DECOMMISSIONING OF OFFSHORE RENEWABLE ENERGY INSTALLATIONS Summary

DECOMMISSIONING OF OFFSHORE RENEWABLE ENERGY INSTALLATIONS Summary of Responses – and Government Response – to Consultation on Guidance relating to the Statutory Decommissioning Scheme for Offshore Renewable Energy Installations in the Energy Act 2004 URN 06/2087 DECOMMISSIONING OF OFFSHORE RENEWABLE ENERGY INSTALLATIONS Summary of responses - and Government response – to consultation on guidance relating to the statutory decommissioning scheme for offshore renewable energy installations in the Energy Act 2004 INTRODUCTION AND EXECUTIVE SUMMARY 1. This consultation sought comments from organisations and individuals with an interest in the development of guidance relating to the statutory decommissioning scheme for offshore renewable energy installations in the Energy Act 2004. The consultation ran between 9 June and 1 September 2006. 31 responses were received. Respondents represented a wide cross-section of different interests. Just over half of respondents were developers or trade associations representing developers. In addition, marine users, environment organisations, Government / statutory organisations, law firms, a transmission owner and a consultant responded. The full list of respondents is attached at Annex A. Two consultation seminars were also held, during the consultation period, which were attended by 14 external participants (as well as Government officials). Responses to the consultation were well considered and helpful, and we have used them to shape the guidance being published alongside this summary of consultation responses. In general, respondents were supportive of the proposals in the consultation paper. Significant concerns raised related to the examples of financial security which would normally be considered acceptable and the regime for residual liability following decommissioning. Scope – most agreed with the proposed scope of the scheme. Some suggested that all Round 1 wind farms, whether consented or unconsented, should be treated the same. Some had concerns about the application of the scheme to prototype wave and tidal installations. Decommissioning standards – the proposed decommissioning standards were generally supported. However, on four points there was a significant minority (mostly developers) who disagreed with the proposals. These four points were: the proposal that there should be a general presumption in favour of disused installations being removed and taken back to land for reuse, recycling, incineration with energy recovery or disposal; the suggestion that independent verification of sea-bed clearance should be required; the proposal that disposal of waste at sea should not be contemplated; and the proposals for post-decommissioning monitoring, maintenance and management of the site. Financial security – most agreed that the Government should seek some form of financial security from developers to reduce the risk of liabilities falling to the public purse in the event of default by developers. Most also agreed that it might be appropriate for the Government to accept some risk of potential default, and that the risk of default and abandonment during the first half of an installation’s life is sufficiently low that no financial security should be 2. 3. 4. 1 required during that period. Most agreed with the guiding principles proposed for providing a policy framework against which financial security decisions can be taken. However, the majority of respondents disagreed with the examples given for what would normally be considered acceptable and unacceptable forms of security. Flexibility to accept Parent Company Guarantees and late accrual decommissioning funds was sought. Process – the proposed process for submission and approval of decommissioning programmes was generally supported. Some alternative proposals were put forward. For example, it was suggested that, at the outset, a high-level plan might be submitted, with a detailed programme only developed later in the installation’s life. It was also suggested that the requirement for consultation on the initial decommissioning programme might be removed or delayed, so as not to risk delaying construction. Various alternatives were suggested for the proposed frequency of reviews. Content of decommissioning programmes – all consultees who expressed a view on this question supported the proposed model framework for decommissioning programmes. Residual liability – the majority of respondents disagreed with the proposed regime for residual liability. Developers raised the concern that there should be an endpoint to their residual liability. 5. The Government has considered carefully all the responses made and, whilst we do not believe there is a case for making substantial changes to the policy set out in the consultation paper, we have nonetheless used the responses to shape the content of the guidance being published alongside this summary of consultation responses. Respondents’ detailed views, and the Government’s detailed response to these views, is set out, on a question by question basis, in the following pages. Individual consultation responses, except those made in confidence, can be accessed on request by sending an e-mail to: offshore.windfarms@dti.gsi.gov.uk 6. 2 QUESTION BY QUESTION ANALYSIS SCOPE OF THE SCHEME Question 1 7. Do you agree that the scheme should be applied to all proposed new offshore wind, wave and tidal energy installations, including: any Round One wind farms which are still seeking consent under Section 36 of the Electricity Act 1989 or the Transport and Works Act 1992; all Round Two and subsequent wind farms; all wave and tidal energy installations which are not yet consented or operational? The majority of consultees agreed with this proposal. However, a substantial minority (most of which were developers) disagreed with the proposal, for different reasons. Several consultees proposed including all installations in the scheme (including Round 1 wind farms). Several consultees proposed that all Round 1 wind farms, whether consented or unconsented, should be treated the same. Most of these consultees thought that the scheme should not be applied to any of these Round 1 wind farms. It was suggested that the financial risk from developers defaulting on these projects was small. It was thought that placing more conditions on these sites, which were said to be marginal due to the restricted number of turbines, could be seen as stifling their development. Several consultees had concerns about the application of the scheme to prototype wave and tidal installations. It was suggested that these should be treated separately and/or that the implications should be carefully examined. It was thought that, otherwise, the scheme could place an intolerable burden on early stage technologies, particularly companies who have no ongoing generation revenues to put into decommissioning funds. It was commented that there is a lack of knowledge concerning the decommissioning process for new wave and tidal technologies and that therefore it would be inappropriate to produce fixed guidelines; rather, requirements should be considered on a case-by-case basis. One consultee suggested that decommissioning for small scale, short term demonstrator projects might be better dealt with under the existing consents procedure. 8. 9. 10. 11. Government response 12. We consider that the statutory decommissioning scheme offers a significant improvement on previous arrangements and intend to apply it widely. In the light of commitments made during the passage of the Energy Bill through Parliament, we intend to exclude installations which were consented under Section 36 of the Electricity Act 1989 or the Transport and Works Act 1992 prior to June 2006. In addition, we do not intend to apply the scheme to installations which were put into operation prior to June 2006 but which did not require an Electricity Act consent. However we intend to include all other installations. 3 13. We recognise that Round 1 wind farms are smaller developments, with a restricted number of turbines, which may limit the financial returns possible. However, we believe that we have kept the costs of the statutory decommissioning scheme to a reasonable level. In addition, Round 1 projects which are not yet operational (and which have not benefited from capital grants) may benefit from the Government’s proposals to modify the Renewables Obligation to provide greater support to emerging technologies, such as offshore wind energy. We recognise, as well, the need to avoid placing an intolerable burden upon early stage wave and tidal technologies. Whilst we intend to include prototype wave and tidal installations within the scheme, appropriate decommissioning solutions and financial security will be decided on a case-by-case basis, enabling the best solution to be chosen for each installation. 14. 4 DECOMMISSIONING STANDARDS Question 2 15. Do you agree that there should be a general presumption in favour of disused installations being removed and subsequently reused, recycled, incinerated with energy recovery or disposed of (at a licensed site) on land? The majority of consultees agreed with this proposal. However, a substantial minority (most of which were developers) disagreed with the proposal. Amongst developers, there was an even split between those who supported and those who disagreed with the proposal. In support of the proposal, it was commented that complete removal removes any risk to navigation and any future liability issues. Those that did not support the proposal generally cited one of two reasons. The first was that solutions should be considered on a case-by-case basis; flexibility was said to be key. The second was that the guidance should give greater focus to the possibilities for reusing facilities in-situ (including reusing infrastructure such as cables, foundations and moorings) and extending the life of structures (for example by repowering). It was commented that the rules for reuse and waste recycling / recovery / disposal should, ideally, be the same as those for other industrial and consumer wastes, including oil and gas installations. It was also suggested that the guidelines should not govern waste management options onshore, since there was said to be adequate legislation already in place to cover this aspect of the decommissioning operation. 16. 17. 18. 19. Government response 20. We consider that the general presumption in favour of removal gives a clear steer to developers. We will, however, maintain the flexibility to consider other solutions on a case-by-case basis. We agree that the guidance should highlight the possibilities for extending the life of installations and reusing facilities in beneficial ways. Waste management considerations are addressed in response to question 12 (paragraph 79). 21. Question 3 22. Do you agree that the overall approach should encompass the flexibility to choose different decommissioning solutions for different sites, taking account of the specific risks posed by each site? All consultees who expressed a view on this question supported the proposal. A typical comment made in support was that different sites and technologies would present different challenges requiring different decommissioning solutions. 23. 24. 5 25. An additional point made was that flexibility should also exist within a single project where either different foundation concepts were adopted within the project or different ground conditions necessitated different techniques. Government response 26. We agree that the flexibility to choose different decommissioning solutions for different pieces of infrastructure should also exist within a single project. Question 4 27. Do you agree that we should apply the same standards to installations in territorial waters as to installations in the exclusive economic zone (i.e. the UK Renewable Energy Zone)? All consultees who expressed a view on this question supported the proposal. In support, it was said to be important to have consistency across the industry. In addition, it was commented that, if a project straddled the zones, it would be sensible for requirements to be consistent for the whole site. A couple of comments suggested the possibility of different solutions for different areas. One consultee commented that there should be provision for exclusions in relation to deep water where the removal of all foundation may not be necessary. Another commented that, whilst all installations in territorial waters should be subject to UK national law and should be entirely removed, those in the EEZ are subject to international law which permits dumping of installations in certain circumstances. 28. 29. 30. Government response 31. We will, as proposed, apply the same standards to installations in territorial waters as to installations in the exclusive economic zone (i.e. the UK Renewable Energy Zone). Question 5 32. Do you agree that any decision to allow some or all of an installation or structure to remain on or in the sea-bed should be based on a case-by-case evaluation of a range of matters, including, where appropriate: potential effect on the safety of surface or subsurface navigation; potential impact on other uses of the sea; potential effect on the marine environment, including living resources; costs of removal; technical feasibility of removal; and risks of injury to personnel associated with removal? The vast majority of respondents agreed with this proposal. However, two respondents, whilst agreeing with most of the proposal, had concerns about including “costs of removal” amongst the criteria to be considered when deciding whether to allow some or all of an installation to remain on or in the 33. 