Offshore Wind: What you need to know when applying for an offshore electricity infrastructure licence
18 November 2022
18 November 2022
The OEI Act establishes a framework for regulating offshore electricity infrastructure in the Commonwealth offshore area. The OEI Regulations set out the key operational arrangements of the OEI framework, including the licensing scheme and the application of fees and levies.
The OEI Levies Act prescribes an OEI levy that licence holders must pay. The OEI Levies Regulations establish the amounts of the OEI levies payable by licence holders.
The draft Guidelines for OEI Licensing Scheme (Draft Guidelines) were released earlier this year. The final guidelines will be released on the Department of Climate Change, Energy, the Environment and Water's (the Department) website in the coming weeks. The finalised guidelines will provide non-binding guidance to the practice of the Offshore Infrastructure Registrar, National Offshore Petroleum Titles Administrator (NOPTA). The final Guidelines are expected to provide key practical guidance relevant for making a feasibility licence application.
The OEI framework is intended to be cost-neutral, with the application of fees and levies on developers covering the costs of regulation (per the Department's Cost Recovery Implementation Statement (CRIS)).
The OEI Act provides for four kinds of licences that may be granted to eligible persons (as set out in the below table).
|Feasibility licence||Permits exploratory and scoping work within the prescribed licence area up to a maximum area of 700 km2. ||Up to 7 years|
Permits development and operation of long-term, large-scale offshore renewable energy infrastructure in the licence area up to a maximum area of 700 km2.
Applicants for a commercial licence must hold a feasibility licence.
|Up to 40 years|
|Research and demonstration licence (R&D licence)||Permits short-term projects to trial and test new technologies and undertake infrastructure-based exploration and research activities.||Up to 10 years|
|Transmission and infrastructure licence (T&I licence)||Permits construction and operation of offshore electricity transmission infrastructure. ||No prescribed term under the OEI Act, but the term will be specified in the offer and grant of a licence |
The granting of feasibility licences is a competitive process as it will confer exclusive rights within the feasibility licence area, with applications assessed against merit criteria.
The granting of T&I and R&D licences are not competitive processes, as T&I and R&D licences may be granted in the same licence area as other licence types (and vice versa).
Only “eligible persons” can apply to hold a licence – being a body corporate that has a registered office in Australia, or a statutory corporation under Australian law.
An eligible person may apply for more than one feasibility licence in any particular declared area, including in an adjoining configuration. However, each licence application will be considered individually, such that each application would need to contain a “standalone” project that would be viable on its own merits.
We understand that licence applications will have to be made, and licences held, by a single corporate entity. This is different from the offshore petroleum regime on which the OEI Act is based and will create challenges for prospective developers otherwise seeking to develop projects through a unincorporated joint venture structure.
An application must address the following merit criteria:
When assessing whether an applicant has satisfied each of the merit criteria, the Minister has broad discretion, such that they are not bound by the above matters and may consider "any other matters" they consider relevant for each of the merit criteria.
How each of the merit criteria will be assessed will differ depending on the licence type and what particular matters the Minister considers to be most relevant in any particular case. For example, considerations such as commercial return may be crucial for feasibility or commercial licence applications, whereas these matters would be less relevant for the other licence types. Similarly, under the national interest test, in assessing the project's impact on and contribution to the Australian economy and local communities, future or projected impacts or contributions may be sufficient for a project at the feasibility stage, whereas a project being assessed at the commercial stage may be required to show evidence of actual impacts or contributions.
NOPTA will assess whether the merit criteria have been met for the licence, and provide advice to the Minister, who will then determine if each criteria has been satisfied.
The Draft Guidelines provide some guidance as to how an applicant may satisfy the requirements of each merit criteria, although this guidance is subject to the finalised guidelines being released.
In being satisfied of the applicant's technical and financial capability, the Minister may consider:
In being satisfied of the proposed project's likely viability, the Minister may consider the project's complexity, route-to-market and estimated commercial return to the licence holder.
In being satisfied of the applicant's suitability to hold a licence, the Minister may consider the proponent's past performance in offshore infrastructure projects, or other large infrastructure projects, in Australia and internationally, past financial performance and corporate governance structure. It is currently unclear whether applicants would need to demonstrate broader offshore wind experience at the equity or parent level to meet the suitability test. In practice, applicants could demonstrate this by partnering with a recognised offshore project developer with previous experience.
In being satisfied that a proposed project for a licence is in the national interest, the Minister may consider:
Once the Minister proposes to declare an area, it must provide at least 60 days' notice before declaring the area and consider any submissions made in response.
Once the area is declared, the Minister may invite applicants to apply for a feasibility licence in respect of all or part of the declared area.
A licence application must:
For an application for a commercial licence, it must be accompanied by evidence that the Regulator, National Offshore petroleum Safety and Environment Management Authority (NOPSEMA), has approved a management plan for the commercial licence.
The OEI Regulations set out rules for determining overlapping applications for licences, which include notifying, and inviting submissions, from existing licence holders and inviting overlapping applicants to revise and resubmit their applications to remove the overlap.
Where proposed feasibility licence areas overlap there are more detailed processes, which first require the Minster to determine if a group of two or more overlapping applicants are equally meritorious such that they form an "overlapping application group". If the Minister makes this determination, NOPTA must give notice to these applicants and invite them to revise and resubmit their applications to remove the overlap. We foresee this process creating incentives for private arrangements to be entered into between overlapping applicants. However, care needs to be taken to ensure that these arrangements comply with competition law, including the strict prohibitions against cartel conduct because the fact NOPTA gives notice to the applicants does not provide them with any exemption from competition law. If the proposed feasibility licence areas are still overlapping following any resubmission process, this may involve the submission and consideration of competing financial offers for the feasibility licence.
The Competition and Consumer Act 2010 (Cth) prohibits competitors making or giving effect to an agreement that has the purpose of:
The OEI Regulations contemplate the possibility of overlapping applicants cooperating in order to resolve any overlaps privately and resubmit their bids. However, any agreement with an overlapping applicant about whether or not they will proceed with their application, and the terms of the application, gives rise to cartel conduct risks. Cartel conduct is strictly prohibited, unless a valid exemption applies, and is subject to substantial civil and criminal penalties (of up to $50 million, or 30% of the adjusted turnover of the company during the breach period per contravention, plus criminal penalties for individuals involved). It is important that applicants obtain legal advice to ensure they comply.
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.
Licence holders will need to pay the following three annual levies:
The levies payable by feasibility licence holders are as follows:
The annual licence and compliance levies include a fixed base rate up to and including 100 km2 and an additional levy calculated on a per square kilometre basis above the base area (i.e. 100 km2) which reflects the increased cost of administration for larger licence areas.
For levies imposed on other licence types see the OEI Levies Regulations.
Levies are imposed at the start of a licence period, with the full amount payable even if the licence holder does not intend to hold the licence for the whole period.
Levies may be adjusted and/or refunded on a pro-rata basis in circumstances such as cancellation of a licence.
Authors: Jeff Lynn, Partner; Cassandra Wee, Partner; Kate Phillips, Partner; Alyssa Phillips, Partner; Justin Jones, Partner; Sophie Osborn, Counsel; Joshua Hetzel, Lawyer; Alice Jiang, Lawyer; Jonathan Chew, Lawyer; Andrew Bennett, Lawyer; Alicia Gormly, Lawyer.