power authority, level update on some of the most notable length, and offering the first-in-the-nation the Long Island Power Authority recent developments in the rapidly evolving offshore wind training facility located at approved a 20-year PPA to take power offshore wind project landscape along the the Massachusetts Maritime Academy. from the proposed 90 MW South Fork Atlantic Seaboard. • NEW YORK Wind project (Ørsted U.S. Offshore Wind • MASSACHUSETTS New York has set a goal of developing and Eversource Energy). This agreement In August 2016, Massachusetts passed 9,000 MW of offshore wind energy was amended in 2018 to add another 40 a law requiring its utilities to procure by 2035, with the procurements led MW of power. The South Fork project 1,600 MW of offshore wind power by by NYSERDA, which has created the is located about 30 miles southeast 2027. In 2018, the state passed new OREC program (described previously) to of Montauk and has an approved site legislation that would double the offshore encourage offshore wind energy project assessment plan. wind target to 3,200 MW by 2035. And development for New York. Under the in May 2018, Avangrid Renewables and New York program, NYSERDA procures Copenhagen Infrastructure Partners’ 800 MW Vineyard Wind project was selected as the winner of the state’s first major offshore wind solicitation, including PPAs with National Grid USA, Eversource Energy and Unitil Corp. in two 400 MW phases to be located south of Martha’s Vineyard.