34. 6 sea-bed. One respondent considered that costs of removal should not be a factor in the decision in circumstances where the costs should reasonably have been anticipated at the application stage. That respondent accepted that situations may arise where, for unforeseen reasons, or due to new regulatory requirements, costs of removal may escalate beyond those originally anticipated, and that under such circumstances it may be appropriate to take account of the additional costs. A second respondent considered that projects which are too costly to decommission should probably not be consented in the first place. That respondent suggested that cost issues should be considered within the framework of Best Practicable Environmental Option, and not as a consideration in their own right. 35. Other comments made included:       “potential for in situ reuse” should be added to the list of matters to be evaluated; consideration of the “effect on the marine environment” should include archaeological material that may have been discovered prior to construction, during operation or at decommissioning; decommissioning should be factored into the design phases of devices and demonstrate the technical feasibility of removal and minimum risk to personnel associated with removal; installations in the territorial sea should be entirely removed and no exceptions should be made; the industry should follow other industries’ (oil and gas, telecommunications) practice of leaving in situ items which are not intrusive, for example cables and piles beneath the sea-bed; decisions should be made at an early stage to provide clarity to developers. Government response 36. We intend to include “costs of removal” amongst the criteria to be considered when deciding whether some or all of an installation may be allowed to remain on or in the sea-bed. The criteria are drawn from the International Maritime Organization (IMO) standards. Costs might be a legitimate factor in a decision not to remove, say, the whole of foundations buried deep in the sea-bed. We have, however, decided to remove “technical feasibility of removal” from the criteria to be considered, taking account of the IMO standards1 which specify that: “[o]n or after 1 January 1998, no installation or structure should be placed on any continental shelf or in any exclusive economic zone unless the design and construction of the installation or structure is such that entire removal upon abandonment or permanent disuse would be feasible.” Question 6 37. Do you agree with the specific examples suggested for objects which might be allowed to remain on or in the sea-bed or be only partially removed (depending on the outcome of a case-by-case evaluation)? Guidelines and Standards for the Removal of Offshore Installations and Structures on the Continental Shelf and in the Exclusive Economic Zone, IMO, 19 October 1989, http://www.imo.org/Newsroom/contents.asp?doc_id=628&topic_id=227 1 7 38. 39. The vast majority of respondents agreed with this proposal. In support, it was commented that removing the sub-seabed component of foundations or buried cables is often likely to cause more damage to the marine environment than leaving in place. In addition, it was said to be difficult and expensive to remove piles below the sea-bed level for tidal stream plants on rocky sites. Two respondents disagreed with the proposal. In one case, the concern was that, if examples were included in the guidance, they would be likely to become blanket exemptions (whereas a case-by-case analysis would find them to be acceptable in some cases but not in others). In the other case, the concern was that the offshore renewable industry should be guided by OSPAR Decision 98/3 on the disposal of disused offshore installations. Other comments made included:  objects allowed to remain should not be restricted to the specific examples given. It was suggested that other examples may include: conduits in the inter-tidal zone within which export cables may be located; sea-bed preparation material (e.g. for gravity foundations); any material discharged during the construction process which was agreed to be left in situ (e.g. small volumes of spilled grout); material effecting crossings of subsea cables and pipelines (e.g. mattresses, scour protection material); navigational marking may continue to be required if a danger to navigation continues to exist; if an object is allowed to remain on the sea-bed for a purpose other than renewable energy generation, an equivalent decommissioning obligation should be transferred to the new organisation responsible for the object; consistency with treatment of other offshore facilities, such as pipelines and communications cables, is necessary; alteration to hydrographic processes will result from the deployment of the entire renewable device. Removing parts of the device may change the local hydrographic conditions sufficiently to no longer support the colonisation of remnant foundation structures / scour protection or ensure the continued burial of interconnector cables. 40. 41.     Government response 42. We intend to include these examples within our guidance, whilst making clear that decisions will always be made on a case-by-case basis. Whilst the guidance draws upon the regime for decommissioning offshore oil and gas installations, we note that, for offshore renewable energy installations, there is no equivalent decision to OSPAR Decision 98/3 (which applies to offshore oil and gas installations). The examples are not intended to be exhaustive, and businesses may make a case for other objects (for example, those mentioned by consultation respondents) to be allowed to remain in situ. We agree that the guidance should address the possible need for navigational marking where installations are not completely removed. 43. 44. 8 45. Where structures are to be reused, the guidance will specify that the decommissioning programme should nonetheless set out the eventual decommissioning measures envisaged when the installation or structure finally becomes ‘disused’. Whilst we intend to learn from practice in other offshore sectors, our objective will be to choose the optimum decommissioning solution, on a case-by-case basis, for offshore renewable energy installations (and this will not necessarily be exactly the same as solutions chosen in other offshore sectors). The guidance will specify the need to take account of the likely effect on remaining elements of removing other parts of the installation. 46. 47. Question 7 48. Do you think that appropriate surveys should be required, upon completion of decommissioning, to enable identification and subsequent recovery of any debris located on the sea-bed (for example, debris which might have arisen during operation or maintenance of the installation or from the decommissioning operation itself)? The vast majority of respondents agreed with this proposal. In support, it was commented that every effort should be required from operators to ensure that they have left nothing behind that could endanger other users of the sea. The respondent who disagreed commented that introducing a specific requirement for a separate survey is not necessary, given that decommissioning will probably require ROVs with cameras which will enable residual debris to be identified in any case. Another respondent commented that operators will usually be required to operate a dropped object procedure, making a final survey an unnecessary additional cost. Other comments made included:        the requirement should only relate to debris clearly resulting from the owner’s activity and where there is a benefit in its removal; surveys should be proportionate in scope and cost to the scale of the installation and / or its potential impact; surveys should be limited to those appropriate to the nature of the activities that have taken place during the lifetime of the installation; it may be prohibitively expensive for every wind turbine in an array and a representative sample should be sufficient; surveys should only be required if they provide indemnification against claims that may arise from subsequent sea-bed debris incidents; the survey should distinguish archaeological material that should be left undisturbed and in situ; the survey should be to a distance of at least 500m; 49. 50. 51. 52. 9  there should be clarity over what is meant by debris (for example, it would seem unrealistic to require recovery of a dropped monkey wrench). Government response 53. It will be important for the developer / owner to confirm that, following decommissioning, the site has been cleared, and to provide evidence that this has been achieved. The guidance will provide an explanation of what this will typically involve. However, drawing on the ideas suggested by consultation respondents, we agree that the precise requirements are likely to depend on the circumstances of the case, taking account of factors such as the nature of the installation, the complexity and scale of the decommissioning operation, and the potential risks that may be posed by any debris left behind. Question 8 54. 55. Do you think that independent verification of sea-bed clearance should be required? Respondents were split fairly evenly over whether independent verification of seabed clearance should be required. In general, most developers considered independent verification to be unnecessary, whereas most respondents in other categories supported this step. The main argument against was that it was an unnecessary expense (assuming that appropriate surveys had been undertaken – see question 7). Various alternatives were proposed instead, including:    57. verification of survey records from the owners’ surveys; provision of a detailed report and associated charts; submission of decommissioning videos for each site as evidence. 56. Should independent verification be required, proposals for achieving this included:    presence of an impartial official or agreed contractor during the owners’ surveys; verification on a sampling basis, where developers had undertaken and provided evidence of decommissioning surveys carried out; verification through a standing contract with a contractor commissioned or approved by DTI, so as to ensure a common standard for verification. Government response 58. We will generally expect to see an element of independent, third party involvement in providing evidence that the site has been cleared. This reflects the risks, in particular to safe navigation, that may be posed if the site has not been cleared in accordance with the approved decommissioning programme. We consider that independent verification will provide confidence, for Government and other interested parties, that the sea-bed has been cleared effectively. We agree, however, that there are various alternatives for achieving this, and the guidance will therefore provide flexibility about the forms of evidence which may be presented. 10 Question 9 59. Do you agree that the method of removal should have regard to Best Practicable Environmental Option (BPEO), safety of surface and subsurface navigation, other uses of the sea, and health and safety considerations? The vast majority of respondents agreed with this proposal. The respondent who disagreed thought that BPEO should not be used in isolation, but that the method of removal (if any) should have regard to ALARP (As Low As Reasonably Practicable) in addition to BPEO. Another respondent similarly commented that BPEO should be used in conjunction with ALARP, risk and cost benefit analysis. Other comments made included:    BPEO should be applied stringently, with the emphasis on environment, not cost; non-substantial environmental issues should not be allowed to get in the way of adopting the best technical solution; navigational marking during the removal process should be addressed. 60. 61. 62. Government response 63. We consider that requiring regard to ALARP (As Low As Reasonably Practicable) in addition to BPEO (Best Practicable Environmental Option) would not, in practice, be likely to make a significant difference to the choice of method of removal. Whilst the terms are not exactly equivalent, they both involve balancing the reduction in environmental risk with the practicability and cost of reducing that risk. BPEO is the option which provides the most benefit or least damage to the environment as a whole, at an acceptable cost, in both the long and short term. ALARP implies that any further reduction in the risk can be achieved only at grossly disproportionate cost and that the benefits afforded by the risk are judged to outweigh the costs2. We think it would make the guidance overly complicated to require regard to ALARP as well as BPEO. We agree that the guidance should reflect the need for appropriate navigational marking to be used during the removal process. 