4 April 2024 • 21 minute read

Offshore wind development and regulation in Australia

Overview

The Offshore Electricity Infrastructure Act 2021 (Cth) (the OEI Act) and the Offshore Electricity Infrastructure Regulations 2022 (Cth) (the OEI Regulations) set out a licensing scheme which, depending on the licence, enables a licence holder to construct, install, commission, operate, maintain, decommission, and assess the feasibility of, offshore renewable energy infrastructure (including offshore wind infrastructure) in certain areas of Australian Commonwealth waters. Australian Commonwealth waters generally cover the area from three nautical miles to 200 nautical miles off the coastline of Australia, meeting the outer boundary of Australia’s exclusive economic zone.

Declared areas

The Department of Climate Change, Energy, the Environment and Water (the Department) advises the Minister for Climate Change and Energy of Australia (the Minister) on areas it considers suitable for the development of offshore renewable energy infrastructure.

Before the Minister declares an area as suitable, public consultation on the proposed area is open for at least 60 days to take into account factors, for example, other marine users. The Minister must also consult with the Commonwealth Ministers responsible for defence and navigation laws. The Minister may then declare an area as suitable for offshore renewable energy infrastructure and invite applications for a feasibility licence from interested parties. The invitation will specify a closing date for submissions, which is approximately 60-90 days after the invitation is issued, depending on the declared area. The invitation may also specify other requirements to be addressed by a licence application.

As at the date of this article:

Three areas have been declared by the Minister, including an area of 15,000km² off Gippsland, in Eastern Victoria (the Gippsland Area), an area of 1,854km² off the Hunter Region, New South Wales, and an area of 1,030km² offshore from Warrnambool and Port Fairy, in Western Victoria.
Public consultation is complete with respect to the following proposed areas:
- an area of 1,461km² off Illawarra, New South Wales; and
- an area of 10,136km² from Burnie to Bridport, Tasmania.
The Minister has also recently proposed an area of7,674km2 in the Indian Ocean off the Bunbury Region, Western Australia.

The frequency with which areas are declared and licences are awarded varies – there is no set schedule. The process for assessing and declaring areas suitable for offshore wind is generally at the Department and the Minister’s discretion. Consideration of areas for declaration is informed by public consultation and has regard to the need to balance factors like industry interest and readiness, as well as the suitability of conditions for offshore renewable energy infrastructure. Interested parties can nominate sites they would like the Department and the Minister to consider.

In general, licences for offshore renewable energy infrastructure are only granted in declared areas. The exception to this is offshore transmission infrastructure, which does not need to be in a declared area.

Types of licences

Four types of licences may be granted under the OEI Act for offshore renewable energy infrastructure projects:

Feasibility licence (Chapter 3, Part 1, Div 2 of the OEI Act): a feasibility licence will remain in force for up to seven years and permits the licence holder to assess the feasibility of an offshore renewable energy infrastructure project that the licence holder proposes to carry out in the feasibility licence area under a potential future commercial licence.
Commercial licence (Chapter 3, Part 1, Div 3 of the OEI Act): a commercial licence permits the licence holder to carry out a commercial project for the purposes of utilising renewable energy resources for a period of up to 40 years.
Research and demonstration licence (Chapter 3, Part 1, Div 4 of the OEI Act): a research and demonstration licence (an R&D licence) permits the licence holder to research into new offshore renewable energy infrastructure or offshore electricity transmission infrastructure on a small or pilot scale for a period of up to 10 years.
Transmission and infrastructure licence (Chapter 3, Part 1, Div 5 of the OEI Act): a transmission and infrastructure licence (a T&I licence) permits the licence holder to carry out offshore renewable energy infrastructure projects for the purpose of assessing the feasibility of storing, transmitting, or conveying electricity or a renewable energy product. The Minister determines the term of a T&I licence.

Licence applications

Interested parties can only apply for a feasibility licence or an R&D licence in an area after the Minister has declared the area as suitable, in accordance with the process outlined above, and after the Minister has invited applicants to apply for a feasibility licence or R&D licence (as relevant) in respect of all or part of the declared area. A person can only apply for a commercial licence if they hold a feasibility licence in respect of the area for which the commercial licence is sought (section 41 OEI Act) – though granting a feasibility licence does not guarantee a commercial licence will be granted.