In August 2019, the U.S. Department of the Interior’s Bureau of Ocean Energy Management (BOEM) announced it would be requiring a supplement to Vineyard Wind’s environmental impact statement to inform its decision on the project’s commercial operations plan, unexpectedly delaying the projected construction schedule. Approval of a commercial operations plan is needed before construction of the project can commence. BOEM explained that the supplement was requested to include a more “robust cumulative analysis” NYSERDA, available at https://www.nyserda.ny.gov/All-Programs/Programs/Offshore-Wind/Offshore-Wind- of environmental impacts. This, as Solicitations/Generators-and-Developers/2018-Solicitation. explained by BOEM, was needed because a greater buildout of offshore ORECs from the offshore wind project wind is now reasonably foreseeable as owners on behalf of load serving entities, contrasted to what was contemplated at which in turn are required to purchase the the time when the original environmental ORECs from NYSERDA. Project owners impact statement was prepared. BOEM retain all energy and capacity revenues announced that this supplement should generated, while the ORECs act as an be available for public comment by additional support mechanism. In its first early 2020. solicitation, NYSERDA required bidders Mayflower Wind (a joint venture between to submit two offer prices: a fixed OREC Shell and EDP Renewables) won the price and an indexed OREC price, which is 5 • NEW JERSEY • RHODE ISLAND offshore wind through its own OREC New Jersey plans to meet its goal of In addition to having the Deepwater program, under which all retail electricity 3,500 MW of offshore wind by 2030 Wind Block Island project, the Rhode suppliers must purchase ORECs from through an OREC program similar to that Island Public Utilities Commission selected offshore wind project owners of Maryland, and tax incentives. In June of approved a 20-year PPA in 2019 in accordance with guidance set out 2019, the NJBPU granted the state’s first between DWW Rev I, LLC (a joint by the MDPSC. To be eligible for OREC award of offshore wind to Ørsted’s 1.1 GW venture of Ørsted U.S. Offshore Wind payments, the project owners must sell Ocean Wind project, marking the largest and Eversource) and National Grid for all energy, capacity and ancillary services single procurement of offshore wind in 400 MW from the Revolution Wind associated with the OREC into the the United States to date. The Ocean project located in federal waters roughly regional PJM Interconnection-operated Wind project is located approximately halfway between Montauk, New York and markets and then distribute the resulting 15 miles off the coast of Atlantic City, Martha’s Vineyard, Massachusetts. proceeds to the electricity suppliers New Jersey. Two additional 1,200 MW purchasing the associated ORECs • CONNECTICUT solicitations are also anticipated, one from the escrow account. In 2017, the In June 2019, Connecticut passed a bill in 2020 and the other in 2022. The MDPSC awarded the state’s first OREC requiring the Department of Energy NJBPU requires New Jersey’s electricity agreements to Ørsted’s 120 MW Skipjack and Environmental Protection to solicit supply companies to purchase ORECs project and a 248 MW project owned up to 2 GW of offshore wind capacity from the selected project according by US Wind, Inc, with an initial price by 2030, and on December 5, 2019, the to a set percentage of kWh of energy schedule equivalent to US$131.93/MWh Department selected Vineyard Wind’s sold in the state. The program’s “OREC for the projects. bid of 804 MW from the development- administrator” facilitates the OREC stage Park City Wind project, allowing • VIRGINIA payments to the project and transfer of the Park City Wind project to enter into Virginia recently increased its goal for ORECs to the electricity suppliers required negotiations with United Illuminating renewable energy to 30 percent by 2030. to purchase the ORECs, as well as the Company and Eversource Energy, the This new renewable energy goal includes transfer of revenues from the projects’ state’s two electric companies, for a up to 2,500 MW of offshore wind to sale of energy and products into PJM back long-term PPA. This selection marks the be developed by 2026. Construction to the ratepayers. state’s third procurement of offshore on Dominion Energy’s Coastal Virginia New Jersey also created an offshore wind energy and is estimated to provide Offshore Wind demonstration project wind tax credit program that provides approximately US$890 million in located in Dominion’s BOEM lease area projects with tax credits up to 100 economic development in Connecticut, off the coast of Virginia Beach began percent (with a US$100 million limit) of including to the Bridgeport harbor and in July 2019 and is expected to be the qualified capital investments made local supply chain. completed in the 2020/2021 timeframe. in an offshore wind-related facility. Dominion has retained Ørsted for the Previously in 2018, the state authorized New Jersey is also working to support construction of the demonstration a total of 304 MW from Ørsted’s development of a local supply chain. project. This is expected to be Revolution Wind project Bay State Wind In October of 2019, the New Jersey followed by a commercial-scale project (a joint venture of Ørsted U.S. Offshore Economic Development Authority (anticipated to total approximately 2,640 Wind and Eversource). A 20-year PPA announced its proposal for an Offshore MW that will be developed in three, 880 was signed for the supply of energy from Wind Technical Assistance Program. MW phases). the project. This included commitments Under this proposal, the New Jersey to the development of the state pier • MAINE Economic Development Authority will in New London, with Governor Ned In November 2019, Maine Public Utilities contract an experienced offshore wind Lamont announcing in May 2019 a Commission approved a contract with advisory and certification company to public-private partnership investing Central Maine Power and Maine Aqua help assure that local companies possess US$93 million to upgrade the pier so as Ventus for the 12 MW Maine Aqua the requisite credentials to secure to support infrastructure requirements of Ventus floating demonstration project. offshore wind contracts. In November offshore wind projects, with construction This project is part of the Maine Offshore of 2019, New Jersey’s governor issued on the pier expected to be completed in Wind Initiative, a state initiative to a new executive order directing the early 2022. identify opportunities for offshore wind NJBPU, the New Jersey Department of development in the Gulf of Maine. Environmental Protection, and other • MARYLAND state agencies to take all necessary In May 2019, Maryland passed a law that actions to promote the development of doubled the requirement for energy wind energy off the coast of New Jersey obtained from offshore wind by 2030 by to meet an increased goal of 7,500 MW requiring an additional 1,200 MW, with of offshore wind energy generation by the bidding process commencing in 2020 the year 2035. and scheduled to continuing in 2021 and 2022. Maryland has encouraged

6 BOEM Regulatory Road Map

Initiate Lease BOEM Deems COP BOEM Leasing Process Granted Submit SAP Complete & Sufﬁcient Approves COP (RFI/Call)

Area Identiﬁcation Publish Wind Energy Areas Leasing Notices Pre-survey Site Assessment & Surveys BOEM Environmental Meetings/Plan (maximum timeframe) & Technical Reviews Installation O ~1/2 O <11/2 0 1 0 <5 0 2

NEPA/Environmental Reviews

Auction BOEM Reviews & Submit COP Submit Design & Approves SAP (with Project Design Envelope — optional) Installation Plans Image courtesy of BOEM