64. Question 10 65. 66. 2 Do you agree that the choice of BPEO should be informed by an Environmental Impact Assessment? Most respondents, including most developers, agreed with this proposal. Guidelines for Environmental Risk Assessment and Management, Defra, September 2002, http://www.defra.gov.uk/environment/risk/eramguide/08.htm 11 67. There was some concern about the cost and timescale implications for operators for another formal EIA process. It was suggested that the initial EIA, done prior to construction, should be adequate for decommissioning (taking into account that the environmental impact of decommissioning should be included in this EIA and is expected to be less than the impact of construction), subject to a final review shortly before the decommissioning works commence. An alternative suggestion was that an environmental screening, as opposed to a full EIA, should be undertaken. Other comments made included:        the scope of the EIA should be tightly defined; the EIA should be appropriate and proportionate to the issues under consideration; existing information should be used wherever possible, and excessive demands for environmental assessment should be avoided; the EIA should initially be kept as short and simple as possible, but become more detailed when actual decommissioning is imminent; the process should include a review stage, prior to consent, so that the developer and Government can reach agreement that the initial EIA for the project is sufficient for the purposes of addressing decommissioning; the EIA should include consideration of alternatives so as to demonstrate that the preferred option is the BPEO; OREIs are simpler than oil and gas installations and will comprise few, if any, residual hazardous products. 68. Government response 69. We understand the concerns about the possible cost and timescale implications for operators of another formal EIA process. We agree that the EIA should be proportionate, taking account of the scale of the decommissioning operation and the potential risks to the environment that it may pose. We consider that the EIA included in the original decommissioning programme (prepared prior to construction or operation) should not require significant additional effort, given that it may use the analysis already undertaken for the wider EIA done prior to consent of the installation. We agree that it makes sense to review the decommissioning EIA (and, if necessary, undertake a more detailed assessment) towards the end of the life of the installation, when a final review of the decommissioning programme is undertaken to finalise the decommissioning measures proposed. Question 11 70. 71. Do you agree that disposal of waste at sea should not be contemplated? The majority of consultees agreed with this proposal. However, a substantial minority (almost all of which were developers) disagreed with the proposal. Amongst developers, there was a fairly even split between those who supported and those who disagreed with the proposal. 12 72. Those who disagreed typically commented along the lines that disposal of waste at sea may be the most environmentally friendly and economic option, and each case should be assessed individually. Even if disposal at sea is not considered acceptable now, it may be considered a better option by the time decommissioning comes to take place. Other comments made included:  where a decision has been made to leave items in place following decommissioning, this should not be considered to constitute disposal of waste at sea;  whilst disposal of waste at sea would not be acceptable, the reuse of inert materials in construction projects would be acceptable;  there may be a requirement for, say, local cleaning off of marine growth or removal of small fastenings or flame cutting brackets, and there does not seem to be a case for having to recover this sort of debris. 73. Government response 74. We would not expect disposal of waste at sea to be acceptable to Government, in the light of Ministerial statements made in relation to the OSPAR Convention for the Protection of the Marine Environment of the North-East Atlantic3. We agree, though, that it makes sense for the guidance to clarify that this does not preclude leaving elements of an installation in situ and reuse of material at sea (both of which may be considered). Question 12 75. 76. 77. Do you agree that the choice of waste management option should be based on an assessment of the Best Practicable Environmental Option (BPEO)? The vast majority of respondents agreed with this proposal. Where there was disagreement, the point was made that, whilst developers may adopt a BPEO approach to waste management, the waste management strategy adopted should not be covered by these decommissioning guidelines, since it is already covered by existing legislation governing waste management on land. (This point was also made by a respondent who agreed with the question.) Other comments made included:     BPEO should be applied stringently, with the emphasis on environment, not cost; BPEO should not be used in isolation; any waste management option should have regard to ALARP (As Low As Reasonably Practicable), risk and cost benefit analysis, in addition to BPEO; due to the time between commissioning and decommissioning, it may be better to provide flexibility for the environmental best option to change; any disposal solution at sea should take account of present and future navigational safety issues. 78. 3 OSPAR Sintra Statement, 23 July 1998, http://www.ospar.org/eng/html/md/sintra.htm 13 Government response 79. We agree that the waste management strategy adopted is already well covered by existing legislation governing waste management on land. The guidance will therefore specify that the key requirement is for waste management to be carried out in accordance with all relevant legislation at the time. The guidance will also specify that developers / owners should have regard to the waste hierarchy, but it will not require assessment of the BPEO. Question 13 80. 81. 82. 83. Do you agree with the actions proposed for notification and marking of any remains? All consultees who expressed a view on this question supported the proposal. It was commented in support that the actions proposed were reasonable to ensure safe navigation. Other comments made included:    the final decision as to what aids to navigation are required must rest with the consenting authorities advised by the appropriate General Lighthouse Authority; aids to navigation may not only be required for installations which project above the surface of the sea, but also to mark remains which protrude above the sea-bed and are considered to be a danger to navigation; the developer could deal with one Government agency, passing all relevant information to that agency who would then comply with the IMO requirements and issue notices to mariners, appropriate hydrographers services and the IMO; operators should also be required to advise any change of status in offshore renewable energy projects to the Kingfisher Information Service at the Sea Fish Industry Authority, Hull, which enables relevant information to be provided to the fishing industry; consideration should be given to the infinite timescale and, subject to survey or other appropriate method, the ability to reduce the requirement to a simple chart marking should be an option; the proposed notice period for informing the United Kingdom Hydrographic Office of the change in status of decommissioned installations looks long; it should be in line with the notice period at the beginning of construction.    Government response 84. We will reflect the role of the appropriate General Lighthouse Authority in the guidance. 14 85. 86. We agree that aids to navigation may be required to mark remains which protrude above the sea-bed and are considered to be a danger to navigation. We agree that operators should also advise the Kingfisher Information Service at the Sea Fish Industry Authority of the change in status of decommissioned installations, to enable information to be provided to the fishing industry. In consultation with the United Kingdom Hydrographic Office, we have reduced the notice period required for informing them of the change in status of decommissioned installations to ‘at least 6 weeks’. 87. Question 14 88. Do you agree with the proposals for post-decommissioning monitoring, maintenance and management of the site (where an installation is not removed completely)? (Please indicate any views you have on the scale, frequency and duration of post-decommissioning monitoring which might be appropriate.) The majority of consultees agreed with this proposal. However, a significant minority (almost all of which were developers) disagreed with the proposal. Amongst developers, there was a fairly even split between those who supported and those who disagreed with the proposal. In support, it was commented that monitoring will be needed because of the potential hazard to navigation. Where there was disagreement with the proposal, different points were made. One comment was that developers should be released from their obligations once postdecommissioning surveys were complete and the lease period ended. Another was that monitoring should not be considered to be a compulsory activity, and that owners may be able to provide a case for not monitoring post-decommissioning effects. Amongst developers, there was concern that excessive demands for postdecommissioning monitoring should be avoided, and that monitoring should be finite and reach an end point. It was said that, if the future timescale of monitoring is too onerous, this will impact on the financability of projects due to increased risk and long-term cost. There were varying views on the frequency and duration of monitoring which might be appropriate, ranging from none (where all infrastructure is confirmed to have been removed), to a single event after a defined period (say three years), to annually and then possibly less frequently depending on the results of findings. Many respondents commented that the appropriate frequency and duration of post-decommissioning monitoring will vary substantially with a range of factors and should be determined on a case-by-case basis. The nature of the installation, the scope of what remains on the sea-bed, its residual impacts, the likelihood of remaining structures becoming uncovered and proximity to maritime activity were all mentioned as factors to be considered. For example, it was said that a one year after check may suffice for some small installations whilst 1/2/3/5/10/15 year 89. 90. 91. 92. 93. 94. 15 surveys may be required for others. It was said that monitoring can be terminated once the site is stable. 95. Other comments made included:          where possible, decommissioning should be carried out in such a way that future monitoring is minimised, particularly in relation to subsea cables; surveys should be with the sole objective of safety for other users of the sea; advice on resurvey schedules should be taken from the United Kingdom Hydrographic Office; surveys carried out during the life of the project and shortly after decommissioning would be likely to alter the monitoring programme originally proposed; what will happen if surveys are needed after the expiration of the developers’ lease with The Crown Estate? an alternative proposal would be to transfer monitoring to a central service for a set fee at, say, year 5; if the developer is requested to leave any part of the installation in situ (for example, if the installation is left in place to enhance biodiversity or protect endangered species), the developer should be freed of liability; aids to navigation will be needed until the remains are no longer considered to be a danger to navigation; the cost of marking remains should not be passed on to shipping through Light Dues. Government response 96. 97. We understand the concerns that excessive demands for post-decommissioning monitoring should be avoided. Whilst post-decommissioning monitoring will generally be expected when an installation has not been removed entirely, we agree that the appropriate monitoring regime (frequency, duration and so on) should be determined on a case-by-case basis. We agree that monitoring should be finite and reach an end point, and that the monitoring regime originally proposed may be adapted in the light of relevant survey data. We would be happy to consider proposals from developers for monitoring to be conducted by a central / collective service. We agree that, where a developer /owner has proposed to remove an object entirely, but the decision has been taken by Government that it should be left in situ (for example, for environmental reasons), then the developer / owner should not be responsible for post-decommissioning monitoring, maintenance and management of this object. 98. 99. 