Nicola Simpson
Director of Offshore Renewables, EAME
Offshore wind and the importance of IFC compliance
Meeting international performance standards at the consenting/permitting stage can offer financial and environmental benefits. Find out why this is so relevant to new and established renewable energy markets alike.
Nicola Simpson Morag Wilson Dorney Burgdorf
Numerous lease auctions are set to add to the offshore wind project pipeline in the next few years – with new entrants such as Portugal emerging alongside established ‘big names’ like the UK and Denmark. There are steps forward in countries such as Brazil and Greece, while growing markets like Australia are aiming for expansion. Despite this proliferation of possible development, there will be pressure to ensure that projects are financially viable.
Robust environmental and social assessment is a key step in this process, to de-mystify risk and incentivise developer participation. As industry regulation continues to evolve, international standards provide both a framework and a benchmark for assessment. The Equator Principles 4 (EP4) and the World Bank Group (WBG)/International Financial Corporation (IFC) Performance Standards are considered best practice. Read on to explore why EP4/IFC compliance makes good project sense.
IFC compliance in offshore wind consenting: why does it matter?
It’s well worth understanding how IFC compliance (or lack of it) can impact projects – specifically, its relationship to local and international regulations, environmental impacts and mitigation, and the project’s financial viability. Here are two aspects to consider:
1) EIA or ESIA? The relationship between local, international and financial requirements
You’ll come across two similar terms in consenting – EIA and ESIA – but what’s the difference between them?
To obtain national permits for development in most countries, projects need to complete an Environmental Impact Assessment (EIA) – which needs to be compliant with local regulations (a ‘local’ EIA).
To obtain external funding from international donors, projects will likely also need an ESIA (Environmental and Social Impact Assessment). Funding bodies typically have additional lending requirements that are broader in scope than local laws/EIA, and the project ESIA can be used to address these.
- Many International Financial Institutions (IFIs) are signed up to The Equator Principles, which use the IFC’s framework for understanding, assessing and managing environmental and social risk. Equator Principle Banks require the ESIA to be compliant with these to support eligibility for funding, including undertaking a related risk assessment process.
- Other bodies include the World Bank, the International Finance Corporation (IFC) and regional development banks, which all publish their own environmental and social lending standards.
For past projects, we have addressed IFI requirements by producing either a local EIA that also incorporates the ESIA content or a separate ESIA addressing identified gaps between local and international requirements. Both approaches are equally valid, and the path chosen will often depend on the extent of the differences between the standards.
2) Early-stage assessment affects ongoing objectives, so quality is key
Despite being completed during early-stage development, the EIA/ESIA impacts the entire asset lifecycle. This is because measures it identifies to mitigate against environmental impacts are required throughout the offshore wind farm’s construction, operation and decommissioning phases.
Since the content of the assessment will have such lasting importance for the development, it makes sense to adopt robust, high-quality assessment practices.
In particular, international standards often request a higher level of stakeholder engagement, with an emphasis on ensuring vulnerable groups are considered. Early and meaningful engagement with the public, especially those that would be affected by the project’s impacts, has been shown to save time and money down the line by reducing risk: not understanding the local community causes delays and could even stop the project altogether.
Key takeaway
The quality of the project EIA/ESIA is particularly important because it affects the long-term sustainability of the asset, but also its potential for financial viability. What’s more, its effects can foster positive industry-wide benefits, such as protecting biodiversity, upholding human rights principles and championing the rights of Indigenous People. Following a robust, comprehensive approach for the EIA/ESIA helps to satisfy stakeholders, who may include governments and the public as well as Lenders.
Some more IFC compliance considerations
It’s clear that when it comes to the EIA/ESIA, “if a thing’s worth doing, it’s worth doing well”. Aside from supporting financial viability and legal compliance, here are some other impacts to consider.
- We frequently discuss the evolving nature of offshore wind regulations across the industry. Planning for IFC compliance from the early stages could help to insulate the project against such changes. For example, in Turkey, we are supporting the government in seeking to de-risk the offshore wind industry during early stage development, by identifying environmental and social constraints based upon compliance with international standards prior to site selection.
- Compliance with international standards can help develop the industry locally. IFC standards are based on a wealth of international experience; applying best practice helps to shape how markets develop.
Related read: this article discusses other ways in which looking to international standards can support the energy sector. - Navigating the often complex permitting process – successfully – requires a depth of expertise and solid previous EIA/ESIA experience. ESG support, for example, may be in limited supply in new markets; developers and investors will need to seek out support from advisors with a relevant track record. Note, too, the need for relevant, specific offshore and onshore capabilities matched to the demands of your project.
Related read: Leading the ESIA for Bandibuli (Firefly) in South Korea
Support for IFC compliance in offshore wind development
Our team is currently engaged on a number of ESIA and Lenders Environmental and Social Advisory projects, such as our recently announced project leading the ESIA for Curonian Nord in Lithuania. Lithuania is a great example of a new market with a strong commitment to offshore wind. As with any new market, Lithuania will be looking to establish development processes that support industry growth effectively. Our specialists are adding value by providing IFC compliance on the biodiversity side, regarding climate change and for other relevant social impacts.
Tetra Tech RPS Energy has a well-established track record in high-quality impact assessment for both EIA and ESIA, with in-house experience across a wide range of technical specialisms and offices around the world. You are very welcome to contact us with any questions – feel free to get in touch.
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