Project Permitting permitting and support for the ongoing an acquisition, financing or construction development of upcoming projects, or process. Project due diligence for upcoming and Environmental potential financings or acquisitions remains transactions should include a thorough Considerations complex and highly project-specific. review and understanding of project permitting as well as environmental Now well over a decade into the In addition, several environmental permits and stakeholder issues associated with development of offshore wind in the U.S., must be obtained. Numerous environmental a particular project. Issues can then be the permitting and approval process for studies and consultations of governmental managed and allocated in line with the offshore wind projects remains lengthy agencies are involved in obtaining these business expectations of the parties involved. and complicated, and the estimated time permits (including the BOEM lease, BOEM for review and approval remains a critical approval of a Site Assessment Plan, and factor in determining when projects can BOEM approval of a Construction and begin construction and achieve commercial Operations Plan). The full diligence of a operation. BOEM oversees the development project also requires the careful assessment of wind projects in U.S. federal waters. of potential environmental issues associated BOEM has published the roadmap above with onshore interconnection. outlining the overall offshore wind Many environmental and stakeholder development process. “Public participation from issues need to be considered during the ocean users and coastal When BOEM grants a lease to an offshore permitting process and related stakeholder communities is essential to wind project, development of the project discussions and negotiations. These issues is conditioned on BOEM approval of are amplified by the scale of the offshore help the U.S. fully realize the detailed plans for that project (e.g., the wind projects being developed and the benefits of offshore wind assessment and construction operation location of these projects close to major power. Early feedback helps plans). This requires review pursuant to the U.S. cities. Permits may be appealed, and projects avoid potential National Environmental Policy Act (NEPA). some permits provide for opportunities for conflicts, benefiting wind NEPA requires that federal agencies, like public comment. Depending on the stage of developers and other ocean BOEM, review the potential environmental project development or timing of a proposed impacts associated with its decision to acquisition or financing, certain aspects of users alike.” issue an approval. A project will also need permitting may require additional scrutiny — Laura Smith Morton, Senior Director to obtain other permits from various federal during a due diligence process. of Policy and Regulatory Affairs, Offshore at the American Wind Energy agencies (e.g., United States Army Corps The stage of project development or timing Association (AWEA) of Engineers) and will be subject to certain of a project acquisition, knowledge of the state and local permits. As a result, the due sequence and expected completion of diligence with respect to environmental all required studies and the permitting and approval process can all impact possible permitting concerns and timeline considerations for the development process and the expectations underlying

7 California and Pacific has various governmental approval In October 2018, BOEM published a Call for requirements specific to the state, and the Information and Nominations for Commercial Coast Market Updates U.S. Department of Defense (DOD) has Leasing for Wind Power Development Over the next few years, California is unique military interests off the central coast on the Outer Continental Shelf Offshore likely to see significant progress toward of the state. Also, the depth of the Pacific California (the “Call”). BOEM identified establishment of an offshore wind sector Ocean precludes the use of fixed foundation three “Call Areas” based on the stakeholder similar to the progress already achieved for wind turbines and instead requires floating engagement process and a number of other the U.S. Atlantic seaboard. The potential platforms with underwater cable tethering factors, including close proximity to existing benefits of offshore wind energy off the to the ocean floor in depths of thousands of transmission infrastructure. The Humboldt coast of California are not in doubt. The feet, with cables also extending to the shore Call Area is on the north coast, comprising NREL has found that there are 112 GW of for transmission interconnection. 206 square miles, beginning 21 miles offshore wind resource potential on the offshore of the city of Eureka in northern BOEM has jurisdiction over Outer California coastline. This untapped energy California. The Morro Bay Call Area is on the Continental Shelf (OCS) ocean waters potential could play an important part in central coast, comprising 311 square miles at least three nautical miles offshore of California meeting its energy goals under beginning 24 miles offshore of Cambria, California. In 2016, BOEM established an SB100, which mandates 60 percent of CA. The Diablo Canyon Call Area is on the Intergovernmental Task Force (the Task the state’s energy mix to be sourced from central coast, comprising 556 square miles Force) in partnership with the State of renewables by 2030, and 100 percent carbon beginning 22 miles offshore of Los Osos, CA. California to promote information sharing free electricity by 2045. In particular, the regarding assessment of the potential for Fourteen companies responded to the Call availability of offshore wind at peak demand offshore wind energy projects and BOEM’s with indications of interest to build offshore times means it has the potential to support leasing process in the Pacific OCS. From wind projects along the California coast, as grid reliability when onshore wind, solar and October 2016 through September 2018, the depicted below, with some Call respondents solar + storage cannot meet peak demand. Task Force conducted extensive stakeholder already making efforts to build development However, siting offshore wind projects engagement meetings with members of momentum, including in at least one case in the Pacific Ocean presents unique coastal and fishing communities, Native entering into cooperation agreements challenges compared to siting projects American tribes, academics and scientists, with fishing industry and local municipality along the Atlantic seaboard. California NGOs, renewable energy developers and stakeholders. In addition, Redwood Coast local, state and federal agencies.

