Competitive tendering process for offshore wind power areas in Finland also in the exclusive economic zone (EEZ)

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The allocation of offshore wind power areas to project operators has so far been the responsibility of Metsähallitus, which manages the waters belonging to the Finnish State. In recent years, Metsähallitus has applied a market-based competitive tendering model for the allocation of offshore wind power areas. Recently, we have seen growing interest also in the outer sea, the so-called exclusive economic zone. In the future, a competitive tendering process will most probably be applied also in the exclusive economic zone, for which a separate act is being drafted.

The Finnish exclusive economic zone (EEZ) refers to the international waters outside the borders of Finland, which are allocated to Finland by the UN Convention on the Law of the Sea. This area is not in the ownership of anyone, but under the Convention, Finland holds the rights to it, which includes the right to grant permits to others to exploit the area.

Interest in offshore wind power and the EEZ has grown in recent years, and the current Act on the EEZ was considered by the legislator to be an inadequate instrument for allocating rights to offshore wind projects in that area. The new legislation aims to clarify the rules for offshore wind power, in line with the Programme of Prime Minister Petteri Orpo’s Government. The new legislation will significantly change the way in which rights to exploit the EEZ are allocated between interested parties.

In October 2024, the Government submitted to the Finnish Parliament a government proposal for a new Act on Offshore Wind Power in the EEZ (HE 147/2024, below the “EEZ Act on Offshore Wind Power”). The proposal is currently under consideration by the Parliament’s Commerce Committee and Environment Committee. The intention is for the new act to enter into force on 1 January 2025.

The new act is a significant change compared to the current Act on the EEZ

Finland currently has a general Act on the Finnish EEZ (1058/2004, the “EEZ Act”). The EEZ Act applies to all activities in the Finnish EEZ, such as research, construction and also economic exploitation of the area. As the area is not a part of Finland, it has been necessary to specify in the EEZ Act to what extent Finnish legislation applies in the area. In addition, the EEZ Act contains a separate authorisation and consent procedure for how the Government may grant rights in the EEZ.

Currently, the Government can, using its wide discretionary powers, grant rights to private operators on application, allowing the applicant to build structures in the EEZ for the purpose of economic activity. Such structures include offshore wind farms. The most relevant rights for offshore wind power are the principle-level right to exploit the EEZ for economic activities (the so-called exploitation permit) and the right to actually construct these structures (the so-called construction permit). In addition, the Act regulates a separate decision for research which aims at economic activities (the so-calles research permit). However, the current legislation does not contain rules on how the Government should act in the case of competing plans in one area or several overlapping areas, such as offshore wind projects by several different operators.

For example, under the current EEZ Act, the Government has granted rights to install subsea pipelines and cables, such as the Balticconnector gas pipeline between Finland and Estonia in 2017. In addition, several wind power operators have been granted rights to carry out research under the EEZ Act in recent years to investigate the possibility of building offshore wind power in the EEZ.

However, apart from pipelines and cables, no actual construction projects have so far been carried out in the EEZ, nor have any permits been issued for such projects. At the beginning of May 2024, the Government had 16 applications pending for authorisation of offshore wind projects in the EEZ. The Government then decided to reject all these applications so that offshore wind projects in the EEZ would be developed entirely in accordance with the new EEZ Act on Offshore Wind Power proposed in October 2024.

Offshore wind power areas in the EEZ will in the future be allocated through a competitive tendering process

The new EEZ Act on Offshore Wind Power would act as a special enactment for offshore wind projects and would apply in addition to the existing EEZ Act. The EEZ Act on Offshore Wind Power would create a new competitive tendering process run by the Energy Authority to decide which operator can be awarded the right to carry out an offshore wind project in a given EEZ area. The Government would select the areas to be put out to tender and decide when the competitive tenderings for each area would be carried out.

The competitive tendering process would follow the principles applicable to public procurement and would also be partly governed by the Public Procurement Act (the Act on Public Procurement and Concession Contracts, 1397/2016). The winner of the competitive tendering process would be entitled to apply for an exploitation permit under the EEZ Act, which the Government would in principle have to grant. Both an individual company and a consortium could participate in the competitive tendering. The outcome of the tendering would be a decision by the Energy Authority, which would be subject to appeal rights.

The participating actors in the competitive tendering process would submit their tenders on the compensation they are willing to pay for the exploitation of the area put out to tender (the so-called exploitation fee). The tender should also identify the so-called qualitative factors of the project and the applicant. The qualitative factors of the project would include environmental and other impacts and the solutions to be applied to make the energy system more flexible. On the other hand, the qualitative factors of the applicant would relate to the applicant’s experience and capacity to carry out the project (e.g. know-how and financial situation). Both price and quality factors would be scored.