As noted above, T&I licences are not required to be in a declared area, nor is there a requirement for a T&I licence holder to be a feasibility licence holder or a commercial licence holder. The timing of the application and approval process for the T&I licence is deliberately intended to be flexible to fit in with broader project development timing, given that the T&I licence will in most instances be used by proponents for the export cable from the offshore generation site to the onshore grid connection.

The Offshore Infrastructure Registrar (the Registrar) administers the licensing framework, including managing the licence application process and providing advice and recommendations to the Minister on licence applications, monitoring licence compliance and maintaining a register of licences.

Upon receipt of a feasibility licence application, the Registrar will review the application against the minimum application submission requirements under the OEI Act and the OEI Regulations. The Registrar will check that, amongst other things:

the applicant is an eligible person (as defined in section 8 of the OEI Act);
the application is made in the approved manner and form (as well as by the day specified in the invitation);
the application fee has been paid (section 46 of the OEI Regulations) – as at the date of this article, the application fee for a feasibility licence is AUD300,000;
there is a description of the proposed offshore renewable energy infrastructure project and licence area; and
the application is accompanied by any other information or documents required by the approved form or any other information or documents otherwise specified in the invitation to apply.

While no feasibility licences have been issued as at the date of this article, the Minister has made preliminary decisions on the grant of feasibility licences for offshore renewable energy infrastructure projects in the Gippsland Area.

On 22 December 2023, the Department published a media statement confirming, amongst other things, that of the 37 feasibility licence applications received:

six applications are under preliminary consideration for the grant of a feasibility licence and have begun further stages of consultation with First Nation groups;
six applications are equally meritorious and have been captured by the overlapping application process (see ‘Overlapping applications’ section below); and
there has been a preliminary decision not to proceed to grant a feasibility licence to each of the 25 remaining applications on the basis that they are less meritorious.

Merit criteria

A person must be an eligible person to apply for a licence. Section 8 of the OEI Act provides that an eligible person is a body corporate that has a registered office in Australia, or a body corporate established for a public purpose by or under a law of the Commonwealth or a State or Territory.

For a licence to be granted to an eligible person, the Minister must be satisfied that the eligible person meets the merit criteria specified in the OEI Act and the OEI Regulations, including:

The eligible person is likely to have, or be able to arrange to have, the technical and financial capability to carry out the proposed offshore renewable energy infrastructure project, including an assessment of the technical advice available to the eligible person and the financial resources available.
The proposed offshore renewable energy infrastructure project is likely to be viable, including an assessment of the complexity of the project, its route-to-market and estimated commercial return.
The eligible person is suitable to hold the licence, including assessing their past project performance, past financial performance (which will include an assessment of experience in relation to prior and current offshore or large-scale infrastructure projects of a similar size) and corporate governance arrangements (notably, this may include inquiry as to suitability of entities having control of the applicant, contemplating the possibility of enquiries up the corporate structure).
Any criteria prescribed by the licensing scheme are satisfied, including that the proposed project is in the national interest which involves, amongst other things, an assessment of the project’s impact on the Australian economy (as well as local communities), impact to national security and whether the project is likely to be delivered within a reasonable time.

Overlapping applications

If the Minister (having regard to the advice of the Registrar) is satisfied that there are overlapping applications that are of equal merit and that, if not for the overlap, a feasibility licence could be offered for each of the applications, the Minister may determine that the applications form an “overlapping application group.”

The Registrar will notify applicants who fall within an “overlapping application group” and invite them to revise and resubmit their applications to remove the overlap.

The notice and invitation given to an applicant must set out:

the area(s) of overlap;
the name of the other applicant(s) whose application(s) overlaps with the applicant’s application; and
the kind of project(s) that such other applicant(s) propose to carry out.

Each individual applicant of an “overlapping application group” does not need to overlap each other applicant of the “overlapping application group”. For example, if Applicant A overlaps Applicant B, and Applicant B overlaps Applicant C, but Applicant A and C do not overlap each other, nevertheless Applicants A, B and C are all part of the same “overlapping application group”.