Northern California BOEM’S SUMMARY OF Diablo Canyon NOMINATIONS FOR THE Orick CALIFORNIA CALL Humboldt Morro Bay Humboldt

McKinleyville # Nomination Arcata 1 Algonquin Power Fund (America) Eureka 2 wpd Offshore Alpha, LLC

3 Avangrid Renewables, LLC Central California 4 Castle Wind, LLC

5 Cierco Corporation

6 EDF Renewables Development, Inc San Simeon Cambria 7 EDF Renewables North America, LLC Morro Bay

8 EC&R (eON) Development Morro Bay 9 Equinor Wind US, LLC Diablo Canyon Avila Beach 10 Mission Floating Wind, LLC

11 Northcoast Floating Wind, LLC

12 Northland Power America Inc.

13 Redwood Coast Energy Authority (RCEA)

14 US Mainstream Renewable Power, Inc.

Total 10 11 11 8 https://www.boem.gov/Nominations 8 Energy Authority, which controls the for California to set a goal of a minimum of amendments are expected to take place electricity supply for ratepayers in Humboldt 10 GW of offshore wind by 2040 to support in the years ahead as Japan undertakes an County, CA, selected a consortium of the state in reaching its goal of 100 percent expansive reformation of its energy policy. companies to enter into a public-private carbon free electricity by 2045. Developers and investors will need to be partnership to pursue development of an aware of potential amendments to these offshore wind project in the Humboldt Japan Market Update laws and regulations. Call Area. Japan has installed approximately 3,500 MW Since the offshore market in Japan has BOEM will hold auctions for leases after of wind power as of the end of 2018, most no established players, opportunities for preparing an environmental assessment of which consists of onshore wind. Offshore new investors are present in the sector, pursuant to NEPA, and consulting with wind projects account for only 20 MW of this especially considering that numerous non- stakeholders and federal, local and tribal total, and these projects are relatively small, Japanese companies have installed onshore agencies regarding possible environmental near-shore, and are operating now for the renewable energy projects recently under consequences of leasing and site purpose of research and testing conducted Japan’s FIT program. European and American assessment activities. In addition, the DOD by the government. Many developers and companies are recognizing this potential, uses portions of the central coast Call Areas industry investors, however, see great including opening offices in Japan to focus (Morro Bay and Diablo Canyon) for offshore potential in Japanese offshore wind. With on the offshore wind market in Japan and military training and operations. BOEM and the Act for Promoting Utilization of Sea other active markets, such as in Taiwan. DOD are collaborating to identify portions of the Call Areas compatible with offshore wind Areas in Development of Power Generation development and military activities. BOEM Facilities Using Maritime Renewable Energy expects to hold the offshore wind lease Resources (the “Offshore Wind Promotion auctions in 2020. Act”) that came into effect on April 1, 2019, the Japanese government is now strongly In the meantime, however, some industry promoting offshore wind projects. Some players are focused on activities closer to the industry experts forecast a potential for shore. Several companies have expressed 10,000 MW of offshore wind by 2030. interest in supplying offshore wind in state waters off the coast of Vandenberg Air Force Japan has been promoting renewable energy Base in Santa Barbara County, CA. Ideol, a under its feed-in tariff (FIT) since July 2012. French offshore wind developer, has recently The Offshore Wind Promotion Act adds applied with the California State Lands another significant element to this trend. Commission for a lease to do data collection The new law enables projects to exclusively to determine suitability of the area for a utilize a designated outer sea area for up future offshore wind project. to 30 years (term can be extended). Under Ultimately, one cannot doubt the viability the Offshore Wind Promotion Act, the of the potential offshore wind market on government will designate “promotion the Pacific coast. Despite the extensive areas” annually, and developers selected regulatory requirements and long timeline to through a public bidding process will obtain bring projects to fruition, the prospects for FIT approval and permission to use the California offshore wind are bolstered by the designated outer sea area to operate a wind state’s aggressive renewable energy targets, power project. The government announced track record as a leader in onshore renewable four sea areas as “prospective areas” on energy, significant energy load, and the high July 30, 2019, and is expected to accelerate level of interest from project developers, the process of designating promotion areas investors and stakeholders. Importantly, under the Offshore Wind Promotion Act. Offshore Wind California (OWC), a nonprofit coalition of industry partners formed in Since the Offshore Wind Promotion Act October 2019 with the mission of promoting introduces a completely new scheme to policies and public support for offshore wind Japan, uncertainty exists about the actual development in California through public implementation of the new law. Moreover, education and advocacy. OWC is advocating Japan has seen multiple amendments to the FIT system from time to time, and further

