As 'wind theft' disputes intensify, who will foot the bill for wake losses?

Conflicts over loss of wind are expected to become an increasing issue even in the offshore wind novice Norway, predict legal experts.

Wind wakes or wake loss occurs when a wind farm reduces wind speed and creates turbulence in the airflow behind it, which in turn can lead to reduced power production in wind farms located downstream.

As a result, the producer located behind loses money because they can sell less electricity.

Wind wakes can lead to production losses of between 1.5 and 3.5 percent, according to experience from onshore projects. Offshore, the losses can be even greater, as the turbines are larger and the wind farms are developed over larger areas.

Could destroy profitability

For investors and developers, such losses can be decisive for a project’s profitability.

Nilsen heads the firm’s renewable energy department. Also working there is associate lawyer Eirik Finserås, who, in connection with his PhD in law, has particularly studied the challenges across the different countries’ economic zones in the North Sea.

Previous research at the University of Bergen, led by Finserås, shows that offshore wind farms can reduce wind resources for nearby parks by up to 20 percent, even at large distances.

“Wind patterns will be decisive for who is affected,” Finserås says.

In addition to direct income loss, wake loss can affect tender rounds, as developers must price in the risk of reduced production. This can in turn lead to a greater need for state support. In practice, it may be the authorities who indirectly cover part of the loss through Contracts for Difference.

“Developers must account for the possibility that production may be affected when calculating what they can bid in an auction,” says Nilsen.

Although wind theft has received the most attention offshore, it is also a challenge on land.

According to Nilsen, Wikborg Rein is currently involved in such discussions in connection with potential new onshore wind farms.

“We’re going to see more of this going forward,” predicts the lawyer.

Experience from other countries is that it is the developers who bear the risk. Authorities have not been willing to offer any form of compensation.

Lack of legal basis and need for agreements

A central issue is the lack of a clear legal basis for whether lost production due to being in someone else’s shadow should be compensated.

In Norway, the Neighbour Act may provide grounds for compensation for onshore wind power, but equivalent regulations do not exist offshore. Thus, developers largely have to protect themselves through private agreements. Such agreements can be made bilaterally between parties, and there are now models and market practices for how this can be done.

In practice, developers have used planning processes and consultation rounds to promote their interests and try to influence the authorities. This can delay projects and create uncertainty. In some cases, developers have chosen to enter into agreements to avoid such conflicts, especially where there is a risk that wind wakes could become an issue in the licensing process.

Will we see more conflicts?

There are very few agreements in offshore wind regarding compensation for wind wakes.

“We are not aware of any legal proceedings related to this. The phenomenon is well known, but it hasn’t really come to a head yet. We expect that it will, and that solutions will be forced through,” adds Nilsen.

International challenges and legal grey areas

There will be far more wind farms in the North Sea than today. What happens if a Norwegian wind farm negatively affects a Danish one – or vice versa?

“There are some legal guidelines under the 1982 Law of the Sea Convention,” explains Finserås.

Very simply put, the point is that one is obliged to take some account of other countries. But what that actually means in practice is not clear.

One example is Sørlige Nordsjø II, where the development will likely affect Danish parks, according to Finserås. In such cases, it is recommended to send plans for consultation to affected neighbouring countries, but there are no clear requirements for content or process. This creates uncertainty and potential for future conflicts.

The player who wins the qualitative competition will likely position themselves in the most favourable project area in terms of wind resources. Nilsen and Finserås point out that this raises questions about how and to what extent subsequent projects at Utsira Nord will be affected by wake loss, and whether this should be handled legally.

“The three project areas lie parallel. Due to wind wakes and other factors, such as fisheries, we expect that those participating will have the same preferred area,” says Nilsen.

Experience from fisheries and the oil and gas industry shows that it is possible to create common rules for shared resources. Wind is, in practice, such a resource.

“Regionally, I believe there is political will to regulate this. Historically, the countries around the North Sea have been quite cooperative,” says Finserås.

He points, among other things, to the agreement between Norway and the United Kingdom from 2005, on a joint development zone for oil and gas projects located on the border between the two countries.

New assessments

On Monday, the Norwegian water and energy directorate presented new assessments for the areas considered for offshore wind development. A total of 20 different areas have previously been presented as potential sites for offshore wind. Several are located quite close to each other. This increases the risk of wind wakes between the projects.

The advantage of floating offshore wind is that it is easier to place the turbines as optimally as possible, since the area is quite large. For fixed-bottom offshore wind farms, it is not as easy to be flexible.

The lawyers believe it is important to consider wind wakes already in strategic environmental assessments and early planning.

“You want to avoid this issue by being very clear in a relatively early planning process,” says Finserås.

The experts recommend that Norwegian authorities take the initiative for regional cooperation, for example through the EU or Nordic forums.

To a large extent, offshore wind is currently financed through Contracts for Difference, where the developer essentially enters into an agreement with the authorities on a fixed price for production.

If developers factor in losses due to wind wakes in their bids, it will result in a higher agreed price for the CfD.

In those cases, it is the authorities who end up footing the bill.

“If everyone bidding on the contract prices it in, it will drive up the need for state support,” says Nilsen.