Smooth sailing: navigating offshore wind applications in the Hunter region

A clear application strategy and timeline is key 11 min read

On 12 July 2023, the Minister for Climate Change and Energy declared Australia's second offshore wind development zone off the coast of the Hunter in New South Wales (Hunter Declared Area). The Minister has also issued an invitation to apply for feasibility licences in respect of the Hunter Declared Area. Feasibility licence applications will be open from 8 August to 14 November 2023.

In this Insight, we reflect on key takeaways from the Gippsland feasibility licence application round and give practical tips for when you are applying for a feasibility licence in the Hunter Declared Area.

Key takeaways 

• Hunter Declared Area feasibility licence applications will open from 8 August to 14 November 2023.
• Declaration of the Hunter Declared Area includes an additional condition that offshore infrastructure in the area cannot exceed a height of 260 metres.
• Reflecting on the lessons learned from the Gippsland feasibility licence application round, proponents should:
  • be familiar with the regulatory framework, including how applications are assessed
  • if the licence applicant is an SPV, ensure that the entities it is relying on meet the merit criteria
  • consider funding structures early given the significant financial commitment required
  • if execution is required by foreign entities or directors, consider the manner of execution sooner rather than later.

The Hunter declaration

^{Hunter Declared Area}

The Hunter Declared Area stretches 1,854 square kilometres between Swansea and Port Stephens and has the potential to generate up to 5GW of wind energy.

Following a 65-day public consultation period, the size of the declared area was reduced from the 2,500 square kilometres that was initially proposed. The reasons for the reduction in size are stated to relate to stakeholder concerns about visual impact, environmental protection (due to endangered species in the area) and shipping safety.

The Hunter Declared Area is considerably smaller than the Gippsland declared area (approximately 15,000 square kilometres). Given the smaller size of the Hunter Declared Area, even without the level competition we saw in respect of the Gippsland area, we expect a high likelihood of overlapping applications, where two or more applicants apply for a licence over all or part of the same geographic area. In the event of an overlapping application group, the applications will be ranked based on higher or lower merit. The feasibility licence guideline (Guideline) published by the Department of Climate Change, Energy, Environment and Water (DCCEEW) sets out when applications will be assessed as higher and lower merit. It is important for proponents to be aware of the higher merit considerations and address them when preparing their feasibility licence application.

^{Hunter declaration conditions}

The Hunter Declared Area carries similar conditions that applicants will need to comply with as were attached to the Gippsland declaration, noting that—in respect of the consultation conditions—different authorities will need to be consulted given the location of the area in NSW. One notable additional condition is that offshore infrastructure in the Hunter Declared Area will have to be limited to a height of 260 metres. This condition was requested by the Department of Defence to address concerns with aviation safety.

^{Multiple applications}

We expect there will be some proponents who have submitted a feasibility licence application in respect of the Gippsland area who will now be considering submission of an application in the Hunter Declared Area. It is important to note that under the Guideline, in determining whether the applicant meets the merit criteria, their current and proposed projects (across Australia and internationally) will be taken into consideration. By the time applications are set to close for the Hunter, proponents may not know whether they have been successful in the first round of Gippsland feasibility licence applications (given early timing indications are that this would not be announced until closer to the end of the year). Therefore, when drafting the Hunter application, proponents will need to ensure they address the availability of financial and technical resources to deliver all projects in their portfolio, including as if they had been granted the feasibility licence for Gippsland.

Lessons learned from Gippsland

On 27 April 2023, the first round of the Australian offshore wind applications closed. Over 94 days, proponents—both international and domestic—developed proposals to secure a feasibility licence granting investigation rights over an area up to 700 square kilometres in Gippsland, for up to seven years.

This round of applications has been highly significant for a number of reasons. Gippsland is a sought-after area for the development of offshore wind projects, with a strong and consistent wind source, desirable access to key transmission locations and an appetite from the Victorian Government to support such projects. Importantly, this round was also the first time the regulations and guidelines developed by DCCEEW and the Offshore Infrastructure Registrar were required to be interpreted and relied upon.

With the Hunter Declared Area now announced, we have reflected on the key lessons learned from the Gippsland round. As the industry continues to develop, we expect that institutional understanding of the Australian offshore wind regime will mature as the focus pivots from securing licences to implementing commercial strategies regarding design, construction, offtake, stakeholder management and, ultimately, operations.

How the applications are assessed

With a number of proponents coming from overseas markets that operate a scoring-based assessment for the granting of sea-bed tenure and offtake, the Federal Government's approach to develop a pass/fail regime has, at times, met resistance and calls for clarification. It is important to understand that the nature of the feasibility licence application process is that the Minister has significant discretion in awarding licences, demonstrated by the open-ended language used in the Regulations, as seen below:

Accordingly, there exists a level of state risk that some proponents may not have experienced in other jurisdictions such as the United Kingdom. This, in combination with the fact that reasons will not be given in the event a licence is not awarded, should be understood from the outset and factored into any application.