9 France Market Update advisable to continue the projects. This risk by the French Minister of Energy based on was avoided due to a renegotiation of FITs specifications drawn up with the Energy Offshore wind projects have been in the conducted by the French government (with Regulatory Commission (Commission de making in France since 2011 when the French the support of Orrick’s team). The new tariffs Régulation de l’Energie). This competitive government launched its first call for tenders. were validated by the European Commission bidding procedure may also be a competitive This call represented a maximum capacity of on July 26, 2019, and the deployment of dialogue governed by Articles R. 311-25-1 3,000 MW spread over five zones: Le Tréport, these projects will now be able to begin. and seq. of the Energy Code. Fécamp, Courseulles-sur-Mer, Saint-Brieuc Consequently, the Saint-Nazaire project has and Saint-Nazaire. A second call for tenders Winning a call for tender allows the operator just reached financial close on September was issued in March 2013. This call targeted to obtain an operating permit for the 2019 and construction will start soon. two sites (le Tréport and a zone between the offshore wind project. The development of the project also requires the completion of a contract for differences (CfD). It grants the 496 MW operator a “premium” based in part on the 62 mâts spot electricity prices, a reference electricity

498 MW tariff and the reference market price. The 83 mâts operator must also obtain a permit to Tréport occupy the project area and comply with 450 MW Fécamp interconnection timing requirements. 75 mâts Following the first calls for tenders, the Courseulles-sur-Mer Government also decided to reform the 500 MW 100 mâts regulations relating to the grid connection of electricity production facilities.

Saint-Brieuc Marine renewable energy installations have also been added to the “major risks” identified in Article L. 111-6 of the Insurance Code to promote their insurability. To 480 MW enable the operator to benefit from the 80 mâts latest technological developments and EDF Energies Noubelles/ Dong Energy Power / Alstom construction techniques, Law No. 2018-727 Saint-Nazaire Iberdrola / Eole-Res / Areva of August 10, 2018, for a State in the service

496 MW GDF Suez / EDP Renovaveis / of a trusted society created the “envelope 62 mâts Neonen Marine / Areva permit.” This permit allows the operator to

