Feasibility Licences for Offshore Wind Projects
09 November 2023
09 November 2023
One of the challenges with the feasibility licence award process is that two or more competing projects may apply for a feasibility licence over the same or overlapping areas.
If that occurs, and the Minister believes overlapping projects are of equal merit, then the Minister has the power to make an “overlapping application group determination”. The projects within that group will then be invited by the Registrar to revise and resubmit their applications to remove the overlap. If they do not, then the overlap is determined by a financial offer process in which the strongest financial offer to the Minister will win.
The problem is that competition law requires competitors to act independently and compete rather than collaborate. This creates challenges for projects who want to collaborate about how to resolve any overlaps (before or after the Minister’s determination).
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Before engaging with competing projects about any actual or potential overlap, projects should be clear on the potential competition law risk, and implement measures to ensure any discussions, and solutions, comply with competition law.
Government should consider whether a statutory exemption should be granted to facilitate discussions between members of an overlapping application group.
Australia's strong wind resource, location of priority areas for offshore wind development near demand centres and existing transmission infrastructure presents an attractive opportunity for investors, notwithstanding competing global opportunities.
Parties wanting to develop a capacity pipeline in Australia's offshore wind market are considering their market entry strategy, including whether to invest in multiple project opportunities in parallel (without any certainty of success in obtaining a feasibility licence for any projects).
Unlike many other jurisdictions, Australia's offshore wind regulatory framework provides for feasibility licence award without a financial offer process, but only where an application: (1) meets the merit criteria and there are no overlapping applications, or (2) any overlapping applications are not equally meritorious.
Given the early stage of Australia’s offshore wind sector and associated uncertainties (including on development costs, supporting infrastructure and the availability and form of any financial supports), there is significant merit in not saddling early projects with a rent tax through an auctions process. However, in the case of the Gippsland declared area, the number of applications for feasibility licences and the calibre of the known applicants means financial offer processes for overlapping applications may be inevitable. Accordingly, applicants may have to bear significant comparative cost and resource commitment upfront to establish their application’s merit and nonetheless face an auction process.
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Partnering with different consortiums, strategically performing different functions within consortiums, and working with third parties, may allow parties to tap into additional financial, human and technical resources and expertise for opportunities across declared areas.
The market will need to respond to the Government's approach in the first award processes, including (1) how merit is assessed, and (2) the comparative strengths of any successful application where award is made without a financial offer process in the case of overlapping applications.
The market will also need to respond to the evolution of the applications process. We have seen governments elsewhere adjust their applications and auctions processes to defray the upfront costs of tenderers/applicants. While proponents have shared some reservations, Japan is considering a "Central Model" pursuant to which the government will provide certain core data (such as site and grid surveys). In the same vein, VicGrid's approach to managing transmission infrastructure may be an indication of what is to come in other regions.
Authors: Justin Jones, Partner; Alyssa Phillips, Partner; Bree Miechel, Partner; Peter Grayson, Partner; Charlotte Inglis, Senior Associate; and Robert Gough, Senior Associate.