16 FINANCIAL SECURITY Question 15 100. Do you agree that the Government should seek some form of financial security from developers to reduce the risk of liabilities falling to the public purse in the event of default by developers? The majority of respondents agreed with this proposal. In support, consultees agreed this was consistent with the “polluter pays” principle. It would be prudent and best practice to require financial security to encourage proper financial planning by developers for the full life cycle of their installations, and to address the risk to the taxpayer in the event of default. A number of those who supported the proposal thought it should not apply to precommercial demonstrators or prototypes. A couple of respondents agreed subject to no duplication with The Crown Estate lease arrangements. A frequent concern from both those who agreed and disagreed was the need for balance given the potential impact on project viability of any financial security required ahead of end-of-life decommissioning costs, particularly given the current economics of offshore renewables. A recurring theme from both those who agreed and disagreed was that to make offshore renewables viable, increased costs relating to financial security would effectively have to be met by support mechanisms, such as banding of Renewable Obligation Certificates (ROCs). One larger developer thought the level of financial security should be proportionate to the actual rather than perceived risk of liabilities to which the public purse is exposed. Substantial market participants acting in consortia, for example, tended to be self-regulating. Financial security should only come into force if a company’s financial position or project ownership changed to a higher risk in respect of ability to pay decommissioning provisions. A couple of respondents who disagreed with the proposal thought a consent condition requiring decommissioning would be sufficient; one indicated this would be consistent with onshore wind farm planning conditions. A couple of respondents stressed developer liabilities should not be in perpetuity (a view shared by a number of respondents in relation to different questions). Other comments included:    consistency with other industries (e.g. oil and gas, sub sea cable owners, onshore energy industries and possibly proposed new nuclear plants ). developer should not have to lodge security with HMG then pay the decommissioning costs with security returned on completion because this would mean effectively paying twice. accounting legislation requirements for decommissioning provisions coupled with responsibilities under The Crown Estate agreements should be sufficient for companies of appropriate financial standing. 101. 102. 103. 104. 105. 106. 107. 108. 17     incentives should be provided to ensure sites are regenerated as technology improves. further support necessitated by financial security for Round 2 projects would decrease the support available to other technologies; the financial implications of the decommissioning scheme should be considered when DTI consults on the option of introducing banding. liability for ongoing costs of aids to navigation should rest with wind farm operators. Costs relating to any default should not fall to the shipping industry. no need to provide financial security for offshore transmission assets since decommissioning obligations would be funded via Ofgem as part of the price control mechanism. Government response 109. We intend to require some form of financial security from developers to reduce the risk of liabilities falling to the public purse in the event of default by developers. We do not think it would be appropriate to exempt pre-commercial marine devices, but intend to consider such devices on a case by case basis, including the financial security requirement (if any). Our intention is that there should be no duplication with The Crown Estate. We recognise that increased costs relating to financial security will need to be taken into account in the banding of the Renewables Obligation – full lifetime costs and revenues will be considered in determining financial support. We do not agree that financial security should only come into force if a company’s financial position changes to a certain level of risk. Decommissioning programmes will be approved well in advance of actual decommissioning and a company’s financial position and credit rating can change over time, and sometimes quickly. In the event of a sudden change, or a change near the end of life of an installation, it might prove difficult to obtain appropriate financial security. Such an approach would also require a greater degree of Government monitoring and review than that proposed. We do not believe that a consent condition per se would eliminate the need for financial security – it would provide no protection against default in the event of insolvency, for example. Our understanding is that planning authorities often require a fund to be set up to cover the cost of decommissioning of onshore wind farms. For offshore transmission assets which, in the future, come under the ownership of a Transmission Owner, Ofgem and DTI will give consideration to how the costs of decommissioning will be met. One option might be through the price control mechanism. A decision on this will be taken at the appropriate time once the regulatory regime for offshore transmission has been developed. It is our intention that Transmission Owners responsible for transmission assets should be covered by this decommissioning scheme for offshore renewable energy installations, and the guidance on decommissioning standards, financial security and other aspects of the scheme will apply equally to them. 110. 111. 112. 18 Question 16 113. Are you able to provide any information on what provision developers currently make to ensure that sufficient funds will be available to meet their decommissioning liabilities? Several respondents were able to provide information. Provision currently made by developers included straight line incremental build up of funds late in the installation’s life, for example from year 18 onwards or 5 years before the expected decommissioning date. One respondent referred to a “rolling bond” for the life of the project, renegotiated every 5 years or so with a financial organisation. Another developer noted some local planning authorities have required bonds as security for onshore wind farms. The value of the bond is reviewed periodically. Several respondents noted the cost of decommissioning would be included in the early economic assessment, investment appraisal or life-cycle cost modelling of the project and the cost would be a potential liability for the operational project. A couple of developers noted the accounting provisions made to cover decommissioning costs. One estimated the liability as a percentage (7-10%) of build cost, with provision increasing annually; the final decommissioning costs to be met from retained earnings. Round 1 developers had to provide The Crown Estate with a guarantee, mostly provided through their parent company. Information provided on prototypes indicated they would have an outline costed decommissioning programme and project budgets would include decommissioning. Where prototypes were 50% or so funded by DTI, developers would actually be paying half the decommissioning costs. 114. 115. 116. 117. 118. 119. Government response 120. We welcome the information provided which demonstrates a variety of solutions for meeting decommissioning liabilities. Our intention is to provide flexibility in our financial security requirements, as far as practicable, consistent with reducing HMG exposure to liabilities to an acceptable level. Question 17 121. 122. 123. Do you agree that it might be appropriate for the Government to accept some risk of potential default on decommissioning liabilities? The vast majority of respondents agreed with this proposal. In support, respondents noted the contribution offshore wind will make, and the potential benefits offered by wave and tidal energy, to the Government’s energy policy, security of energy supply and reduction in greenhouse gases. One 19 described projects as contributing to the public good. Another noted the government took similar responsibilities in many areas such as nuclear power. 124. A couple of developers commented that government support was critical to the success of offshore wind which is currently not economically viable - financial security requirements would be too onerous if they were to cover all conceivable outcomes. A correctly structured decommissioning provision which assessed the risk of each project owner, only placing a financial burden on those deemed to be of a certain risk position (or when they entered such a risk bracket), could be of great assistance to the industry whilst placing an acceptable and minimal risk on government. Another suggested the government would either need to take the risk of potential default, or through support mechanisms pay the cost of security to manage the risk, or a combination of the two. A common theme was that, given the capital intensive nature of developments, a balance should be struck between the likelihood of default and the burden on the industry. As previously, a key concern was that financial security should not be at such a level as to be material to the financial viability of the project. One respondent suggested this implied it should not cover the total cost of decommissioning. Several respondents thought the government should be prepared to accept some risk particularly for prototypes where the liability was relatively small. One respondent noted the likelihood of all developers defaulting was small; if it did happen it would be symptomatic of a much bigger underlying problem with the industry. It was within HMG’s control to ensure a long term sustainable market for electricity from offshore renewable energy installations so management of the default risk was therefore largely within its control. Those who disagreed thought there should be no presumption in favour of government accepting some risk. Other comments included:    application of the “polluter pays” principle suggests that developers and their successors should remain responsible for adverse impacts on the marine environment. developers’ liability should not be in perpetuity. the need for HMG to accept some risk of potential default if there was no viable financial entity to carry out or fund the decommissioning or if wholly unforeseen circumstances prevented an operator from fulfilling their legal obligations. if correct support was given via the Renewables Obligation it was difficult to see how a project would get into financial difficulty. the relevant legal measures should be enacted to ensure all liabilities are addressed. 125. 126. 127. 128.   Government response 129. The Government recognises that a balance needs to be struck between its objectives to encourage the development of the offshore renewable industry and its wish to protect the taxpayer in the event of default by an operator. The Government 20 is prepared to take some risk of potential default by developers, provided the risk is kept at an acceptable level, with developers clear that decommissioning - in accordance with the “polluter pays” principle - is their responsibility. As explained in response to Question 15, the Government accepts that decommissioning costs, including those relating to financial security, will need to be taken into account in the context of support mechanisms. We do not believe it would be appropriate to assess individual company risk before seeking financial security (Question 15 response refers). The Government recognises that differences exist between commercial wind farms and pre-commercial or demonstrator marine devices. The level of risk and thus the amount and type of financial security that the Government will be prepared to accept for the latter will be assessed on a case by case basis. Question 18 130. Do you agree that the risk of default and abandonment of an offshore wind installation during construction and the first half of its life (assuming a 20 year life) is sufficiently low that no financial security should be required during that period? The majority of respondents agreed with this proposal. In support it was noted that the risk of default and abandonment of offshore wind installations was lower during construction and the first half of life. One respondent indicated that, given the large scale of investment required for substantial offshore wind projects, the prospect of abandonment before payback had been achieved was not credible. In the case of a project failing financially due to poor returns there would still be value in the operating asset and it would be refinanced. The only other possible scenario involved catastrophic technical failure, and given the large experience of wind onshore and growing experience of it offshore, such a scenario was considered highly improbable. Once the plant was operating, the risk of catastrophic technical risk should be small. Several respondents noted that provision of financial security during the first half of a project’s life would be more likely to be material to the financial viability of a project. Developers frequently commented that it would be unreasonable for them to have to make financial provision until after pay back or financing requirements had passed which some indicated was normally during years 10-15; others suggested years 15-18. The value that owners placed on the renewable energy produced provided strong pressure that facilities would not be abandoned but repowered. Expected asset life was also highlighted by a couple of developers as 25 not 20 years. One respondent noted that the risks of abandonment of emerging marine renewable technologies were much higher than for wind and equivalent requirements should apply to all marine technologies. Another respondent suggested for commercial marine technologies to be economic they would need to be operational for a long period. It would therefore be a fair assumption that they would have relatively low risk of default during construction and the first half of life. Those who disagreed noted the risk of abandonment during early life would be influenced by such factors as equipment reliability and how mature the technology was (some larger Round 2 projects were envisaging the use of relatively untested 131. 