The notice and invitation from the Registrar may also include such other information as the Registrar considers reasonable about the overlapping applications, and other applications that cover areas adjacent to, or nearby, the area covered by the applicant’s application.

This latter point is important because an applicant in the “overlapping application group” will be entitled to revise its application so that the licence area to which the revised application relates is not limited by reference to that in the original application. In doing so, an applicant may create new overlaps with adjacent or nearby licence areas proposed in other applications, and those new overlaps will then also need to be reviewed and avoided.

Revised applications

A revised application must, to use the language in the OEI Regulations, “remove the overlap”. This means that, at the very least, the proposed licence area specified in the revised application must have changed so as to remove the spatial overlap with the proposed licence area of any other application.

Otherwise, the OEI Regulations provide that a revised application must, so far as is reasonably possible, remain “substantially similar” to the original application. In assessing what “substantially similar” means, the Registrar may take into account anything it considers relevant, including the location, shape and size of the original and revised proposed licence areas, and the details of the original and revised proposed projects.

The Registrar has released a guideline on the feasibility licence process, where it states by way of example that:

“A proposed 1 GW wind project with a licence area of 500 km² should remain substantially a 1 GW wind project with a licence area of 500 km² after any application revisions, and any proposed relocation should be for the minimum distance necessary to resolve any overlaps with other applications.”

Competition law risks

While not expressly contemplated by the OEI Act or the OEI Regulations, the need for revision of applications creates incentives for applicants in an “overlapping application group” to coordinate in preparing their revised applications and remove the overlap in their proposed licence areas. Such coordination will generally entails competition law risks under Part IV of the Competition and Consumer Act 2010 (Cth) (the CC Act), including in particular a risk of breach of the criminal and civil prohibitions against cartel conduct.

The Registrar has released an FAQs document on the feasibility licence process, where it states that:

“Applicants must comply with all relevant legal obligations, including those set out in Part IV of the Competition and Consumer Act 2010 (the Competition and Consumer Act), whether for the purposes of collaboration to resolve a feasibility licence application area overlap or any other purpose.

If collaboration by applicants is limited to working out how to revise their applications in order to remove overlaps and avert the need for the Minister to follow the financial offer process, then such collaboration, in and of itself, will not cause applicants to contravene Part IV of the Competition and Consumer Act, which prohibits anti-competitive practices.

Any communication or collaboration which goes beyond the process outlined in the OEI Regulations to matters such as bid-fixing or price fixing could constitute a breach of the Competition and Consumer Act. For this reason, it is important for applicants to understand their obligations under both the OEI Regulations and the Competition and Consumer Act. If an applicant remains concerned, they should seek independent legal advice and/or contact the Australian Competition and Consumer Commission prior to commencing conversations with other applicants.”

An application submitted by the Department to the Australian Competition and Consumer Commission on 15 March 2024 (the Application) should result in a significant reduction to competition law risks for overlapping applicants.

The Application seeks authorisation until 15 March 2027 (being the expected time to complete feasibility licence application processes for any future declared areas), for applicant parties who have received an invitation from the Registrar, to submit a revised application to engage in the conduct proposed under the Application. If approved, the overlapping applicant parties will be authorised to, without breaching the CC Act, engage in communication and propose, enter into, and give effect to agreements with other applicant parties for the purposes of enabling those parties to revise the existing areas in their applications. Communications will be limited to the exchange of geographical information concerning the licence areas and any agreements proposed, entered into or given effect will only be permitted to the extent that they do not involve the exchange or transfer of anything of monetary or commercial value (save for obligations of confidence, geographical information or agreements on geographic scope).

Financial offer

If overlapping applications are not resolved by revision within the allowed revision period, the process moves to a final ‘tie-break’ financial offer stage, whereby the Minister may determine that the applications form a “financial offer group.”

If the Minister determines that a “financial offer group” exists, the Minister may invite applicants to submit financial offers in relation to their respective applications.

The Minister may only then grant a feasibility licence to the highest financial offer. If, in the unlikely event that two financial offers are tied for the highest financial offer, those applications will be invited to submit a second offer.

