Corrs High Vis: Episode 47 – Commonwealth Government framework for offshore clean renewable energy projects

Jane Hider – Partner

Sophia Georgeff – Associate

Nb: This podcast was recorded in December 2020.

Sophia Georgeff

Today in Corrs High Vis we welcome partner Jane Hider to discuss the proposed framework released by the Commonwealth Government of Industry, Science, Energy and Resources for the delivery of offshore clean renewable projects in Commonwealth waters. The framework was released on 4 January 2020 and has been open for consultation throughout this year. The framework is due to be implemented mid-next year and is significant as it will fill a regulatory and legislative gap in Australia. Jane, welcome and thanks for joining us.

Jane Hider

Thank you for having me.

Sophia Georgeff Jane, could you explain to us why the release of special paper at the beginning of this year was so important?

Jane Hider

The release of the framework for consultation is a recognition of the importance of providing a transparent, consistent and reliable regime for the delivery of offshore renewal energy projects. Until now there has been no clear framework to enable delivery of these kinds of projects.

Offshore wind is a well-established form of renewable energy in a number of countries, notably the UK, Germany and Denmark, and China has recently overseen a significant uptake in the technology, more than doubling its capacity to 1.6 GW between 2017 and 2018.

A number of proposals have been made over the last few years for offshore wind development in Australia. To date however it has been unclear what regulatory pathway would apply to such development, meaning projects have progressed slowly and in an ad hoc manner.

The consultation period has demonstrated that there is overwhelming support from stakeholders to continue the development of the framework which is due to be implemented in mid-2021. Once implemented, the framework will fill this existing regulatory and legislative gap in Australia.

Sophia Georgeff

What are the main principles of the framework? Can you talk us through what it’s aiming to achieve?

Jane Hider

Certainly. The framework is designed to apply to the entire life cycle of an offshore energy project from feasibility through to decommissioning, and recognises that such projects rely on suitable transmission infrastructure. That is, infrastructure to effectively transmit energy and electricity to the consumer always must be in place.

To achieve this a framework has been designed to firstly, recognise the importance of being technology neutral, meaning it will apply to other offshore clean technology such as wave power and geothermal in addition to wind. Second, acknowledge the need to balance the interests of various stakeholders. Third, ensure that the principle of shared use of Commonwealth waters is maintained while the most economically efficient use of the offshore area is pursued. Fourth, ensure that regulation will be risk based, so that the higher the risk the more robust and rigorous the regulation. On that note it is proposed that the existing National Offshore Petroleum Safety and Environmental Management Authority or NOPSEMA regulate these project. Fifthly, recognise the need to ensure compliance with the Environment Protection and Biodiversity Conservation Act 1999 and that all environmental impacts and risks are otherwise properly assessed and managed and finally, recognising the importance of ensuring that various safety risks such as navigation and of workforce are assessed and managed.

Sophia Georgeff

Are there any limitations on transmission infrastructure currently and how does it impact the projects for the future?

Jane Hider

So although some studies indicate that extensive parts of Australian Commonwealth water might be suitable for some kind of renewable energy it’s expected that in reality these projects will focus around locations where the transmission and connection infrastructure is already in place, such as the Latrobe Valley in Victoria, or where there are existing offshore oil and gas facilities because there might be some technology and supply chain synergies there. So we think that developments in this area will be very interesting to follow.

Sophia Georgeff

That does sound very interesting. So I understand that this framework has a licensing regime. What does that mean and how is it structured?

Jane Hider

That’s correct. The licensing regime is structured into stages. So I will just talk you through the steps of it.

The first step involves assessment of suitable areas for implementation of the technology. The responsible Minister, which will presumably be the Minister for Energy, will declare an area which is measured on a one-by-one minute graticular block basis as for other types of exploration licences as being suitable for the clean energy projects. The Minister may then, subject to interest, conduct a process for competitor submissions to deliver projects in the area. Following this process there are four types of licenses that may be issued – a feasibility licence, a commercial licence, a non‑commercial licence and finally a transmission and associated infrastructure permit.

Sophia Georgeff

Can you explain how each of those licences operate?

