Proposal for offshore renewable energy legislation in Australia

By John O’Kane and Paul Todd

The Offshore Electricity Infrastructure Bill 2021 is currently before the House of Representatives for debate. The long-awaited Bill follows the publication of various discussion papers and extensive industry consultation.

The Bill’s purpose is to establish a framework for the development of offshore renewable energy projects in the Commonwealth offshore area. If passed, the new legislation would fall within the portfolio of the Minister for Energy and Emissions Reduction (Minister).

The Commonwealth offshore area is defined as the waters beyond three nautical miles, to the outer edge of Australia’s Exclusive Economic Zone. State and Territory laws will continue to apply to State or Territory coastal waters.

The Bill is technology neutral, covering all offshore clean technologies such as offshore wind, wave and tidal generation and potential for new generation technologies in the longer term. The offshore wind sector is the most commercial and technologically advanced and is expected to benefit most from the Bill’s introduction.

The scope of the Bill is broad, outlining a regulatory framework covering the full project lifecycle, from development to decommissioning. The most significant aspect of the Bill, for developers and investors at least, is the creation of a licensing and permitting framework. This should mitigate significant development and litigation risk in the absence of a clear licensing framework.

The relevant explanatory memorandum states in providing a framework for granting licences to undertake offshore electricity infrastructure activities ‘regulatory certainty will allow investors to move their projects forward, enabling a new offshore industry to develop in Australia’.^[1]

Context and reasons for the Bill

Lack of dedicated framework in Australia

There is no dedicated regulatory framework for offshore electricity infrastructure projects in Australia.

There are a number of high-profile offshore projects under development in Australia, most notably the Star of the South offshore wind farm and Marinus Link Interconnector between Victoria and Tasmania.

As it stands, developers are able to undertake development activities, such as exploration activities approved under the Environmental Protection and Biodiversity Act 1999 (Cth) and Navigation Act 2012 (Cth), but must do so on an ad hoc basis and without a regulated pathway to development.

Given the significant investment costs associated with site assessment for offshore wind projects in Australia, estimated to be in the order of $20 – $30 million, the lack of a clear pathway to development poses a significant risk for investors and developers.

Growth of offshore wind farms globally and Australia’s wind potential

According to the International Energy Agency, the global offshore wind industry grew nearly 30% between 2010 and 2018.^[2]

This growth has been fostered by European countries bordering the North Sea (such as the United Kingdom, Germany, Netherlands, Denmark and Belgium) and is underpinned by policy support, technological advancements and cost reductions in turbine manufacturing and installation.

While Europe leads the way in offshore wind development, China is quickly building its offshore wind industry with Korea and Japan setting ambitious capacity targets.

Australia has seen a proliferation of renewable energy projects being built over the last decade, however, the majority of these have utilised onshore wind, solar and hydro resources.

There may be a number of reasons why Australia lags behind the rest of the world when it comes to offshore wind energy production. First, Australia has an abundance of high-quality on-shore wind and solar resources without the land constraints experienced by countries such as the United Kingdom, Japan and Korea. Second, across many parts of the Australian coastline, the shelf falls away quickly meaning there are fewer locations in which fixed-bottom offshore wind turbines are viable.

Uncertain policy settings and the lack of a dedicated regulatory regime has undoubtedly restrained investment in Australia’s offshore wind industry.

A recent report published by Blue Economy CRC, partly funded by the Commonwealth, found that Australia has very high quality and abundant offshore wind resources with a range of promising locations for offshore wind, including a number of locations close to large industrial loads (Port Kembla, Newcastle, Gladstone and south of Perth).^[3]

While onshore wind farms may be cheaper to build and maintain, offshore wind farms have greater generation potential and capacity factors. This is because wind is less gusty and stronger over bodies of water than over land, creating increased generation potential and efficiency. Offshore wind farms offer the potential to diversify and deliver high capacity factor renewable energy that would complement other renewable technologies such as solar PV and onshore wind.

The timing of Blue Economy CRC’s report coincides with the introduction of the Bill, recommending the Commonwealth establish a regulatory regime for offshore renewable energy in Australia.

Key aspects of the Bill

Declared areas and licensing scheme

The most significant aspects of the Bill are that it empowers the Minister to:

• declare a specified area suitable for licensing (known as a ‘declared area’ under the Bill); and
• grant licences allowing proponents to undertake offshore infrastructure activities in a declared area (transmission and infrastructure licences are not limited to declared areas).

In designating an area a ‘declared area’, the Minister must be satisfied that the specified area is suitable for offshore renewable infrastructure, follow the public submission requirements and give consideration to a number of factors set out in Division 2 of the Bill.

There are four types of licences that may be granted:

1. feasibility – authorising the licence holder to undertake project feasibility activities and apply for a commercial licence for the project (up to seven years duration);
2. commercial – authorising the licence holder to carry out an offshore project for the purpose of exploiting renewable energy resources (up to 40 years duration). Prior to obtaining a commercial licence, a feasibility licence must first be obtained;
3. research and demonstration – authorising research into, or demonstration of, offshore energy or transmission infrastructure (up to 10 years duration); and
4. transmission and infrastructure – authorising the storage, transmission or conveyance of electricity or a renewable energy product (not limited to a declared area) (duration for the life of the relevant asset).

The licensing scheme allows for financial offers to be considered in circumstances where applications for the same declared area are similarly meritorious.

In order to obtain a licence, applicants must meet merit criteria relating to:

• technical and financial capability;
• project viability;
• suitability to hold the relevant licence; and
• any other criteria prescribed by the licensing scheme.

Before commencing installation of any infrastructure, licence holders will also be required to provide financial security that covers the cost of decommissioning all proposed infrastructure. Security amounts and timing of securities will be assessed on a case-by-case basis by the Regulator, being the National Offshore Petroleum Safety and Environmental Management Authority.

Management plans covering environmental management, work health and safety, infrastructure integrity, emergency management, consultation and financial security arrangements will also need to be in place for licence holders.

Licence holders may transfer a license, provided approval is obtained by the Minister, the merit and suitability requirements are met and financial security is ensured. A change in control of a licence holder will also trigger the requirement for Minister approval.

Environmental approval and protection

The Bill does not provide for additional environmental assessment and approval. Existing environmental approvals for offshore infrastructure under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) will continue to apply.

The management plan will provide for licence holders to demonstrate how conditions of approval and environmental obligations set under the EPBC Act will be met and comply with other Bill provisions and any other additional environmental management requirements.

Implications if/when the Bill is passed

If the Bill is passed, which is expected, it will mark an important development in reducing the complexity and risk faced in the establishment of offshore infrastructure projects as well as enhancing new opportunities for renewable energy generation.

While this is an important development, it remains to be seen whether this will accelerate development of an offshore clean energy industry in Australia.

The recognition and incorporation of offshore wind into national and state energy planning to support the development of offshore wind projects will also play a key role in incentivising development.

As the commerciality of offshore wind projects becomes more viable for investors and developers in Australia and the costs of global offshore wind continue to fall, we may look back on the introduction of the Bill as a significant milestone for the offshore wind industry.

[1] Explanatory Memorandum, Offshore Electricity Infrastructure Bill, 6.
[2] International Energy Agency, Offshore Wind Outlook 2019.
[3] Blue Economy Cooperative Research Centre, Offshore Wind Energy in Australia (2021).