Qualitative factors are only described in general terms in the proposed EEZ Act on Offshore Wind Power, but are intended to be regulated in more detail by a Government Decree, which is currently being prepared. In addition, the content of the tenders may be specified in more detail in the Decree as well. Consequently, many issues affecting the competitive tendering process will only be confirmed after the Act enters into force.

Competitive tendering aims to achieve market-based competition and completion of the projects

The objectives of the proposed EEZ Act on Offshore Wind Power include ensuring that the competitive tendering process achieves market-based competition, but also ensuring that the winning tenderer actually implements its project. In order to achieve these objectives, the legislation contains certain specific criteria for the procedure. These criteria concern, for example, who can participate and win the tender. The most central criteria are described in general terms below.

  • The requirements for participation in the competitive tendering process are as follows:

– To be eligible, applicants must have the necessary skills, experience and reliability, and sufficient financial capacity to advance the project.

– A company may not participate if it (or a company in its group) has already been granted at least three exploitation permits for offshore wind projects in the EEZ and these projects have not yet been put into operation.

– A company is not allowed to participate in the competitive tendering process if it (or a company in its group) has previously won a competitive tendering for largely the same area, but the applicant has not taken the area into use for offshore wind power.

  • If the Energy Authority were to invite tenders for more than one offshore wind power area at a time, in accordance with a decision by the Government, the Energy Authority would be allowed to accept only one tender for each participant. In other words, the same company could not win the tenders for more than one offshore wind power in the same tender process.
  • The Government may decide on the minimum level of the exploitation fee to be offered. The Energy Authority must suspend the competitive tendering process if the set minimum level is not met.

Participation in the competitive tendering process would be subject to a fee, and the amount of the fee would be set by a decree of the Ministry of Economic Affairs and Employment. All participants in the tendering process would have to provide a security for participation in the process and the winning tenderer would have to provide a advancement security to cover its obligations during project development. The participation security would be valid for the duration of the competitive tendering process, but the winning tenderer would be required to maintain the participation security until the advancement security has been lodged. The advancement security would be accumulated annually and released once the offshore wind farm has been put into operation in accordance with the exploitation permit. The amounts of the securities would be set out in a government decree.

The winning tenderer must apply for an exploitation permit issued by the Government

After the completion of the competitive tendering process, the Government would in principle grant an exploitation permit to the winning project and tenderer. The application for an exploitation permit would have to be submitted within four months after the decision on the invitation to tender has become legally binding, but could also be submitted conditionally before the decision on the outcome of the invitation to tender has become legally binding. The content of the application may be further specified in a government decree.

The exploitation permit granted for an offshore wind project would include rights to exploit the area as well as rights to carry out the project and the related research. The permit would not authorise the construction of a power transmission line, but if the project described in the tender included other technologies (e.g. hydrogen generation), the exploitation permit would authorise the implementation of such a combination. For power transmission lines, a separate consent of the Government would still be sought in accordance with the current EEZ Act.

In certain limited circumstances, the Government would have the right not to grant an exploitation permit to the tenderer having won the competitive tendering for an area. These situations relate to the applicant’s failure to comply with legal requirements and to the protection of national security.

The final exploitation permit would be subject to such conditions which are deemed necessary. These could relate, for example, to the timetable for the implementation of the project, qualitative factors, the exploitation fee and the accumulation of the advancement security.

Other legislation to comply with

The operator who has won the tendering process and been granted an exploitation permit will be entitled to build an offshore wind farm, but is still subject to other authority permits and decisions as well. The EEZ Act will be slightly amended in the context of the enactment of the EEZ Act on Offshore Wind Power as regards which legislation applies in the EEZ in general. After the amendments, offshore wind projects (including associated structures and cables) in the EEZ will be subject to the Waste Act, the EIA Act, the Electricity Market Act, the Chemical Safety Act and the provisions of the Aviation Act on aviation obstacles in line with what is applicable in the Finnish territorial waters and on the mainland.

The granting of an exploitation permit is, therefore, only the first step towards the realisation of an offshore wind project. The project operator must then proceed with the more detailed planning of the project and take care of its other permit obligations in order to complete the project within the timeframe required by the exploitation permit, not forgetting the construction of the electricity transmission line and other contracts and arrangements necessary for the implementation of the project. To the extent that the other measures required for the project extend further onshore, into Finnish territorial waters or on mainland, they are subject to all Finnish legislation, despite the fact that the offshore wind project itself is located in an EEZ area where the legislation is applicable only to a limited extent.

The final content of the EEZ Act on Offshore Wind Power will be confirmed after the parliamentary debate in committee. If the new Act enters into force on 1 January 2025, the first competitive tendering process for an offshore wind power in the EEZ could take place at the end of 2025 or early 2026.

Our experts are closely following the final stages of the legislative process and the preparation of the decrees and are pleased to discuss the issue in more detail.

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