132. 133. 134. 135. 21 5MW turbines). The viability of financial security mechanisms was therefore likely to vary between projects and generalisations may not be useful. One respondent thought the proposal underestimated the actual risk with the history of wind farm installations in recent years one of escalating costs (e.g. for steel) and contractual difficulties due to unforeseen construction difficulties suggesting a significant risk of a development failing during its construction phase due to cost overruns. A worst case scenario might be envisaged where the cost of maintenance of the wind farm was sufficiently high that its profitability was only marginal and then a major failure (for example, in a tower structure) occurred and the operator decided to walk away and no other operator stepped in. 136. Another respondent highlighted insolvency as the greatest risk, especially for startup companies, new entrants and subsidiaries of larger groups. Foreign entrants with no fixed assets within the jurisdiction of the English Courts could be a problem in such an event. Other comments included:  installation costs are substantial enough for very high levels of due diligence to ensure engineering risks are understood and planned for. When constructed, the operational costs are very low in comparison to the installation costs and revenue streams. risk should be evaluated at time of consent; it is also susceptible to political decision making e.g. if government decides to abandon renewables in favour of nuclear power, it is more likely that offshore installations might be abandoned. under the worst case scenario of an operator walking away, the wind farm would continue to need marking as a danger to navigation and the question of how this would be achieved and funded might arise. 137.   Government response 138. The Government recognises that there are risks of default and abandonment during the first half of an installation’s life but, bearing in mind our objective to encourage the development of the industry, we conclude that these are sufficiently low that no financial security should normally be required during this period. We recognise that the cost of financial security from the beginning of a project’s life could be high and do not believe that the risks justify the cost given our wider policy objectives. If a developer gets into financial difficulty in the early years, or becomes insolvent, it is likely, given the level of investment already made, that the installation would not be abandoned but taken over by another developer. The history of offshore wind development has shown that technical problems do occur but it is a reasonable expectation that faults would be resolved either under warranty by the manufacturer or by the developer. Site problems would be likely to cause the relocation of some turbines rather than the abandonment of a project. Our presumption for commercial projects is therefore that, normally, no security will be required during the first half of an installation’s life. The Secretary of State is required to review the decommissioning programme, including any financial security conditions attached to it, and can require additional or earlier security if circumstances suggest that there may be an unacceptable risk of default. As indicated previously, a case by case approach will be adopted for pre-commercial 139. 22 marine technologies. We agree that, in the event no other developer takes over an installation, the ability to recover assets is an important element in minimising risk to HMG. This is covered by the guiding principles and the types of security we would expect to find acceptable and not acceptable (Question 20 below). Question 19 140. 141. 142. Do you agree with the guiding principles proposed for providing a policy framework against which financial security decisions can be taken? The majority of respondents agreed with the proposed guiding principles. Of those in favour, a common theme from developers was that they should be responsible for liabilities until the end of lease only. Other respondents suggested the framework should be no more onerous than that applied to other industries required to decommission offshore or sub sea installations. One developer, who disagreed, thought the guiding principles should not be set out since they were not particularly meaningful or constructive. They expressed concern that inadvertent constraints might be placed on project owners and limit their ability to satisfy the decommissioning requirement. Other comments included:    the principles were reasonable for commercial developments but less so for pre-commercial demonstrators. policy frameworks should be binding or enforceable when adopted or they would not provide the necessary financial security. the principle to encourage the development of the industry should be subject to risk management precautions; independent security from a suitably rated entity should be sought to minimise risk of default or insolvency; and effective and transparent arrangements could be achieved by an unconditional undertaking to pay from a minimum A rated entity (bank, insurer etc.). 143. 144. Government response 145. We have considered the points made and believe the guiding principles, taken together, provide an appropriate framework for balancing the Government’s objectives to encourage the development of the offshore renewable industry with the need to protect the taxpayer from unacceptable levels of risk. We have amended the drafting of the last principle to seek to avoid an inadvertent constraint. We believe that the principles remain valid for pre-commercial projects, bearing in mind the case by case approach proposed. 23 Question 20 146. Do you agree with the examples given for what would normally be considered acceptable and unacceptable forms of security? (If not, please explain what changes you would propose.) The majority of respondents disagreed with the examples. Of those who agreed, one respondent indicated the guidelines proposed were not prescriptive and allowed developers to make proposals in the context of principles and examples which seemed reasonable. Some of those who disagreed, agreed with some of the examples. For example, a couple of developers agreed with the mid life accrual of decommissioning funds but not with other options such as early or continuous accrual as these would have a significant impact on investors’ returns. Some who disagreed supported a fund starting after payback point had been reached (year 10-15). A number of developers thought late accrual of funds should be permitted from year 15 or preferably year 18. Reasons given were consistency with current Crown Estate arrangements; to take account of relative income/cost profiles and allow for other cash obligations to fall away; the likelihood of repowering; and a belief that asset life is 25 not 20 years. One developer disagreed that early, mid-life and continuous accrual funds would have a limited impact on investor returns, highlighting that returns were already low. They argued that such funds amounted to extremely inefficient use of project proceeds and did not differ substantially from the cash option in (un)attractiveness. They did not expect appropriate Letter of Credit or Bond issues to be available. A frequent concern of developers was that Parent Company Guarantees should not be ruled out entirely. One respondent described these as the most cost-effective way for a large rated company to provide security to the government. By allowing such provision companies could help the government realise offshore wind. Where government support mechanisms were a prerequisite to investment, additional costs would be borne by government and the least cost route aligned government interests with industry’s. The transfer of liability provisions or other measures could provide HMG with an opportunity to re-assess a company’s risk position and request additional measures should they be necessary. Most offshore facilities were likely to end up being owned by large players. Provided the guiding principles were followed, PCGs should be considered. The government’s concerns regarding the domicile of the guarantor and their financial stability could be addressed through guidelines governing when guarantees could be used and when they would cease to be acceptable (e.g. on a credit rating downgrade of the parent.) A few developers thought consideration of what is acceptable or unacceptable should be linked to an individual company’s financial rating or position. One respondent noted the suggested approach required offshore developers to secure 100% of the (forecast) liabilities associated with all offshore installations. This over-secured the real risk to which HMG was exposed, since only a small proportion of projects were in reality likely to default. The proposed arrangements 147. 148. 149. 150. 151. 152. 153. 154. 24 could therefore place an undue burden on renewable developers. A more efficient approach could be a fund into which all operators paid a small fee (£/MW). They agreed with the assessment of the appropriateness of different timing accrual funds. 155. Other comments included:       accept that some large, financially stable companies present very little risk. PCGs, with restrictions applied (e.g. relating to credit rating) are an acceptable form of security for installations in the offshore oil and gas industries. should be in line with standard industry practice for decommissioning of other offshore works. reputational risk provides a safeguard. the structure of the financial security should ensure developers have no difficulty in complying with International Accounting Standards requirements for decommissioning provisions. need to fully investigate and examine prospective insurance based solutions. Government response 156. The Government has considered the representations made about the types of financial security which would normally be regarded as acceptable and unacceptable and we have reviewed our policy. We remain of the view that parent company guarantees (PCGs) and late accrual of funds should not normally be acceptable. Decommissioning programmes are being prepared some 20 years before expected decommissioning. The parent company position can change over even a small timescale and alternative security might be difficult to obtain in the event of a sudden change or change near the end of an installation’s life. Regular monitoring of the parent would be required. Enforcement could be difficult and expensive overseas and we cannot legally discriminate between parents with assets based in the UK or EU. The need to call upon the security might be most likely to arise when the parent is in financial difficulties. PCGs are not accepted for oil and gas decommissioning. On late accrual of funds, our advisers Climate Change Capital concluded that the Government’s risk adjusted exposure would increase from an estimated £0-20 million under a mid life accrual scheme (assuming a 20 year life and accrual from year 10) to £1-80 million under a late accrual scheme (from year 15), depending on company credit ratings. Late accrual would also provide little protection against unexpected increases in decommissioning costs, since there would be limited time in which to adjust payments. The amount which has to be paid annually into the decommissioning fund is also larger – because of the short accrual period – but is concentrated in the last years of operation when the amount of cash generated by the installation is smaller and more uncertain. The nature and timing of the fund could itself precipitate default by increasing financial distress. We therefore believe that the late accrual fund would place an undue level of risk on HMG and the taxpayer and, as such, should remain unacceptable. However, there is some 157. 158. 25 flexibility within the proposals which include a mid life accrual fund (not a fund starting from year 10). If evidence can be provided that project life is – as has been argued – 25 years, say, rather than 20 years, a fund that started at 12.5 years might be acceptable in the future. 