Attribué en Attribué en obtain an authorization for a project with avril 2012 mai 2014 variable characteristics. The operator may Iles d’Yeu et de Noirmoutier change a project within limits set in advance to benefit from the latest technological https://www.actu-environnement.com/ae/dossiers/eolien-mer/long-chemin-parcs-eoliens-offshore-francais.php developments, without modifying the authorizations granted. Finally, Decrees No. islands of Yeu and Noirmoutier) for a total 2016-9 of January 2016 and No. 2017-81 of January 2017 modified the litigation regime installed capacity of 1,000 MW. Regulatory Regime for legal actions against some authorizations The procedures for these tenders had The delays and difficulties in the deployment required for an offshore wind project to limit structural issues that led to various problems, of offshore wind farms resulting from the the duration of these actions. By speeding up including challenges in French administrative first two calls for tenders have led the those proceedings, the Government aims to courts. The disputes have led to significant French government to modify its regulatory clear the operator’s risks as swiftly as possible delays in the construction of these framework to simplify the development of to allow projects to be quickly implemented. offshore wind farms. For instance, the final future projects. The implementation of an authorizations for the Fecamp and Courseulles- offshore wind project in France still requires Outlook sur-Mer offshore wind projects were confirmed numerous authorizations, but many of them These regulatory evolutions led to a successful by France’s Council State (Conseil d’Etat) only have been adapted to solve the difficulties call for tenders launched on December 15, on July 24, 2019. The final authorizations for raised by the first calls for tenders. the Saint-Nazaire offshore wind project were 2016, (Dunkerque project) and an award on confirmed on June 7, 2019. An operator still needs to win a call for June 14, 2019, to a consortium consisting of tenders to develop an offshore wind EDF, Innogy and Enbridge for a capacity of In addition, the electricity purchase prices project in France. If the French Energy Code 600 MW at a rate of less than €50/MWh. This resulting from these calls for tenders were presents this procedure as an alternative project certainly will not be the last project very high compared with the downward trend procedure, the French administration has launched in France. The draft multiannual in the construction costs of offshore wind clearly stated that every project submitted energy programming (PPE) for the period farms. This pricing discrepancy led the French outside of a call for tenders will not be 2019-2028 provides for the launch in 2023 10 government to consider whether it was processed. The call for tenders is launched and 2024 of projects with capacities between 10 1,000 and 1,500 MW at a target price of €60/ project of four “nearshore” turbines at Blyth In recognition of the wider economic MWh and then the launch each year of a in 2000. In 2018, the UK accounted for benefits of the offshore wind industry in project (floating or fixed) of 500 MW per year over 50 percent of the European operating March 2019 the UK Government published starting in 2025. Thus, bottom fixed offshore offshore wind capacity, and this capacity will their offshore wind industrial sector policy wind energy projects should continue to contribute an estimated 10 percent of the UK (www.gov.uk/government/publications/ develop in France through future calls for generation mix in 2020. Currently, there are offshore-wind-sector-deal). This policy is tenders depending on the success of the wind some 37 operational offshore wind projects likely to be supported and developed by projects being built now and in the near future. in UK waters with a nameplate capacity of governments of all political persuasions for 8.4 GW. There is a further 5.1 GW of offshore the foreseeable future. A new call for tender for a major bottom-fixed wind fully permitted and in procurement. offshore wind project (1 GW) is expected to In accordance with the requirements of be launched in 2021 in Normandy off the However, there is still some way to go in European competition law and in common coast of Cherbourg. The public debate—the the development of UK offshore wind, with with other member states of the European first stage of the public assessment process an aim to quadruple offshore electricity Union, the UK has moved away from a of the project, focused on its opportunity— production capacity by 2030 and a target of system of FITs or tradeable green certificates started in the fall 2019. 30 GW of operating capacity by 2050. to support offshore wind. European law has required a competitive auction process for Floating wind turbines are expected to play In 2008, the then Labour-led British renewable energy support regimes, and a growing role in France’s offshore wind Government passed the Climate Change in the UK this has taken the form of a CfD sector in the coming years. Floating wind Act, which sought to impose on successive which is, in essence, a government-backed turbines can generate power in deep water, governments a legally binding obligation financial instrument providing a fixed level of where the sea winds are stronger and more to cut greenhouse gas emissions in the UK pricing for a generator’s power output. consistent. Installation of these turbines by 80 percent of the 1990 baseline for the has the benefit of not needing to construct year 2050. Encouraged by developments CfD auction prices for offshore wind have solid foundations or use the kind of special in technology in the intervening period, shown a dramatic reduction over the course construction vessels needed for fixed in 2019 with cross-party support the now of the three auction rounds held so far. offshore wind turbines. Floating wind power Conservative-led government amended Round 1 CfD prices for offshore wind were technology is still at the pilot stage, but the 80 percent target so that the UK now approximately £110/MWh, and these were the technically exploitable potential of the has a legally binding obligation to cut the substantially reduced to £57/MWh in Round floating wind power in Europe is estimated 1990 baseline by 100 percent by 2050. 2. On September 20, 2019, results of the at 600 GW. France is reported to have the Among much political fanfare, the UK is Round 3 auction were announced, which second largest resource behind England. now committed to becoming a “net zero” delivered a CfD price of £39/MWh. The Environment and Energy Management economy by 2050. Understandably, the British Government Agency has already launched several calls Clearly, any such target requires extensive has seized upon this record low power price for pilot projects. These projects benefit and detailed policy amendments and, not for offshore wind as a vindication of the from grants authorized by the European surprisingly, the current constitutional policies followed to date and justification for a Commission on February 25, 2019. and political crisis in the UK has impacted planned 300 percent increase in offshore wind The French Government showed its support the development of this policy. The construction. Elsewhere in the industry, some for the development of floating wind turbine British Government had intended to concern exists as to the viability of a £39/MWh technology by including floating offshore deliver a strategy and policy paper for the power price and the underlying economic wind turbines in the PPE for the period achievement of the net zero economy assumptions behind the successful bids. 2019-2028. A call for tenders is expected to at the end of August/early September What is clear is that offshore wind enjoys be launched in 2021 for a capacity of 250 2019. It was widely expected that offshore widespread political support in the UK and MW, located in Brittany. Another project wind would be a fundamental part of this is now significantly less expensive than in the Mediterranean is expected to be strategy. Being somewhat distracted, the many other forms of energy generation. launched in 2022 with a capacity of 250 MW. British Government has failed to deliver the The CfD for the nuclear power plant Depending on the evolution of the costs strategy and policy paper. under construction at Hinkley Point C was of this technology, a call for tenders for a To date, the development of the UK offshore priced at £89.5 when signed and, with capacity between 250 and 500 MW could wind industry has proved hugely popular indexation, is currently priced at £101.99. be launched in 2024 and then, potentially, at a local level in some of the UK’s most With construction expected to commence in tenders for one project per year from 2025 economically deprived areas, providing 2027/28, it is highly likely that UK consumers and onward for 500 MW. investment and employment in areas that will be paying 400 percent more for A new version of the draft PPE will be issued had been decimated because of the collapse electricity generated from nuclear power to by the French energy administration for in traditional industries such as fishing. In that from offshore wind. public consultation in early 2020. 2019, extensive press coverage was given As an island nation with rich wind resources to the economic renaissance of the former and a favorable political environment, there fishing port of Grimsby because of the UK Market Update seems every prospect that the UK will proliferation of large offshore wind projects continue to push ahead with its targeted 20 The UK offshore wind industry has been a on the Eastern seaboard of the UK. great success story, starting with the first GW increase in offshore wind generation.

