A long-awaited step towards greater certainty for investors in offshore wind farm projects 7 min read
The positive Senate inquiry into the Offshore Electricity Infrastructure Bill 2021 (the OEI Bill) suggests this legislation will be passed shortly. It represents a long-awaited step towards developing a regulatory framework and providing greater certainty for investors in offshore wind farm projects, as well as other forms of offshore electricity infrastructure.
This Insight explores the new framework, and unpacks what the OEI Bill is, what it does and what else offshore renewable energy developers will need to consider.
- Australia will soon have a legislative framework for granting rights to seabed in Commonwealth waters for the development of offshore electricity infrastructure, such as offshore wind farms and transmission infrastructure.
- Much of the detail around the allocation of seabed rights will be developed in regulations that are planned to be published in 2022.
- The OEI Bill does not address rights to seabed within state and territory waters, how offshore transmission infrastructure will be owned or funded or provide for government support through offtake agreements or other support mechanisms.
|What is it?|
The OEI Bill establishes a framework for proponents to apply for statutory licences to use the seabed for offshore electricity infrastructure activities.
|Which seabed does it cover?|
The OEI Bill will only regulate access to seabed in Commonwealth waters, and not in state or territory waters. Australian states and territories have jurisdiction over the waters extending for 3 nautical miles from the coastline of the state or territory, while Commonwealth waters extend seaward from the 3 nautical mile line out to the edge of Australia's exclusive economic zone.
|Where has it come from?|
There has been growing interest in offshore wind farms in Australia. In January 2020, the Federal Government issued a discussion paper proposing a regulatory framework for offshore wind farm projects in Commonwealth waters, which has since developed into the OEI Bill.
There is no current regulatory framework for offshore wind in Australia. The OEI Bill recognises the benefits that regulatory certainty provides for investors and signifies a commitment from the Federal Government to bringing offshore wind to Australia's shores in the coming years.
|Why does it matter?|
Offshore wind is a trend that's in its very early stages in Australia, although it's a relatively mature industry in other parts of the world. Australia is in a unique position to harness the benefits of offshore wind: it has a coastal population, net-zero targets in each state and territory, and increasing social licence concerns for onshore renewable projects. There have already been multiple offshore wind farm projects proposed around the country.
The OEI Bill creates a licensing regime for activities associated with offshore renewable energy and electricity transmission infrastructure, such as construction, installation, operation and maintenance. The OEI Bill includes four types of licences:
- Feasibility Licence: 7-year licence, which allows the holder to assess the feasibility of an offshore infrastructure project within a licence area (which must be within a declared area) and to apply for a Commercial Licence for the proposed project if the holder wishes to do so.
- Commercial Licence: 40-year licence, which allows the holder to carry out an offshore infrastructure project (in a declared area) for the purpose of exploiting renewable energy resources. These licences can only be granted to the holder of a Feasibility Licence and are targeted more towards commercial-scale projects seeking to generate electricity.
- Research and Demonstration Licence: 10-year licence, which allows the holder to carry out research relating to the feasibility, capabilities or exploitation of offshore renewable energy or electricity transmission infrastructure (for an area within a declared area). These licences are intended for small-scale projects to undertake research and test new technologies.
- Transmission and Infrastructure Licence: this licence allows the holder to store, transmit, or convey electricity or renewable energy (or assess the feasibility of doing so). It has no prescribed term, and the licence can be granted within or outside a declared area.
This licensing regime raises a number of questions, such as:
What's a declared area?
- Licences are restricted to the Commonwealth offshore area. The Minister may declare a specified area to be a 'declared area', meaning it is determined to be suitable for licensing (and, by extension, offshore infrastructure activities). If an area is proposed to be 'declared', the Minister must publish a notice on the Department's website specifying the area and inviting submissions from the public. In making their decision, the Minister must take into account any submissions received, as well as Australia's international obligations and any potential impacts of the offshore infrastructure activities in the area on other interests or marine users. Subject to consulting the Defence Minister and having regard to any submissions received, there is no indication that states and territories would be consulted as part of the declaration process. There is also no indication as to the level of technical or environmental assessment that will be undertaken by the Minister before making such a declaration.
How do I get a licence?
- Applicants seeking to be granted a licence must satisfy certain merit criteria. These include that the applicant has the technical and financial capability to carry out the proposed offshore infrastructure project, and that the project itself is likely to be viable.
The licensing scheme to be included in upcoming regulations may provide for further matters to be considered in a decision on the suitability of an applicant to hold a licence, and details on the application process relating to licences.
Who is responsible for oversight?
- The National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) is the proposed regulator that will monitor and enforce compliance with the legislative regime, environmental obligations, and general operations and safety. The National Offshore Petroleum Titles Administrator (NOPTA) is the proposed registrar that will manage the administration of licences, including maintaining registers, and collecting relevant information and reports. NOPSEMA and NOPTA have existing roles in the offshore oil and gas sector, and there are strong parallels between the OEI Bill and the oil and gas regulatory frameworks.
What obligations attach to licences?
- The OEI Bill includes stringent frameworks dealing with the provision of bonding/security for decommissioning costs, transparency of ownership and change of control framework. Project-specific licence conditions will also be imposed on licence holders.
The OEI Bill is only the first chapter. There are various issues the new legislative framework does not deal with that investors who are keen to investigate this industry further will need to bear in mind. A selection of these are set out below.
Understanding how licences will be assessed and allocated
The OEI Bill does not provide much insight into the Commonwealth's intentions for the process of allocating seabed licences, although further details are expected to be captured in subordinate instruments in early 2022.
Interaction with state and territory governments
The interplay between the Federal Government and the state and territory governments will be very important in the offshore wind sector given the states' territorial seas only extend seaward for 3 nautical miles from the low water mark of the coast. State involvement will also be critical when it comes to issues relating to the tenure and approvals for the transmission infrastructure that takes electricity from the wind farm and connects into the grid onshore.
The OEI Bill does not deal with matters related to government support (such as offtake agreements), environmental approvals (which will be required under existing legislation) or how transmission infrastructure will be owned, funded or operated. We expect that state governments and Australian's national energy regulatory bodies will be more active in these regulatory spheres. It will be important to understand what incentives and regulatory frameworks will apply in each state and territory, particularly as the states look to develop 'Renewable Energy Zones' within the transmission networks.
Foreign investors will need to consider the Foreign Investment Review Board implications of a licence application under the legislative framework.
The OEI Bill was referred to the Senate Environment and Communications Legislation Committee on 2 September 2021 for an inquiry and report and the Committee reported on its inquiry on 14 October 2021. The committee's report indicates bipartisan support for the OEI Bill and we understand the Federal Government is aiming to pass the OEI Bill later this year. We expect an area of seabed will be 'declared' by the Minister shortly after. Following the enactment of the OEI Bill, regulations are expected to be made in 2022 giving further colour to the new regime.
We will continue to track, monitor and report on these developments as they continue to unfold. Please get in touch with our team if you would like to discuss the regulatory framework further.