Jane Hider

Certainly. So the first type is a feasibility licence. This provides a five year period to undertake exploration activities to consult, finalise design and demonstrate ability to manage safety environmental and other key risks, and critically it also gives an exclusive right to then seek a commercial licence.

A commercial licence provides exclusive rights to undertake a commercial offshore clean energy activities for an initial term of up to 30 years. It also provides a right to renew indefinitely for so long as a declaration is in place over the relevant area, and finally a right to apply to NOPSEMA to construct, test, commission, operate, and decommission the project.

The third kind of licence is a non‑commercial licence. This is not exclusive and is intended to provide a lower cost pathway to support free commercial exploration or innovative or untested demonstration projects. These licences have a term of 10 years and don’t lead to a commercial licence.

The fourth kind is a transmission and associated infrastructure permit. This may be issued for electricity infrastructure required and will typically be issued in conjunction with a commercial or non‑commercial licence because it sits off to the side, if you like.

While a commercial licence provides a right of exclusivity, non‑commercial licences or a transmission and infrastructure permit may also be issued for an area the subject of a commercial licence.

It’s important to note that the proposed framework will not affect existing rights, and will not apply to low impact activities such as net ocean buoyance. As with any regulated development activity, the framework will allow for penalties for breach and the implementation of safety zones. NOPSEMA will be empowered to enforce compliance via inspections, financial penalties and prosecutions and participants will need to be pre-qualified in some way prior to applying for a licence.

Finally the framework will include an option to charge an annual payment which will be calculated by reference to the area licensed. Costs will also be recovered through application fees which will be dependent on the size and nature of proposed assets, and this is quite a significant point because in the case of offshore wind projects they are very, very significant and substantial projects.

Sophia Georgeff

Are there other requirements that licence holders will need to be aware of?

Jane Hider

Yes there certainly are. There are management plans and decommissioning bonds that will be required for licence holders. The management plan, as you would expect would identify requirements relating to project delivery including information on environmental and safety management, project design and engineering and plans for construction, operation and decommissioning.

In addition a decommissioning bond will be required as part of the management plan. The bond is intended to equal the amount it would cost the government to decommission infrastructure in circumstances where the licence holder doesn’t meet its decommissioning obligations, and to reiterate the point I just made, this could be quite a significant sum because decommissioning costs could be substantial.

Sophia Georgeff

What is any are the key issues for post framework in its current form? What are the main questions that arise for you?

Jane Hider

Sophia, I think there are a number of questions that arise from the proposed framework and I will leave you with three questions today.

The first is, what will the pre-qualification regime look like? There is very little detail provided on that. Given the importance of safety, one question might be whether it will be similar to the Federal Safety Commissioner’s Accreditation Regime, or perhaps it will be something less formal or much more tailored and specific.

The second question is whether the cost recovery mechanism will enable full or even partial recovery of the Commonwealth’s administration and regulatory costs, and enable payment of an amount which appropriately values the licence interest. In the UK developers pay rent on leases granted, which is calculated by reference to the power produced and assumes a P50 projection.

Finally the question arises as to whether there will be the ability to cancel feasibility licences if a developer abandons the project or does not otherwise show substantive progress over the course of the five year term. This might be very critical given a developer obtains exclusive rights over potentially very large areas.

Sophia Georgeff

Looking ahead, how do you think the implementation of the framework will impact on renewable energy landscape?

Jane Hider

So once implemented, the framework will fill and existing regulatory and legislative gap in Australia. It’s appropriate that new legislation is developed to address offshore clean energy, because the existing potential legislative pathways such as the Offshore Petroleum and Greenhouse Gas Storage Act from 2006 don’t readily lend themselves to these types of projects.

It’s currently expected that the legislation to be developed following the last year of consultation will come into effect in mid-2021. While the framework is an important development to provide investment certainty to existing and new market entrants, it remains to be seen whether the proposed legislation will kick start a viable offshore clean energy industry in Australia.

Sophia Georgeff

Thank you very much for your time today Jane.

Jane Hider

It’s my pleasure.

This podcast is for reference purposes only. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice about your specific circumstances.