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Sue Cowell John Deacon Shani Harmon Lisa Magged Mike Maruca Senior Counsel Partner Managing Associate Senior Associate Associate Energy & Infrastructure Energy & Infrastructure Energy & Infrastructure Energy & Infrastructure Energy & Infrastructure Washington, D.C. London Washington, D.C. San Francisco Washington, D.C. [email protected] [email protected] [email protected] [email protected] [email protected] +1 202 339 8691 +44 20 7862 4660 +1 202 339 8617 +1 415 773 5616 +1 202 339 8441

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OFFSHORE WIND ENERGY AT ORRICK Orrick is an innovator and global leader projects in Japan for over 20 years for the supply and installation of wind in renewable energy and has been for and are currently advising on numerous turbines, and advising on procurement more than 40 years, regularly advising onshore and offshore wind projects, contracts. Our experience includes on first-of-a-kind, industry-shaping including projects that are planning to advising the UK government in transactions. Our team has been utilize Japan’s recent Offshore Wind granting extensions for offshore working on offshore wind matters Promotion Act. We work with the wind farm sites for the UK’s second since 2007 and is actively advising on Japanese government, clients, embassies round offshore wind program, offshore wind transactions and project and an organization for cross-regional designing the UK’s Round 3 offshore development.in the U.S., Europe coordination of transmission operators wind program and advising the UK and Asia. regarding various new legislation government on the operation of the and interconnection issues in Japan United Nations Convention for Laws In the U.S. Orrick lawyers negotiated for offshore wind. We also represent of the Sea (UNCLOS). Additionally, we the first domestic PPA for offshore clients on project development, represented the French government wind power. Since that time, we permitting and regulatory requirements, on the development of the first six have advised on financings, tax credit and draft and negotiate various offshore wind farm projects launched qualification, joint ventures, M&A agreements, including interconnection in that country and in connection with transactions, OREC programs, permitting agreements, PPAs and offshore site seabed leases, PPAs and transmission and leasing, and investment strategies leases. agreements for offshore wind projects. for projects in the Atlantic and Pacific Oceans. In Europe, Orrick lawyers represent a range of investors and developers in Our Tokyo lawyers have been advising offshore wind projects, preparing and the developers and sponsors of wind negotiating multiple EPC contracts

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