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Offshore Electricity Bill

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Written by Claire Rogers and Tim Stanton

The Offshore Electricity Infrastructure (“Bill”) was passed by the Australian Parliament on 25 November 2021, representing an important first step in the development of Australia’s offshore renewable energy sector.

Introduction

Last week also saw the Victorian government provide $40million in public funding to kick start three major offshore wind projects being developed by Star of the South, Macquarie Group and Flotation Energy.

Although it is still early days and key questions remain to be answered in relation to the how the necessary offshore grid infrastructure will be developed and how offshore wind may fit into the NEM, it marks a key milestone for Australia on the path to net zero.

Historically in Australia, given our abundance of land, offshore wind has been unable to compete with onshore projects. However as a result of:

  1. the significant cost reduction of offshore wind as a consequence of the maturation of offshore wind markets in the UK, US and Asia;
  2. the advantage of offshore wind in terms of consistency of wind resource (and therefore consistency of generation);
  3. the technological improvements resulting in significantly larger turbines (and therefore generating power) that can now be deployed offshore; and, finally
  4. the increasing community resistance to onshore wind as more projects are developed,

means that offshore wind is now a far more compelling proposition.

Background

On 2 September 2021, the Bill was introduced to the Australian Parliament. The introduction of the Bill is an important milestone in the development Australia’s offshore renewable energy industry, representing the first step to developing a dedicated regulatory regime to cover the offshore electricity market. 

The Bill seeks to establish a regime (and licencing framework) for the full lifecycle of offshore infrastructure projects in Commonwealth waters, including the initial exploration and feasibility studies, construction, operation, maintenance and decommissioning of offshore renewable energy infrastructure or offshore electricity transmission infrastructure. The legislation is technology non-specific – but will support development of offshore wind farms and transmission infrastructure as well as potentially less established technologies such as wave, tidal and ocean thermal. We are even seeing suggestions of offshore solar.

As a starting position, the legislation prohibits the development or operation of offshore renewable energy infrastructure unless the Minister has declared the area as suitable for offshore renewable energy infrastructure and a licence has been granted to the proponent for the relevant activity.

The Minister has wide ranging powers under the Bill to declare an area suitable for renewable energy infrastructure and to award licences. Detail constraining those powers and factors that the Minister must take account of are expected to be covered in the regulations (still being developed).

The licence regime

The Bill establishes a licensing scheme where developers will be required to apply for licences to develop their projects within defined offshore energy sites declared by the Minister.

The licences are all granted on a suitability and merit-based criterion. In short, the proponent must have the technical and financial capability to carry out the proposed project, the project must be likely to be viable and the proponent must be suitable to hold the licence. Further, once a licence has been obtained, licence holders will generally be required to:

  • Have an approved management plan in place;
  • Conduct activities in accordance with that management plan;
  • Provide financial security to cover the cost of decommissioning;
  • Comply with directions made by the Offshore Infrastructure Regulator, the National Offshore Petroleum Safety and Environmental Management Authority.

Commercial licences

Commercial licences are intended for commercial-scale projects intending to generate electricity through offshore renewable energy infrastructure. 

A project proponent must first obtain a feasibility licence, before being able to apply for a commercial licence to undertake a project. Feasibility licences provide proponents with the exclusive right for an initial term of up to 7 years to assess the feasibility of the offshore wind project by conducting exploration activities and feasibility studies. The process for obtaining a feasibility licence will be a competitive process, with the Minister selecting the successful proponent based on the merit-based criteria as described above. The licensing scheme (to be further identified through regulations) may provide for proponents to submit financial offers along with their applications and for such financial offers to be considered by the Minister.

Once feasibility work is completed, the feasibility licence holder can apply for a commercial licence. Commercial licences have an initial term of up to 40 years (with the possibility of extension in accordance with the licensing scheme). 

Under a commercial licence, the holder is permitted to construct, install, commission, operation, maintain and decommission offshore renewable energy infrastructure in the licence area.

Research and demonstration licences

This type of licence is intended for small-scale projects to undertake research and to test or demonstrate emerging technologies such as wave, tidal or ocean thermal.

Licence holders would be permitted to conduct research on the feasibility and capability of technologies, systems and processes and demonstrate the capabilities of such technologies, systems or processes. The licence holder could also conduct research relating to the exploitation of, or exploration for, renewable energy resources.

This licence may be granted for a maximum of 10 years, with the possibility of extension. It should be noted that research and demonstration licences do not lead directly to the issue of commercial licences. A feasibility licence would need to be obtained first.

Transmission and infrastructure licences

Transmission and infrastructure licences allows for the development of transmission and other ancillary infrastructure (including the storage, transmission and conveyance of electricity or a renewable energy product) within or through a licence area. These licences will allow offshore generated electricity to be connected to onshore grid infrastructure or other end users.

The holders of such licences do not necessarily have to also hold feasibility and commercial licences which opens up the potential for third parties to provide certain transmission services to projects. These licences do not have a set term and can be issued for the term of the asset life and unlike the other licence streams, can be granted outside of a declared area.

Looking forward

The passing of the Bill marks an important first step for the development of Australia’s offshore wind sector. Despite it being in a very early stage of development compared to other countries, Australia has significant offshore wind capacity that can assist Australia’s transition to more reliable, affordable and clean energy use.

Much of the detail around the operative framework will be published in 2022 following further consultation and development and there is still a long way to go.

In addition to the grid infrastructure challenges noted earlier in this alert, the Australian federal system also means that States will need to come to the party and work with the Commonwealth so that there is a clear regulatory pathway for offshore wind developments and a sensible approach to the development of grid infrastructure. 

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