Offshore wind New framework for offshore electricity infrastructure

What you need to know

• On 2 September 2021, the Offshore Electricity Infrastructure Bill (the Bill) was introduced to the Australian Parliament. It establishes a new framework for the construction, operation, maintenance and decommissioning of offshore electricity projects. 
• The Bill facilitates new offshore infrastructure and technologies such as offshore wind farms. It complements AEMO's recent decision to incorporate candidate Offshore Wind Zones in its report on 30 July 2021.
• Under the Bill, licences are available for feasibility (on a competitive auction basis), commercial activities, research & demonstration and transmission & infrastructure. 
• The Bill is modelled off the existing Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) and has the same regulators, being NOPSEMA and NOPTA.

The Bill has been referred to the Senate Environment and Communications Legislation Committee for inquiry and report by 14 October 2021, with a closing date for submissions of 15 September 2021.  

What you need to do

• Will the Bill affect your future projects, investments or plans? 
  Reach out to us if you would like to understand the potential implications and opportunities, arising from the Bill.
• Consider whether your organisation wishes to make a submission to the Senate inquiry prior to 15 September 2021. (Link to submissions page)
• Monitor any further Government announcements regarding the Bill. (Link to the Bill and Explanatory Memorandum)

Context

The long-awaited Offshore Electricity Infrastructure Bill represents a significant milestone in the development of Australia's offshore energy industry. It follows consultation undertaken by the Australian Government in early 2020 on an offshore clean energy infrastructure discussion paper. 

Australia does not currently have a dedicated regulatory regime covering the offshore electricity industry and, as a result, this Bill will facilitate the construction and operation of new offshore infrastructure and technologies such as offshore wind farms. The release of the Bill also complements the Australian Energy Market Operator's recent decision to incorporate candidate Offshore Wind Zones in its 2021 Inputs, Assumptions and Scenarios Final Report released on 30 July 2021.

Overview: coverage, licences & criteria 

The Bill creates a framework for the development of offshore electricity infrastructure in the Commonwealth offshore area. While the Bill covers a range of renewable energy types, it is primarily focused on the development of the offshore wind industry. 

As depicted below, the Bill governs projects in the Commonwealth offshore area includes the territorial sea and exclusive economic zone of Australia, but not the coastal waters of the states and territories (in which state requirements may apply).  

Australian Government. (2021). Maritime Boundary Definitions. Australian Government Geoscience Australia. https://www.ga.gov.au/scientific-topics/marine/jurisdiction/maritime-boundary-definitions 

Three streams of licences are introduced by the Bill:

1. Commercial: permits the development of commercial offshore energy projects. A project proponent must first obtain a feasibility licence (described below), before being able to apply for a commercial licence to undertake a project.
2. Research and demonstration: permits research, tests and demonstrations to be undertaken which relate to the exploration or exploitation of renewable energy resources.
3. Transmission and infrastructure: This stream allows for the development of transmission and other ancillary infrastructure (including the storage, transmission and conveyance of electricity).  

While each of these licence streams are tailored to the offshore electricity industry, the Bill has been heavily modelled on the existing regulatory framework under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth).  The same regulator, being the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) is the "Offshore Infrastructure Regulator" under the Bill. Similarly, the same administrator, being the National Offshore Petroleum Titles Administrator (NOPTA) will be the "Registrar" under the Bill. 

Applications for licences under the Bill will be assessed against suitability and merit criteria, including requirements that the proponent have the technical and financial capacity to carry out the project, must be suitable to hold a licence, and the project must be likely to be viable. Once a licence has been obtained, licence holders will generally be required to:

• Prepare a management plan covering the activities to be carried out under the licence; 
• Provide appropriate financial security (as agreed with the Offshore Infrastructure Regulator) to cover the cost of decommissioning; and
• Comply with directions made by the Offshore Infrastructure Regulator.

While the Bill does not prescribe additional environmental assessment processes or procedures, Commonwealth approval requirements under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act) continue to apply to proposed offshore infrastructure. The EPBC Act contains an assessment framework for activities carried out in Commonwealth marine waters which provides for the assessment of significant impacts to the Commonwealth marine environment from activities carried out in that area. This framework will apply to energy projects and infrastructure under the Bill, noting that a proponent's management plan must cover environmental management matters including any obligations imposed by an EPBC Act approval.

Should the Bill be passed, organisations interested in undertaking the activities covered by the Bill must ensure that they comply with the licencing scheme, as a failure to do so can lead to significant penalties, including imprisonment. 

The terms and approvals processes for each of the licence streams are discussed further below.

Feasibility Licences

A proponent who wishes to operate an offshore renewable energy project under a commercial licence must first obtain a feasibility licence. A feasibility licence permits a company to undertake activities which assess the viability of exploiting renewable energy resources in a prescribed area, such as measuring wind strength and direction. 