159. The Government recognises the argument that requiring all developers to secure 100% of their forecast liabilities might over-secure the real risk to which HMG is exposed. In practice, HMG is exposed before the funds have been accrued and in relation to increases in decommissioning costs which don’t become apparent until decommissioning itself. However, we recognise that it might be possible to achieve a more efficient use of capital by a collective industry fund. At the time of Climate Change Capital’s research there was not much interest within the industry for such a fund but it has now been proposed by a few respondents. DTI would be happy to consider proposals for an industry-run fund and to assess whether such a fund would provide adequate protection for HMG against default on decommissioning liabilities. We would also be happy to provide an input to work or discussions on a fund as proposals are developed. Question 21 160. 161. Are there other mechanisms for providing financial security, not referred to, that you believe we should also consider? A few developers suggested a shared fund, for example, one into which all operators paid a small fee (£/MW generated) which could then be used by HMG to finance remedial works in the event of default. One respondent indicated such a fund should be professionally managed to maximise financial returns on investment. Another suggested the fund could also cover residual liabilities. They thought the use of Parent Company Guarantees in tandem with a small collective fund might provide the level of security desired by HMG. Other suggestions included:     “licence to operate” for other facilities could be tied in to adequate decommissioning as most energy facilities are likely to end up being owned by large players. The Crown Estate could hold decommissioning monies on behalf of the developer; monies to be returned to developers once it is agreed that the developer has discharged his liabilities (money released in stages). insurance based solutions, particularly via the ART or Finite Risk insurance markets which would offer assurance akin to long term, guaranteed investment and life policies. for transmission assets, via the price control mechanism. 162. Government response 163. We are grateful for the suggestions made. The fund option has been discussed in response to Question 20. The decommissioning scheme allows us to consider different financial security proposals put forward by developers, while the guidance provides a steer as to what is likely to be acceptable or not acceptable. We will be 26 considering with The Crown Estate what role, if any, it might reasonably take in relation to financial security for decommissioning. Question 22 164. Are you aware of any particular instruments or techniques for segregating funds which would make them more (or less) suitable as a security in the event of insolvency? Three respondents made suggestions.    Escrow accounts could be considered as a means of protecting cash held against insolvency (provided the account was set up for this purpose) The Crown Estate could hold decommissioning monies on behalf of the developer, with monies returned (in stages) once agreed that developers had discharged their decommissioning liabilities. NSAPS (insurance based solution) 165. Government response 166. We are grateful for the suggestions made. Developers will need to assure Government that their financial security proposals are consistent with funds being available for decommissioning in the event of insolvency. Proposals will be examined by Government with that in mind. The detailed nature and wording of security agreements will be critical. Developers may wish to learn from the ongoing experience of the UK Offshore Operators Association (UKOOA) who are developing a template for standard Decommissioning Security Agreements in relation to oil and gas decommissioning. Developers operating singly may find it more difficult to segregate funds securely than those operating jointly, although other non-fund options are open to them (letters of credit, bonds etc.) As indicated above, we will be discussing with The Crown Estate what role, if any, it might be appropriate for them to take in relation to financial security for decommissioning. Question 23 167. Do you agree with the proposed approach for pre-commercial, experimental marine technologies? (Please indicate what financial security mechanisms (if any) you would consider appropriate for such projects or what alternatives you would propose to give comfort to the Government and other interested parties that decommissioning will take place.) The majority of respondents agreed with this proposal. In support, developers welcomed the case by case approach and special consideration for emerging/prototype technologies. One respondent highlighted this would enable risk to be considered in terms of project size, stage of development, likelihood of technology failure, projected cost of decommissioning, company financial position etc. Other respondents agreed that the overall principles in terms of decommissioning requirements should apply. 168. 169. 27 170. A common concern was that pre-commercial ventures should not be included in the scheme; if they were to be included, Parent Company Guarantees should be sufficient rather than the setting aside of funds. Developers believed it appropriate for HMG to accept some risk of default, particularly for pre-commercial demonstration installations and devices. A recurring theme was the need for consideration of demonstrator projects under the auspices of an umbrella facility (such as EMEC or Wave Hub). In particular, how “joint” liabilities arising from the presence of site owners and device operators at the same site might be apportioned and remediation costs secured. One respondent suggested residual liability for decommissioning, in the event of default, should rest with the umbrella facility organisation: it would then be for them to secure adequate cover for the risks, either through financial security or an insurance premium levied on developers. A number of respondents thought the government should underwrite the decommissioning risk at such sites given it wanted to support the development of wave and tidal energy. A couple of developers highlighted the need to avoid excessive constraints or over enthusiastic regulation on government-encouraged initiatives in a fragile growth area. Investment in the UK could be jeopardised if more lenient conditions were available elsewhere. One developer reiterated the view that in considering support mechanisms, such as banding of Renewable Obligation Certificates (ROCs), it should be recognised that additional costs caused by the security requirements of a decommissioning scheme would effectively need to be paid for by the support mechanism. One option was that financial security for decommissioning become part of DTI grants to developers. Of those who disagreed, respondents argued that no financial security should be provided by such projects for similar reasons to those outlined above – it would place an unacceptable burden on developers; the cost of market entry is very high; projects are not yet commercially viable and some receive HMG assistance for their development. It would be self-defeating to give that assistance and then require it to be returned in the form of financial security. Some respondents thought the government should provide the required securities for experimental technologies. Of those who did not express a view, one respondent believed that decommissioning of demonstrator wave and tidal projects might be problematic given:  relatively low level of resources available to device developers (many of which are small and medium enterprises;  potential unreliability of devices; and  the temporary nature (circa 5 years) of many proposed or existing consents. They thought financial support and/or different mechanisms (such as insurance) might be required for such projects because they are at most risk of not being able to fund decommissioning; commercial risks are higher; and, in many cases, environmental impacts cannot be fully assessed because of the innovative nature of the technologies and their relationship with sensitive marine habitats and species. 171. 172. 173. 174. 175. 28 176. Other comments included:   the “polluter pays” principle suggested developers (and their successors) should remain responsible for adverse impacts on the marine environment. given the short-term scale of many demonstrator projects, it might normally be expected that decommissioning plans should be well developed prior to installation and any subsequent review process would be light touch. all technologies including oil & gas and sub sea cable owners should operate from a level playing field. no perpetual liability. costs incurred by the transmission owner, regardless of technology, should be funded via Ofgem as part of the price control mechanism.    Government response 177. The responses received confirm our view that a case by case approach for precommercial experimental marine technologies is appropriate. The different circumstances and scale of projects – and their associated risks - make a general presumption in favour of one type of security (or none) inappropriate. 29 PROCESS FOR SUBMISSION AND APPROVAL OF DECOMMISSIONING PROGRAMMES Question 24 178. Do you agree with the overall approach proposed for the decommissioning programme process, including the order of the various stages. (If not, please explain what changes you would propose.) The majority of consultees (both developers and respondents in other categories) agreed with this proposal. However, some respondents disagreed with the proposal. Those respondents that disagreed with the proposal cited a number of reasons, including:   prior to consent, design detail will be limited, and therefore only high-level principles can be captured at this stage; the initial decommissioning programme should be a high-level plan, with detailed plans only developed later in the life of the installation. The proposed requirement for a full decommissioning plan at the outset would impose an administrative burden on industry and present regulators and statutory advisers with a large amount of information at a premature stage. There is a danger that such approaches may ‘lock-in’ solutions which are later found to be inappropriate or sub-optimal; an eight stage process appears burdensome and therefore costly; it is not understood why a further consultation or EIA process should be required; rather, when the initial assessment is made, the consultees should consider the through life effect; statutory consultees should have the opportunity to offer comments directly to the responsible Government department on the decommissioning programme as formally submitted (in addition to any comments which might have been provided to developers on the draft programme). 179. 180.    181. Other comments made included:     if consents are given before the decommissioning programme is submitted, the consents should be made subject to the satisfactory conclusion of this process; it should be made explicit that ‘consultation with interested parties’ includes public bodies responsible for natural and historic environment interests; decommissioning plans need to fit with possible FEPA and CPA decommissioning requirements; the process needs to allow for the transfer of ownership and associated obligations and liabilities. Government response 182. In broad terms, we intend to follow the overall process that was outlined in the consultation paper for submission, approval and review of decommissioning programmes. Our intention is to make the process as streamlined as possible, 30 consistent with good decision-making, in order to limit the burdens on business as far as possible. 183. We understand that, in the initial decommissioning programme, prepared at the beginning of an installation’s life, it will not be possible to set out every last detail of how the installation will be decommissioned, and indeed optimal solutions may change over time. The programme may therefore be improved later in the installation’s life. Nonetheless, we believe it will be possible and desirable for the programme to be sufficiently well prepared, from the outset, to demonstrate that decommissioning has been fully considered and factored into design decisions, and that a viable decommissioning strategy has been developed. The costs also need to be estimated sufficiently well, from the outset, to enable the Government to make decisions about the acceptability of the developer’s proposals for financial security. We agree that it may be helpful for statutory consultees to have the opportunity to offer comments directly to the responsible Government Department on the revised decommissioning programme (in addition to any comments which might have been provided to developers on the draft programme). We propose to decide, on a case-by-case basis, whether it is necessary and helpful to do this. In all cases, the approved programme will be published, so that interested parties may comment on it. Any comments made will be taken into account when the programme is reviewed during the life of the installation. 