On 4 January, the Commonwealth Government's Department of the Environment and Energy released a discussion paper setting out a proposed framework for the delivery of offshore clean energy projects in Commonwealth waters (i.e. more than three nautical miles from land).

The release of the framework for consultation is a recognition of the importance of providing a transparent, consistent and reliable regime for the delivery of offshore energy projects.1

Offshore wind is a well-established form of renewable energy in a number of countries, notably the UK, Germany and Denmark, and China has recently overseen a significant uptake in the technology, more than doubling its capacity to 1.6 Gw between 2017 and 2018.2

A number of proposals have been made over the last few years for offshore wind development in Australia. To date, however, it has been unclear what regulatory pathway would apply to such development, meaning projects have progressed slowly and in an ad hoc manner.

Once implemented, the framework will fill this existing regulatory and legislative gap in Australia.

Key principles of the framework

The framework is designed to apply to the entire lifecycle of an offshore energy project (from feasibility through to decommissioning), and recognises that such projects rely on suitable transmission infrastructure.

Therefore, it has been designed to:

  • recognise the importance of being technology neutral (meaning it will apply to other offshore clean technologies such as wave power and geothermal in addition to wind);
  • acknowledge the need to balance the interests of various stakeholders;
  • ensure that the principle of shared use of Commonwealth waters is maintained while the most economically efficient use of the offshore area is pursued;
  • ensure that regulation will be risk based, so that the higher the risk, the more robust and rigorous the regulation (it is proposed that the existing National Offshore Petroleum Safety and Environmental Management Authority (NOPESMA) regulate these projects);
  • recognise the need to ensure compliance with the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) and that all environmental impacts and risks are otherwise properly assessed and managed; and
  • recognise the importance of ensuring that various safety risks (navigation, of workforce, etc.) are assessed and managed.

Overview of the framework process

The framework comprises a licencing regime which is structured into stages.

The first step involves assessment of suitable areas for implementation of the technology. The responsible Minister (presumably the Minister for Energy) will declare an area (measured on a 1x1 minute graticular block basis, as for other types of exploration licences) as suitable for clean energy projects, and then may, subject to interest, conduct a process for competitive submissions to deliver projects in the area.

Following this, licences may be issued as follows:

  1. A Feasibility Licence. This provides:
    • a five year period to undertake exploration activities, consult, finalise design and demonstrate ability to manage safety, environmental and other risks (to demonstrate compliance with all relevant requirements, a management plan will need to be prepared); and
    • an exclusive right to seek a Commercial Licence.
  3. A Commercial Licence. This provides:
    • exclusive rights to undertake a commercial offshore clean energy activities for an initial term of up to 30 years;
    • a right to renew indefinitely for so long as a declaration is in place over the relevant area; and
    • a right to apply to NOPESMA to construct, test, commission, operate and decommission the project.
  5. A Non-Commercial Licence. This is not exclusive and is intended to provide a lower cost pathway to support pre commercial exploration or innovative or untested demonstration projects. These licences have a term of ten years and do not lead to a Commercial Licence.
  6. A Transmission and Associated Infrastructure Permit. This may be issued for electricity infrastructure required and will typically be issued in conjunction with a commercial or non-commercial licence.

While a Commercial Licence provides a right of exclusivity, Non Commercial Licences or a Transmission and Infrastructure Permit may also be issued for an area the subject of a Commercial Licence.

The proposed framework will not affect existing rights, and will not apply to low impact activities (such as met ocean bouys). As with any regulated development activity, the framework will allow for penalties for breach and the implementation of safety zones. NOPESMA will be empowered to enforce compliance via inspections, financial penalties and prosecutions, and participants will need to be pre-qualified prior to applying for a licence.

The framework will include an option to charge an annual payment, which will be calculated by reference to the area licenced. Costs will also be recovered through application fees which will be dependent on size and nature of proposed assets.

Analysis

Following a review of the proposed framework, a number of questions arise, including:

  1. What will be prequalification regime look like? Given the importance of safety, will it be similar to the Federal Safety Commissioner's Accreditation Regime, or something less formal?
  2. Does carbon capture fall within the definition of 'offshore clean energy'?
  3. Will the cost recovery mechanism enable full or even partial recovery of the Commonwealth's administration and regulatory costs, and enable payment of an amount which appropriately values the licence interest? In the UK, developers pay rent on leases granted, which is calculated by reference to the power produced and assumes a P50 projection.
  4. Will the Commonwealth co-invest in any projects? There does not seem to be anything preventing a proponent applying for support under the next phase of the Commonwealth's Underwriting New Generation Investment program. Similarly, it may in theory be open to a state government to support a project via a reverse auction process (as is done in the UK) although this would require Commonwealth – State coordination.
  5. Will there be the ability to cancel feasibility Licences if a developer abandons the project or does not otherwise show substantive progress over the course of the five year term? This may be critical given a developer obtains exclusive rights over potentially large areas.
  6. What timing can be expected for the declaration of areas and issue of licences? Will developers be permitted to make representations to the Commonwealth as to areas to be the subject of a declaration?
  7. How will the interface between this regime and any licences granted to oil and gas operators under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 operate? The interface with the EPBC Act will also need to be taken into account in the proposed process.

Further, although some studies indicate that extensive parts of Australian Commonwealth waters may be suitable for some kind of clean energy, it is expected that these projects will focus around locations where the transmission and connection infrastructure is already in place (such as the LaTrobe valley in Victoria), or where there are existing offshore oil and gas facilities (as there may be some technology and supply chain synergies).

As with solar, it is also expected that, as the costs of these projects reduce (and as turbine capacities increase), there will be increased interest from developers in the market.

Looking ahead

Once implemented, the framework will fill an existing regulatory and legislative gap in Australia. It is appropriate that new legislation be developed to address offshore clean energy, as the existing potential legislative pathways (such as the Offshore Petroleum and Greenhouse Gas Storage Act 2006) did not readily lend themselves to these types of projects.

Given the consultation period, the legislation developed following conclusion of the consultation may not come into effect until the end of this year at the earliest.

While the framework is an important development to provide investment certainty to existing and new market entrants, it remains to be seen whether the proposed legislation will kick-start a viable offshore clean energy industry in Australia.

Footnote

1 On 29 March, the Commonwealth executed an exploration licence with a developer to undertake resource exploration for a proposed offshore wind farm off Gippsland in South eastern Victoria. This licence did not provide development or operation rights, and is limited to feasibility work, site investigation and stakeholder consultation. The licence period is for five years with possible extensions.

2 See: https://www.energycouncil.com.au/analysis/will-going-offshore-work-for-our-grid/#_edn6

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