Feasibility licences are granted for a specified term of 7 years and cannot overlap. As a result, the Commonwealth has elected to adopt a competitive feasibility licence application process for the grant of these licences, as opposed to a "first-in-line" approach.

The process for obtaining a feasibility licence (and then a commercial licence) is summarised as follows: 

1. The Minister will make a declaration that a particular area is suitable for development in accordance with Division 2 of the Bill. This area is referred to as a declared area.
2. The Minister will issue a notification inviting all eligible persons to apply for a feasibility licence in respect of all or part of that declared area. This will be a competitive auction process which may, at the discretion of the Minister, involve financial offers. Commentary from the Explanatory Memorandum suggests that the Minister will only exercise this discretion to accept financial offers where applications for a given area are similarly meritorious.
3. The Minister will select the successful recipient of the feasibility licence by reference to the suitability and merit criteria. The Minister may impose conditions on the licence.
4. Once feasibility investigations and studies are complete, the feasibility licence holder may apply to the Minister for a commercial licence.
5. The Minister decides whether to grant the commercial licence.

Further detail regarding the application process is set to be released in the regulations. 

Similar to the procedure under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth), a feasibility licence holder must have a management plan approved by the Offshore Infrastructure Regulator prior to the installation of any infrastructure. This approval can either be sought during the feasibility licence application process or after the licence is granted. While a management plan is required for all licence streams, the required timing for approval of the management plan varies.

Commercial Licences 

Once a feasibility licence holder has completed the necessary assessment activities and decides that the licence area is viable for development, the feasibility licence holder may apply for a commercial licence if the following conditions have been satisfied:

• The feasibility licence holder has provided financial security in accordance with the requirements in the Bill;
• The feasibility licence holder meets the merit criteria (which is the same as those under the feasibility merit criteria)
• The feasibility licence holder's management plan for the commercial licence has been approved by the Regulator. The Minister will not grant a commercial licence unless the management plan has already been approved, and may require that the feasibility licence holder undertake consultations in relation to the commercial licence application and/or require that the company revise their management plan for review by the Regulator. Further detail relating to the application and approval of the management plan will be outlined in the licencing scheme (i.e. through regulations made once the Bill has been passed). 

Commercial licences can be granted for up to 40 years, with an ability to extend the term by up to 40 years at a time subject to Ministerial approval.

Unlike the process for feasibility licences, the commercial licence application process is not competitive. Only the feasibility licence holder for a declared area (or part thereof) will be eligible to apply for a commercial licence over that area. 

Research and demonstration licences

Licenses issued through the research and demonstration stream are intended to allow small-scale projects to conduct research, test emerging technologies, and demonstrate the capabilities of a technology, system or process. Electricity stored or transmitted under a research and demonstration licence in not required to be a renewable energy product.

Research and demonstration licences will be granted for a maximum of 10 years with the possibility of extension, but cannot become commercial licences. Infrastructure installed under the licence must also be removed at the expiry of the licence. 

Transmission and infrastructure licences

Transmission and infrastructure licences facilitate the construction and operation of infrastructure to store, transmit and convey electricity and renewable energy products, and includes projects designed to assess the feasibility of electricity storage and transmission in or through the licence area. These licences do not have a set term and can instead be issued for the duration of the asset life. 

Unlike the other licence streams, transmission and infrastructure licences can be granted outside of a declared area. 

An applicant for a transmission licence does not need to be an applicant for, or holder of, a feasibility or commercial licence. This means transmission infrastructure could potentially be developed by third parties who could provide a transmission service to one or more project proponents. Whether such arrangements will be possible will be dependent upon future detail which will be provided in relation to the licencing scheme.

Operations and compliance The Bill extends the operation of work health and safety (WHS) legislation with amendments to account for the offshore infrastructure environment. Other maritime safety regimes may also apply in certain circumstances, including where vessels are in transit.

The Bill additionally provides for the creation of safety zones and protection zones. Safety zones are temporary exclusion zones extending as far as 500 metres from eligible infrastructure which prohibit specified vessels from entry or transit through those areas. Protection zones are a longer-term alternative to safety zones and prohibit certain activities from being undertaken that may pose a serious risk to either human safety or to offshore infrastructure. 

While the Bill applies solely to activities in the Commonwealth offshore area, proponents will need to consider what other state and territory approvals may be required to operating an offshore facility – having regard to the location of the project, the connection of offshore infrastructure to onshore grid infrastructure, and participation in the National Electricity Market.

Levies & Regulations

The Bill is accompanied by an associated Offshore Electricity Infrastructure (Regulatory Levies) Bill 2021 which provides for the imposition of levies on regulated entities, to facilitate the recovery of regulatory costs. The quantum of the levies have not yet been determined and remain under consultation.

Subsidiary regulations are not yet made under the Bill.

Authors: Paul Curnow, Partner; Jeff Lynn, Partner; Cassandra Wee, Partner; Rediete Aborete G Messkel, Graduate Lawyer; Leon Warren, Graduate Lawyer.