The Minister may only grant the feasibility licence once the amount of the financial offer has been paid to the Commonwealth. The financial offer must be paid even if it subsequently becomes clear that there are no overlapping applications (because all other applicants withdrew their overlapping applications).

Before granting a licence to an applicant, the Minister must first provide a written offer specifying the area, term, and conditions. If the offer is accepted by the applicant in the manner and within the time period specified, the licence will be granted to the applicant.

Recourse for unsuccessful applicants

The Minister can refuse to offer to grant a feasibility licence if:

the application does not meet the OEI Act or the OEI Regulations;
the application does not meet the application requirements; or
the Minister is not satisfied the applicant meets the merit criteria.

Section 43 of the OEI Regulations provides that procedural fairness may apply to certain applications where a decision-maker proposes to make a decision to refuse an application, including a decision not to offer to grant a licence (other than a feasibility licence). A decision by the Minister under sections 42 (Grant of commercial licence), 52 (Grant of research and demonstration licence) and 61 (Grant of transmission and infrastructure licence) of the OEI Act may be subject to an application for review made to the Administrative Appeals Tribunal (see section 297 of the OEI Act).

There is no recourse under the OEI Act for a decision not to grant a feasibility licence. Unsuccessful applicants will need to consider what other recourse, outside the OEI Act, may exist at law.

Other OEI Act requirements

The Offshore Infrastructure Regulator (the Regulator) is responsible for work health and safety, infrastructure integrity, environmental management, financial security and regulation of day-to-day operations in respect of offshore renewable energy infrastructure.

To construct, install, commission or operate any offshore renewable energy infrastructure or offshore electricity transmission infrastructure in a licence area, a licence holder must obtain approvals from the Regulator including, but not limited to, approval of the project management plan. In addition, it must lodge the required financial securities (see sections 31, 117 and 118 of the OEI Act).

Management Plan

Management plans must detail how the offshore renewable energy infrastructure activities will be carried out. They need to be submitted by the feasibility licence holder and assessed and approved by the Regulator before a commercial licence can be granted and may also be required before activities are undertaken under a feasibility licence (depending on the nature of the activities).

Management plans must contain all measures to support compliance with the OEI Act requirements (including environmental management, work health and safety, infrastructure integrity, emergency management, and consultation arrangements), and must also demonstrate how activities will be undertaken in accordance with approvals required under other legislation (more on this below).

As at the date of this article, the Department is developing more detailed regulations and guidance around management plan requirements.

Financial Security

Section 117(1) of the OEI Act provides that a licence holder for which there is a management plan must, at all times while the licence is in force, provide the Commonwealth with financial security sufficient to pay any costs, expenses and liabilities that may arise in connection with, or as a result of:

decommissioning;
removal of equipment and other property; and
remediation of the licence area, vacated areas and any other affected areas.

As at the date of this article, the Department is developing more detailed regulations and guidance around financial security requirements.

Levies

As at the date of this article, the levies payable by a feasibility licence holder are:

annual licence levy – AUD120,000 plus AUD1,000 per 10 km² of licence area over 100 km²;
annual compliance levy – AUD100,000 plus AUD5,000 per 10 km² of licence area over 100 km²; and
annual Commonwealth levy – AUD513,342.

Environmental and other approvals

In addition to the licensing requirements under the OEI Act and the OEI Regulations, proponents will need to consider obtaining the relevant environmental approvals in respect of any proposed offshore activities.

The Environment Protection and Biodiversity Conservation Act 1999 (Cth) (the EPBC Act) is administered by the Department and is the primary piece of legislation for the management and assessment of environmental protection in Australian Commonwealth waters. It provides for the protection of matters of national environmental significance (MNES) which include Australian Commonwealth waters and threatened and migratory species. Any offshore renewable energy infrastructure project that will have, or is likely to have, a significant impact on any MNES must be referred to the Department to determine if it is a “controlled action” (as defined in the EPBC Act) requiring Commonwealth approval.

Activities that require environmental approvals may not be limited to infrastructure developments, it may also include preliminary research and testing activities which assist the proponent in determining feasibility.