184. Question 25 185. Do you agree that it makes sense to discuss decommissioning requirements at an early stage, in parallel with Section 36 and other statutory consent applications where these are being made? The majority of consultees agreed with this proposal. However, some respondents (almost all of which were developers) disagreed with the proposal. Amongst developers, there was a fairly even split between those who supported and those who disagreed with the proposal. In support of the proposal, it was commented that EIA legislation requires that potential significant environmental impacts are identified and assessed prior to consent being granted for a project, and that there is a body of case law now established indicating that it is not competent to defer the assessment of such significant impacts to a later stage. It was also mentioned that experience with the decommissioning of offshore oil and gas infrastructure demonstrates that early consultation is essential. Against the proposal, it was suggested that the technical details of what will be installed will not be sufficiently defined at the pre-consent stage. For instance, some consent applications include up to six different possible foundation designs, all of which will have different decommissioning requirements. It would be better for discussions on decommissioning to take place pre-construction, rather than pre-consent. It was also commented that drafting of full decommissioning plans prior to construction may be premature given likely improvements in technology and our understanding of the marine environment. It was said that 186. 187. 188. 31 decommissioning plans should not preclude enhanced techniques as our knowledge evolves over time. 189. The detailed comments provided by respondents suggested that, in practice, the views of those who agreed with the proposal and those who disagreed with the proposal may be similar. Several respondents (both those that supported and those that disagreed with the proposal) thought that a certain amount of discussion could usefully take place at an early stage, but that full decommissioning details would not be known until later. It was thought that, whilst high-level principles should be incorporated into the design process from the project start, it would be unclear at that point what standard practice, environmental constraints and available technology might be at the point when decommissioning would take place. The final decommissioning plan would therefore need to be confirmed nearer to the time of decommissioning. (That said, the opposing view was also put forward that the decommissioning plan approved at the start of the project should not be changed during its operating life as this would increase the risk associated with a project.) Government response 190. Our view remains that discussion at an early stage is helpful, in particular to ensure that developers are aware of their decommissioning obligations, are taking account of them from an early stage, and factoring them into their overall plans. That said, developers may not wish to discuss the detail of their decommissioning programmes until the point at which the design of their installation is finalised. Ongoing dialogue between developers and Government will be valuable. We agree that the content of the initial decommissioning plans should not preclude enhanced techniques as our knowledge evolves over time. The final decommissioning plan would therefore need to be confirmed nearer to the time of decommissioning. 191. Question 26 192. 193. Do you think the approach to consultation for decommissioning offshore renewable energy installations is appropriate? The majority of consultees (both developers and respondents in other categories) agreed with the proposals for consultation. However, some respondents disagreed with the proposals. In support of the proposals, respondents mentioned that consultation will allow developers to ensure that a scheme is thorough and will enable all stakeholders to be engaged. Various arguments were made against the proposals:  decommissioning should be an integral part of a development plan right from the start; it should be included in the EIA prepared for construction / operation licences, and only one EIA and set of consultations should be 194. 195. 32   necessary; a separate consultation exercise will escalate costs and introduce delays; the initial (pre-construction) decommissioning plan will be high-level only and consultation at this stage appears disproportionately burdensome and may delay the start of construction; in addition to early consultation by the developer, the responsible Government department should consult on the formally submitted programme. 196. Other comments made included:        consultation events should be open to the public, with media coverage; time limits must be strictly enforced; consultations should be tight and limited; for those Round 2 wind farm developers that will have to consult, construction should not be delayed and the developer should be allowed to run construction and decommissioning consultation concurrently; the interests of all stakeholders are not equal and this should be recognised in the weight given to their respective input; consultation should focus on high-level principles at the start and the detail should be worked up nearer to the time of actual decommissioning; the wind industry should not be asked to fund studies which are on the consultees’ ‘wish list’ (unless there is a definite and substantive reason as to why a study should be carried out). Government response 197. We consider that consultation is an important part of the process, and propose a streamlined procedure, with consultees given 30 days in which to comment. We consider that those Round 2 wind farm developers who have already undertaken consultations for the purposes of applying for consent are unlikely to have consulted sufficiently on their decommissioning proposals (although we do not rule this out if the developer can make a good case) and will therefore need to consult further. We do not think there is a real risk that this streamlined consultation process would delay construction. We do not expect that the initial Environmental Impact Assessment would present any significant extra work for a developer, given that it would use the analysis already prepared during the consenting process. Given the long time lag which there may then be before actual decommissioning takes place, we believe it is appropriate for the EIA to be reviewed towards the end of the installation’s life. 198. Question 27 199. 200. In the future, will it be feasible to consult on decommissioning at the same time as consultations undertaken in the process of securing statutory consents? Respondents (both developers and respondents in other categories) were split fairly evenly over whether it would be feasible, in future, to consult on decommissioning at the same time as consultations undertaken in the process of securing statutory consents. 33 201. Respondents put forward these arguments in support of consulting on decommissioning at the same time as consultations undertaken in the process of securing statutory consents:   whilst the complete decommissioning process cannot be provided at the original consent stage, sufficient detail can be provided to show that decommissioning has been considered and is feasible; preparation of decommissioning proposals, evaluation of associated environmental impacts, and consultation upon these, is an essential component of the application stage, in order that environmental impacts can be assessed in compliance with EIA legislation; this approach would condense the bureaucratic process for consenting and decommissioning; this would be a more efficient and open approach.   202. On the other hand, the following arguments were put forward against the idea:     the technical details of what will be installed will not be sufficiently defined at the pre-consent stage; the techniques to be deployed and extent of decommissioning would be subject to change; the value of such consultation would be strictly limited by the environmental, political and technical uncertainties inherent in the two decades until decommissioning is likely to be required; any such consultation would introduce delay into an already protracted and overly complicated consents procedure. Government response 203. We consider that consultation on the initial decommissioning programme is an important part of the process. The process set out in the guidance will allow developers the flexibility to decide between: consulting on their proposed decommissioning measures at the same time as consultations they undertake in the process of securing statutory consents; or waiting until after securing consent before consulting on decommissioning. Whichever they decide, the expectation is that consultation, and subsequent submission of the decommissioning programme to Government, should take place prior to construction of the installation. Question 28 204. Are there any organisations, groups or individuals who you think it would always be appropriate to consult on individual decommissioning programmes? (Please indicate who these would be.) Various suggestions were made for which organisations should be consulted:    relevant Government Departments and Devolved Administrations The Crown Estate environmental regulators 205. 34                the appropriate General Lighthouse Authority (to determine the requirement for any aids to navigation to mark both the on-site decommissioning operations as well as any remains left on-site after decommissioning) statutory advisers on nature conservation (Joint Nature Conservation Committee, Countryside Council for Wales, English Nature, Scottish Natural Heritage) Centre for Environment, Fisheries and Aquaculture Science (CEFAS) Maritime and Coastguard Agency (MCA) Statutory Harbour Authorities whose seaward limits or approaches the offshore energy installation is in or adjacent to public bodies responsible for providing independent advice to Government or relevant Devolved Administration on natural and historic environment interests (e.g. English Heritage) coastal communities within proximity National Fishermen's Federations other users of the sea (e.g. Royal Yachting Association, shipping interests) NGOs and local environmental groups Trade Associations (Renewable Energy Association and British Wind Energy Association) Sea Users and Developers Group media public at large educational institutions and academics Government response 206. We are grateful for these suggestions, and will include them in the guidance as appropriate. Question 29 207. 208. Do you agree with the proposed approach to reviews and modifications? (If not, please explain what changes you would propose.) More respondents supported the proposed approach than disagreed with it. Developers were split fairly evenly over whether or not to support the proposal, whereas most (but not all) respondents in other categories supported the proposal. In support of the proposal, it was commented that a periodic review of decommissioning plans appears sensible and prudent in the context of a flexible framework. It was suggested that, as a minimum, a full review should be undertaken before decommissioning, allowing time for potential modifications to be investigated, a revised EIA to be undertaken and any actions that need to be put in place following the review. One respondent was concerned that periodic reviews would significantly increase the risk associated with a project, and considered that the required decommissioning standard should not change during the operating life of the installation. Other respondents who did not support the proposal accepted that 209. 210. 35 reviews were needed, but made various suggestions for improving the review regime set out:      reviews and modifications should be considered on a case-by-case basis; reviews and modifications should be permitted, but they should not be timetabled; owners should have the right to propose the timetable for reviews and modifications, with Government having the right to request more reviews if appropriate; as part of any review, an EIA should be undertaken with respect to any changes in potential significant environmental impacts which may result; reviews should not commence until after a 10-12 year operational period, as it is not clear what purpose they would serve before that time. Government response 211. We consider that periodic reviews are appropriate, given the expected length of time between approval of programmes and the actual decommissioning itself. We agree that, as a minimum, a review should be undertaken before decommissioning, to finalise the decommissioning measures to be taken. At this point, the Environmental Impact Assessment will be reviewed and, if necessary, a more detailed assessment undertaken. Other reviews will be focused on ensuring that financial security provisions are sufficient (and we would not expect these to involve a review of the EIA). We set out, in our response to Question 30, the expected frequency of these other reviews. As set out in the Energy Act, both the Government and the developer may make a proposal to modify the decommissioning programme. Question 30 212. In the guidance, do you think it would be helpful to set out the frequency with which reviews might be undertaken, as a general guide? (Please indicate whether you agree that about every 5 years is appropriate or whether you would suggest an alternative timeframe.) More respondents supported setting out a general guide to the frequency with which reviews might be undertaken than disagreed with this idea. Developers were split fairly evenly over whether or not to support the idea, whereas most (but not all) respondents in other categories supported the idea. The main argument against the idea was that decisions on the frequency of reviews should be made on a case-by-case basis, according to need rather than prescription. Alternative proposals were:   a review should take place at the mid life of a project and again at the three quarter life to demonstrate that financial provisions are adequate; the first review should be at, or just before, the start of payments into a decommissioning fund, and a final review should be held prior to 213. 