Choose the applicant and reliance entities wisely

With the offshore wind sector in Australia in a nascent stage, many proponents do not have specific companies set up that meet the requirements to be licence holders—for risk management, corporate structure or other reasons. Accordingly, the requirement to nominate an Australian registered licence-holder entity has naturally resulted in the creation of a number of special-purpose vehicles (SPVs) for the sole purpose of being the licence applicant.

However, as the regulatory guidance requires that the licence holder (ie the 'eligible person') has certain characteristics such as technical expertise or financial capability, the newly created SPV is unlikely to possess the required attributes. In that case, the regime allows the applicant to rely on certain other entities to provide the required attributes—as is expected in major energy projects.

The selection and planning around which companies will be providing this support are critical, and should be a priority in any application. These other entities (reliance entities) need to be identified and involved in the process from the outset, as significant information needs to be collated and incorporated into the application (eg their expertise, capabilities and corporate governance structures). This is further complicated by the need to obtain disclosure forms and information from key personnel within, and acting for, the reliance entity.

Who the SPV will be relying on, and the attributes they bring to the application, is critical to understand, and should inform the structure of any application. The Registrar and Minister should be able to clearly identify the way in which the application meets all aspects of the merit criteria.

Consider funding structures early

Under the regulatory guidance, the applicant must be able to demonstrate significant financial commitment to the investigation of their offshore wind projects. Upon granting of the feasibility licence, licence holders will need to have 150% of the first 12 months' proposed development expenditure in their own accounts. Going forward, there are then obligations to maintain this funding.

Given the significant financial commitment, the likely existence of joint ventures and the fact that these arrangements need to be prepared on a contingent basis (in that proponents do not know whether they will receive a licence offer), it takes substantial effort to consider, plan and finalise appropriate funding arrangements. This is further complicated by the fact that structures which demonstrate funding in place for the entire feasibility licence term will receive a 'higher merit' assessment. While only relevant in relation to the overlapping application process, proponents may also wish to consider this.

Accordingly, advance planning—in particular regarding obtaining internal funding approvals—should be conducted to find a position that all parties are comfortable with from commercial, legal and risk-management perspectives, and that meets the relevant merit criteria.

Completing the application

With a significant volume of applicants applying in respect of a finite area (and importantly, a finite number of licences), careful consideration of the regulatory materials is critical to ensure that all aspects of the guidance are incorporated in the application. This includes the Guideline and Registrar Forms Guidance, which alone amount to 41 pages.

Accordingly, development of an application strategy at the outset can be useful to guide the work that needs to take place in the short application window. This may include apportioning aspects of the application to internal teams and external advisers in line with their relevant specialisations, ensuring that undue focus is not given to any one aspect or criteria, or developing positions as to the project's comparative advantages. Further, a cross-checking exercise by a team or adviser between the application as a whole and the Guideline and Guidance can be useful in ensuring all aspects of each criterion are covered in the appropriate manner.

Finally, careful regard should be taken in respect of the manner of execution of the application and related documents, especially when using overseas entities or directors. There are detailed requirements in the Forms Guidance which should be considered at the beginning of the application window to ensure internal stakeholders are adequately briefed on their obligations.

Use of advisers

Section 34(1) of the Offshore Electricity Infrastructure Act 2021 (Cth) (the OEI Act) requires that the successful proponent has access to technical capability and advice sufficient to carry out the proposed project. This requires proponents to have access to all required expertise for a project of this scale, but also to be able to identify what expertise will be required. This is likely to arise in relation to both internal teams and external advisers across environmental, commercial and legal sectors.

Some aspects of technical advice relevant to the legal sector that may be considered are: access to sophisticated Foreign Investment Review Board (FIRB) advice (in particular, where foreign investors are involved) and experience dealing with relevant entities such as the National Offshore Petroleum Titles Administrator (NOPTA) and the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA).

If a foreign investor plans to participate in Australian offshore wind projects, they may be required to obtain FIRB approval. This must be done before the Registrar decides whether to grant a feasibility licence, or any other licence under the OEI Act. Understanding how the OEI Act licensing regime interacts with the proponent's FIRB obligations is critical, particularly where the investment involves foreign governments or joint ventures, recognising interests in land and understanding the manner in which interests arise out of offshore Commonwealth areas.

Further, with much of the Australian offshore wind regime adopted from the existing offshore oil and gas sector, understanding the usual practices in that sector may be beneficial for new market participants. This is particularly the case in early stages of understanding application processes, government department and regulator priorities, and in later stages in the development of management plans, creation of security interests, and proactive dispute resolution.

Allens has market-leading expertise in the Australian offshore resources and renewables sectors, including extensive experience in dealing with NOPTA and NOPSEMA. We regularly advise foreign investors on their FIRB obligations across a range of commercial transactions, and most recently as part of the Gippsland feasibility licence round. This assistance has encompassed advising proponents on the development and submission of applications, including with respect to environmental planning, financing structures, corporate arrangements and regulatory interpretation and implementation.

Actions you can take now

We encourage proponents interested in applying for a Feasibility Licence in the Hunter area to develop a clear application strategy and timeline early on, carefully considering their preferred:  

• corporate structure
• funding structure
• manner of execution
• choice of adviser.