Offshore wind in Australia – further developments in regulatory framework ahead of licence applications

Background

There have been 2 notable regulatory developments since our last offshore wind update.

Following our earlier update on the draft regulations, the final version of the Offshore Electricity Infrastructure Regulations (OEI Regs) commenced on 2 November 2022. The OEI Regs are largely consistent with, but add more detail to, processes in the draft regulations released earlier in the year.[1]

Development of the offshore wind sector continues in Victoria with the release of the State Government’s first Offshore Wind Implementation Statement (Statement).[2] The Statement is the first of three implementation statements that will coordinate the rollout of offshore wind in Victoria.

Key points

• Process to resolve overlapping applications finalised
• Invitations for licence applications expected in December 2022[3]
• More certainty around transmission connection in Victoria
• New Victorian Government office dedicated to offshore wind announced
• Port of Hastings likely to become Victoria’s offshore wind hub

Overlapping applications

The intense local and overseas interest in offshore wind projects in Australia has resulted in potentially multiple overlapping projects.[4]

The Regs have clarified how overlapping feasibility licence applications will be assessed.

An ‘overlapping application group’ can be determined by the Minister where 2 or more feasibility licence applications are made for an overlapping area.[5] The Minister will form an overlapping application group when:

1. the applications are of equal merit (the Minister must have regard to technical and financial capability, likely viability of the project, suitability of the applicant, national interest and any other matters the Minister considers relevant)[6], and
2. each application overlaps at least one other in the group (but they don’t all need to overlap), and
3. the areas sought under the applications form a continuous area, and
4. if not for the overlaps, a licence could be offered to each applicant.

Once determined by the Minister, the Registrar will notify affected applicants and invite them to revise and resubmit applications to remove the overlap.[7] Applicants will not be charged an additional fee for a revised application. The Registrar’s notice will set out: 

1. The area/s of overlap
2. The name of the other applicant/s
3. The kind of project proposed by the other applicant/s
4. Any other information the Registrar considers reasonable and may include information about other applications that are adjacent to or nearby the application area.

If the overlap is not resolved following revision of applications, the Minister can form a ‘financial offers group’ where affected applicants are invited to make an offer to the Commonwealth Government.[8] The invitation to submit financial offers must:

1. Include information on how the offers are to be made;
2. Specify the day on or before which the offers must be made;
3. Require the applicants to substantiate their ability to pay the amounts offered; and
4. Set out the effect of section 16 (which deals with how the Minister will deal with tied offers).[9]

Financial offers are expected to be made by secret auction with a single round of uncapped bids unless specified otherwise.[10] 

A feasibility licence will be granted to the highest bidder amongst overlapping applicants. However, a feasibility licence will not be granted until the successful applicant pays the financial offer to the Commonwealth Government in full.[11]

As such, applicants in the financial offers group will be incentivised to submit a financial offer that they consider will be greater than the others in group (without visibility as to other applicants’ offers in the group) balanced against the fact that the project will be in the pre-feasibility stage with no guarantees of achieving financial close. In our view, the intent of this process is to draw out the participant who has the confidence to take the project through to financial close.

Merit criteria focus on economic factors

The Regulations allow the Minister to consider, in assessing a licence application, whether the project is likely to be delivered in a reasonable time and whether the project will make efficient use of the project area.  In addition, the Minister can take into account regional development, job creation, contribution to Australian industries and the use of Australian goods and services in the project.   The Regulations have also widened the category of persons considered suitable to hold a licence.  This now includes applicant's past performance on any large infrastructure project, not just offshore infrastructure projects as originally provided for in the draft Regulations.   

Transmission

VicGrid will work alongside the Australian Energy Market Operator (AEMO) to develop transmission infrastructure in Gippsland and Portland.[12]

VicGrid, a newly formed body that sits within the Department for Environment, Land, Water and Planning (DELWP), will coordinate planning and development of Victoria’s renewable energy zones (REZ). The Gippsland and South West REZs are those most relevant to Victorian offshore wind projects.

Victoria’s proposed REZ locations have been selected based on Victoria’s greatest renewable potential. The locations were identified by AEMO in the Integrated System Plan.[13] REZs will ensure the right infrastructure is in place to enable energy generated from Victoria’s strongest renewable areas gets to where it is needed. Investment in REZ projects has already begun with 2 proposed stages of investment. Currently there are proposed connection points with 2-2.5 GW capacity in Gippsland and Portland.

The Andrews Government’s policy to revive the State Electricity Commission if re-elected will also impact the rollout of transmission infrastructure in Victoria. The Andrews Government has promised an initial investment of $1 billion in renewables, including offshore wind.[14] More information about transmission rollout is expected after the 26 November election.

Offshore Wind Energy Victoria

The Victorian Government will create a new government office dedicated to offshore wind.[15] Offshore Wind Energy Victoria will operate as Victoria’s ‘one-stop-shop’ for development and engagement with offshore wind. Further details about the new offshore wind office are expected in early 2023 once Victoria’s legislative and regulatory process is finalised.

Port of Hastings

The Victorian Government owned Port of Hastings has been flagged for redevelopment as Victoria’s hub for offshore wind.[16] The port is proposed to operate as a multi-purpose facility for construction, manufacturing, and research. Community and stakeholder consultation for redevelopment of the port is expected in late 2022.