214. 215. 36    216. decommissioning, with intermediate reviews only held if there has been a significant change in legislation, state of technical knowledge or cost base; assuming a 20 year life, a review would not be needed in the first 10 years (unless there was a specific reason for it); a review would only be necessary when a major change was made to the programme or shortly before decommissioning was due to be carried out; it should be the owners’ responsibility to decide on the frequency of reviews. Of those respondents who expressed a view on the appropriate frequency of reviews which might be specified as a general guideline, most thought that every five years was an appropriate guideline. However, a significant number thought that the guideline should specify less frequent reviews (than every five years). Nobody suggested that the guideline should specify more frequent reviews. Government response 217. We consider that it will be helpful for the guidance to illustrate the possible frequency of reviews, although reviews may be more or less frequent in particular cases as circumstances dictate. Apart from the final review, which will focus on finalising the decommissioning measures to be taken, the objective of other reviews will be to ensure that financial security provisions are sufficient, and the frequency of reviews will be determined in the light of this objective. As a general guide, we might expect reviews to be undertaken at the following points for a commercial scale wind farm: once the installation has been in operation for 2 years; 2 years prior to provision of financial security (for example, 2 years prior to the mid life of the installation if a mid life accrual fund is the chosen financial security option); and half way through the period during which financial security is provided. 37 CONTENT OF DECOMMISSIONING PROGRAMMES Question 31 218. Do you agree with the model framework suggested in Annex E for the content of decommissioning programmes? (If not, please explain what changes you would propose.) All consultees who expressed a view on this question supported the proposal. In support, it was commented that a general framework will be beneficial, provided it is flexible, in the form of guidelines, and not too prescriptive. Other comments made included:    some of the information requested in the model framework duplicates information which is required elsewhere for the statutory consenting process and these overlaps should be removed; care needs to be attached to the timing of when the detail within the programme is required; the programme should be sufficiently detailed, from the outset, to enable potential significant environmental impacts to be determined. 219. 220. 221. Government response 222. We accept that some of the information requested in the model framework may duplicate information required elsewhere. Nonetheless, we consider that it is helpful for the decommissioning programme to include this information, in order to be complete and self-standing. We agree that the guidance should clarify the timing of what detail is required when (reflecting that not all elements of the programme need to be, or can be, fully detailed at the outset of the installation’s life). Reflecting the need for potentially significant environmental impacts to be determined, we will specify that the programme should be informed by an Environmental Impact Assessment (EIA) (initially using the analysis already undertaken for the wider EIA done prior to consent of the installation). 223. 224. 38 RESIDUAL LIABILITY Question 32 225. 226. Do you agree with the regime for residual liability? (If not, please explain what changes you would propose.) The majority of consultees disagreed with this proposal, although a substantial minority agreed with the proposal. In general, most developers disagreed with the regime for residual liability, whereas most respondents in other categories supported the regime. In support, it was commented that the regime accords with the ‘polluter pays’ principle and that future liability should not be covered by the public purse. It was also commented that the regime was consistent with oil and gas decommissioning liabilities. Where there was disagreement, developers frequently raised the concern that there should be an end point to their residual liability. Typical comments were along the following lines:      229. once the monitoring period has been completed, there should be no residual liability remaining with the owner of the project; there has to be a point at which the developer is deemed to have discharged their decommissioning responsibilities and where the Government or The Crown Estate accepts any residual liability; perpetual liability is difficult for developers to accept, particularly since regulations may change over time, requiring further unplanned expenditure to an indeterminate time scale and scope; an open-ended liability period could make it impossible to fund developments; the project will not have a lease with the landlord to undertake works on the sea-bed when the lease has expired. 227. 228. The following additional points were made:  creation of a fund, funded by all installation operators, that is used to cover both decommissioning liabilities risks for Government and postdecommissioning liabilities, would seem a pragmatic approach to dealing with residual liabilities; where a developer has been requested to leave a structure behind (for example, a monopile left behind because of the environmental benefits of an artificial reef), and the developer would normally have removed it, then the developer should not have to bear liability for it; the scheme should allow ownership of structures which have a use beyond renewable energy generation to be transferred to a third-party, and such a transfer should not be limited by the decommissioning scheme.   39 Government response 230. We understand developers’ desires that there should be an end point to their residual liability. Whilst we do not intend to take any action to remove any residual liability from owners, in practice we would expect that an installation which has been safely and effectively decommissioned, in accordance with its decommissioning programme, should not give rise to problems in the future. Provided that there are no problems, we do not expect there to be a need for the owner to take any action once the agreed post-decommissioning monitoring, maintenance and management regime has been completed. DTI and The Crown Estate would be pleased to work with the industry to develop an industry fund to minimise the financial impact of residual liability requirements. If an appropriate fund were established, The Crown Estate would be prepared to take on the operator’s residual liability at the end of The Crown Estate lease. We also agree that, where a developer /owner has proposed to remove an object entirely, but the decision has been taken by Government that it should be left in situ (for example, for environmental reasons), the developer / owner should not remain liable for the object. 231. 232. 40 INDUSTRY COOPERATION AND COLLABORATION Question 33 233. 234. Would you like to suggest any specific proposals for facilitating and encouraging industry cooperation and collaboration at the decommissioning stage? The following ideas were put forward:      Regional Developers groups may wish to share costs and information; an industry working group (including relevant stakeholders) could be established to review guidance and practice as the industry involves (particularly in respect of wave and tidal devices); existing industry forums (such as the BWEA) could enable sharing of experience and information; a body could be set up for collaborative research, possibly funded with a levy on revenue; a database of projects should be maintained, to identify those with similar technical requirements and decommissioning dates, in order to identify opportunities for collaboration as early as possible. Decommissioning methodologies for these structures could be standardised and shared; Government and Devolved Administrations should encourage cooperation and support development of decommissioning methodologies through relevant professional bodies; it is imperative to learn from industries undertaking decommissioning of offshore installations and The United Kingdom Offshore Operators Association would be a useful starting point in understanding the issues and the way technology is moving in offshore decommissioning; a shared decommissioning fund could be established; a five-year window for decommissioning should be allowed in order to maximise opportunities for collaboration and avoid equipment / vessel shortages; device decommissioning could be coordinated with other offshore work, where the cost of facilities may be shared or transportation costs reduced.      Government response 235. We would be happy to explore these ideas further with industry. 41 PARTIAL REGULATORY IMPACT ASSESSMENT Question 34 236. 237. Do you have any comments on the analysis of costs and benefits in the partial Regulatory Impact Assessment included at Annex A? The following comments were made:     the analysis seems reasonable; decommissioning costs of £40,000 per MW seem low and could be twice as much for some projects; for Option A, the Government’s risk-adjusted exposure is also limited; the RIA does not consider electricity infrastructure and the future role of an Offshore Transmission Owner. Question 35 238. 239. Are you aware of any possible unintended consequences or other implications of the proposals set out in this consultation paper? The following comments were made:   potentially increased regulation for an activity 20 years hence may have a detrimental effect on the nascent offshore renewable energy industries. Well-defined, stable regulations and non-onerous requirements will help; some proposals will hinder the development of marine renewable energy installations. Particular concerns are that a ‘one size fits all’ solution is inappropriate for new technologies, that first movers in the field may be unfairly burdened with disproportionate requirements to furnish financial security, and that duplication of EIA and monitoring requirements with those for consenting will erect additional bureaucratic barriers; the Government should consider the impact of requiring developers that are partly funded via the Renewables Obligation to provide financial security back to the Government. This proposal would either have a detrimental impact on those developers or on those seeking to develop other renewables projects or both; early requirements for financial security may significantly negatively impact on project economics, especially if they operate in periods where the project finance is still being repaid (up to year 15); financial security arrangements may interfere with the funding of repowering operations (unless funds can be released for that activity) and thus may cause premature closure of operations.    42 OTHER COMMENTS 240. Most of the comments raised by respondents have already been summarised in this paper. One additional issue raised by several respondents was that the offshore renewables industry should not be burdened with more onerous conditions than those which pertain to other industries involved in decommissioning offshore plant or other industries involved in the marine environment. As a nascent industry, it cannot compete if it is subjected to increased costs and bureaucracy. 43 RESPONDENTS TO CONSULTATION Developers Association of Electricity Producers Airtricity British Wind Energy Association Centrica Plc DONG Energy E.ON UK Renewables EDF Energy Eurus Energy UK Ltd London Array Ltd npower renewables Ocean Prospect Renewable Energy Association, Ocean Energy Group Scira Offshore Energy ScottishPower (Renewables & Major Projects) Shell WindEnergy SLP Energy Tidal Generation Ltd Warwick Energy Ltd Marine Users Chamber of Shipping Royal Yachting Association Environment Organisations English Heritage RSPB ANNEX A Government / Statutory Organisations Joint Nature Conservation Committee / Countryside Council for Wales / English Nature Port of London Authority Scottish Executive, Environment and Rural Affairs Department – Marine Group Scottish Natural Heritage Trinity House Law Firms Bond Pearce LLP Shepherd + Wedderburn Transmission Owners ScottishPower EnergyNetworks Consultants The NSAPS Partnership LLP 44