Australian offshore wind gets going

An important milestone in the development of Australia's Offshore Wind Industry 8 min read

The Offshore Electricity Infrastructure Act 2021 (OEI Act) commenced on 2 June 2022 and provides an important framework for introducing offshore wind generation to Australia's renewable sector, allowing developers to take the first step towards developing these projects.

This Insight examines what we have learnt about the framework, key issues currently being explored and what we can expect to see in the coming months.

Licensing regime now active and a first area soon to be declared

The passing of 2 June 2022 marks the commencement of the OEI Act's licensing regime that will regulate Australia's offshore wind industry in Commonwealth waters. Importantly, the Minister is now empowered to take the first step towards declaring areas for these developments. This will in turn allow the Minister to invite applications for feasibility licences within the declared areas. We've written previously on the key elements of the OEI Act here.

It seems likely that the offshore area off the coast of Victoria's Gippsland region will be the first to be declared after an announcement earlier this year by the former Assistant Minister of Industry, Energy and Emissions Reduction. This area aligns with a number of projects that have been announced in that area, including three which have received funding from the Victorian Government. Having said this, it remains to be seen whether the change in Federal Government will lead to a difference of opinion as to the first area to be declared.

However, the commencement of the OEI Act is only one piece of the puzzle. Developers now need to begin preparations for obtaining the appropriate licencing under the regime. In preparing for this process, regulations made under the OEI Act will provide important details on a number of key issues that stakeholders may wish to consider prior to submitting applications.

The Government released draft regulations for the OEI Act in March 2022 and consultation on these closed in April 2022. Since then, we have had a change in government, and it is yet to be seen what level of stakeholder engagement will be reflected in the final version of the regulations.

Key OEI Act issues for developers

Some of the key issues related to the OEI Act include:

Application assessment merit criteria

The merit criteria required to be satisfied in order to obtain a licence under the regime will be a key focus for understanding which aspects of a project the Minister, supported by the Registrar (NOPTA) and Regulator (NOPSEMA), will be examining when deciding licence applications. The criteria have been split into four key topics that will apply to all applications, and a fifth (financial offers) that will be applied in the event of equally meritorious applications over the same area of seabed. The Minister also has broad discretion to consider any other matters they deem relevant, and the regulations do not provide guidance on the relative weighting that will be given to the criteria or any threshold considerations.

Change in control

Another important area of the OEI Act is its change in control requirements. Under the regime, all defined change in control events, even those between affiliates or related body corporates, will require approval. These are defined as occurring when a person begins (or ceases) to control 20% or more of a licence‑holder. For example, if a party with a 50% interest in the licence-holder wanted to reduce their holding down to 10%, prior to that reduction they would need to obtain approval from the Registrar.

Importantly, when an interest increases to the level that it becomes a controlling interest, the Registrar will also consider whether that person meets the merit criteria discussed earlier. As such, it is important for developers and investors to carefully consider their corporate structuring from an early stage, including considering changes that may eventuate in the future.

Fees and cost recoveries

The Draft Cost Recovery Implementation Statement has provided stakeholders with guidance in relation to how this regime will financially operate. This statement makes clear that the intention is for cost-neutral regulation, with the fees from developers covering the costs of regulating the sector.

Under the regulations, those wishing to obtain a licence will need to pay an application fee and for the assessment of plans. Once a licence is obtained, licence-holders will also be liable for annual levies calculated based on fixed amounts and sliding scales tied to the size of the licence area.

Importantly, there is no indication that developers will need to make financial bids in order to secure rights to Commonwealth seabed, other than in circumstances where developers have made equally meritorious applications for overlapping areas and this overlap is not able to be resolved by agreement.

Industry consultations and guidance

We have observed significant market interest in the offshore wind sector, which has been reflected in a number of industry consultations and papers released recently, as well as a number of offshore wind projects making initial applications for environmental approvals.

What can we expect next?

We expect the next twelve months to be a busy period for offshore wind developers and stakeholders, with the declaration of the first area likely to occur and further regulations being made. The key things for developers to watch out for are:

• Further OEI regulations and guidance: Australia's offshore electricity regime is not yet complete and there are still a number of key areas that have yet not had draft regulations published. We expect that the Government will release further exposure drafts over the coming months to answer these questions, including in relation to management plans, health and safety obligations and the decommission bonding requirements.
• Victorian Offshore Wind Implementation Statement: the release of the Victorian Government's implementation statement for the offshore wind industry is expected later this year. This statement will provide further details on the timing and structure of how Victoria will support the offshore sector, the approach to developing the transmission network and information regarding the facilitation of port upgrades.
• Transmission network frameworks: a number of states and territories are developing frameworks for renewable energy zones that involve the construction of transmission infrastructure to facilitate renewable generation. It is yet to be seen what role governments will play in planning and procuring the transmission infrastructure required to connect offshore wind projects to the grid.

Stay tuned for further updates.