Obtaining approval under the OEI Act does not secure the proponent approval rights under the EPBC Act or any other environmental legislation.

Once an EPBC Act approval or other environmental approval has been secured, any conditions applied to the approval need to be satisfactorily addressed by the proponent in the project management plan.

Depending on the location of the project, proponents will also need to obtain and incorporate other approvals and consents into their project management plan, including, for example, cultural heritage, native title and Department of Defence consents.

Grid connection

An important part of any offshore renewable energy infrastructure project will be connection to the Australian national electricity market (the NEM), for east coast projects, and the Wholesale Electricity Market (the WEM), for west coast projects.

Onshore grid connection to the NEM is regulated under the National Electricity Rules, and onshore grid connection to the WEM is regulated under the Wholesale Electricity Market Rules, both of which are administered by a Commonwealth body, the Australian Energy Market Operator (AEMO). The grid connection process itself involves the proponent engaging with local network service providers, which (depending on the state or territory) are either state-owned or private-owned corporations. The rules include stringent processes and procedures for grid connection.

As at the date of this article, no grid connections, or onshore transmission corridors specifically for offshore wind, have been established. Given jurisdictional responsibilities, state and territory governments will be coordinating development of grid connection points and transmission corridors. As an example of this, the Victorian Government recently introduced the National Electricity (Victoria) Amendment (VicGrid) Bill 2024, which takes a step towards implementing a new Victorian Transmission Infrastructure Framework (including for offshore wind). Complementary to the VicGrid Bill was also an update to the Energy and Public Land Legislation Amendment (Enabling Offshore Wind Energy) Bill 2024, which makes provision for the inclusion of offshore wind in the state’s network. Further, the Bill will allow offshore wind developers to obtain tenure over public land up to three nautical miles from the coast in order to investigate suitable locations for offshore electricity infrastructure.

The Victoria Government and New South Wales Government continue to work in this area and develop further legislation and policy that will complement the Commonwealth licensing framework outlined above and (hopefully) ensure timely but non-duplicative, lower-cost and lower-impact grid connection and onshore transmission.

Government funding

The Commonwealth Government’s AUD20 billion ‘Rewiring the Nation plan’ allocates AUD12 billion to priority transmission projects. This follows AEMO’s ‘Integrated System Plan’ which describes, amongst other things, where additional transmission, generation and storage infrastructure is needed in the NEM over the next 20 years. The Commonwealth Government appears to be working closely with state and territory governments to accelerate Australia’s clean energy transition. The Commonwealth Government has committed:

AUD2.25 billion of concessional financing to Victoria projects, which will go towards renewable energy zones, offshore wind projects and the Victoria-New South Wales Interconnector; and
AUD4.7 billion to New South Wales transmission projects, which will also go towards the Victoria-New South Wales Interconnector, as well as the HumeLink, the Sydney Ring and renewable energy zones (including in the Hunter region).

The Victorian Government has established the ‘Energy Innovation Fund’ to support innovative renewable energy technologies through, for example, feasibility studies, pilots or demonstrations. Round 1 of delivery of the fund was focused on offshore wind during which three proposed offshore wind projects were successful in securing funding:

The Seadragon Offshore Wind Farm (Flotation Energy) was awarded AUD2.3 million.
The Great Southern Offshore Wind Farm (Macquarie Group) was awarded AUD16.1 million.
The Star of the South Offshore Wind Farm was awarded AUD19.5 million.

The Victorian Government is now developing its proposed offshore wind support package which includes a Contract for Difference plus availability-style payments, to ensure projects are bankable. The Victorian Government has flagged that this will involve running an auction process, with an Expression of Interest (EOI) phase targeted to commence in Q4 2024 and close in Q1 2025, Request for Proposal (RFP) phase targeted to commence in Q3 2025 and close in Q1 2026, and contract negotiation and award expected later in 2026

In due course, to support further industry investment and to help offshore renewable energy infrastructure projects reach financial close, it is likely that further Commonwealth, state and territory government subsidy schemes and funding will be required. The nature and extent of these subsidies and Government funding remain to be seen and will be dependent to some extent on how the industry develops during the feasibility phase, over the next five to ten years.