Australian offshore wind guide

Introduction

Australia’s burgeoning offshore wind sector is set to power the next wave of growth in renewable energy, having:

• offshore wind resources to potentially install over 2,000 GW of offshore wind turbines within 100km of current electricity substations (Offshore Wind Potential for Australia, Blue Economy Cooperative Research Centre);
• nineteen proposed offshore wind farms (Renew Economy Offshore Wind Farm Map of Australia); and
• the second largest coal-fired power station in Victoria (Yallourn Power Station) decommissioned in 2028.

With the International Energy Agency predicting that offshore wind will become one of the big three sources of renewable energy globally Australia will continue to progress changes crucial to capitalising on its potential to be a world leader in offshore wind. Key trends benefitting Australia’s advancement include:

Technology

The global boom in offshore wind has lowered turbine costs, and accelerated development in technology including the size and design of turbines, allowing offshore wind to upscale quickly, particularly as coal plants are decommissioned. As floating turbine technology is further developed and becomes cheaper, we will see a greater uptake of offshore wind farms in Australia, as our best resources are located in deeper water which renders turbines on fixed foundations inaccessible.

Location

Offshore wind projects located close to current renewable energy projects have the potential to capitalise on existing infrastructure and established grid connections. Furthermore, offshore wind projects will create job opportunities as power stations close, and will help to resolve the unemployed from retired substations.

Specifically, desirable energy generation locations have been identified in the Blue Economy report within the Hunter, Illawarra and Gippsland regions, based on the abundantly windy offshore conditions at times of low onshore wind and solar generation, creating more reliable year-round generation capacity.

With investor interest peaking and the Commonwealth Government recently announcing the Bass Strait off the Gippsland Coast as Australia’s first priority assessment area for offshore wind developments, new investments in the region will follow.

Regulatory Frameworks and Policy Targets

The enhanced regulatory frameworks implemented by the Commonwealth Government, and the Victorian Governments Policy Directions Paper, signal intent in establishing a leading offshore wind industry. The Australian Government’s public consultation on draft regulations for the Offshore Electricity Infrastructure (OEI) framework will enable the development of offshore wind projects and provide clarity and certainty to investors wanting to build Australia's offshore energy future.

Clayton Utz expertise

Clayton Utz's offshore wind guide provides a synopsis as to the key findings, relevant legislation and a comprehensive overview of the offshore windfarms in development in Australia. Partner Peter Staciwa and Senior Associate Olga Horbowy previously explored how Australia can capitalise on its offshore wind potential.

Clayton Utz continues to act as legal counsel to The Star of the South project, Australia’s first and most advanced offshore windfarm project, along with its main investor Copenhagen Infrastructure Partners. Led by Peter Staciwa, the team involves Clayton Utz partners Rory Moriarty, Andrew Leece, Damien Gardiner, Cilla Robinson, Pip Mitchell, Alison Kennedy and Jo Pugsley.

As the offshore wind industry continues to mature, Clayton Utz will remain at the forefront of all regulatory changes, project development and relevant industry news.

Part A: the projects

Part B: the regulations

Commonwealth

The national regulatory framework for offshore wind projects was established by the Offshore Electricity Infrastructure Act 2021, Offshore Electricity Infrastructure (Regulatory Levies) Act 2021 and Offshore Electricity Infrastructure (Consequential Amendments) Act 2021, and will come into effect in June 2022. The framework will allow the Australian Government to designate areas over three nautical miles from Australia's coast (up until Australia's exclusive economic zone border) to be used for the development of offshore renewable energy infrastructure. On 5 April, the Assistant Minister to the Minister for Industry, Energy and Emissions Reduction announced the Bass Strait off Gippsland as the first area to be assessed for suitability, with further areas to be evaluated after the Act commences. The legislation also allows for licences to construct and operate offshore electricity generation and transmission infrastructure.

On 22 March 2022, the Australian Government launched public consultation for the OEI framework, which is designed to enable the exploration, construction, operation and decommissioning of offshore windfarms and associated infrastructure in Commonwealth waters.

The Australian Government has been seeking input on drafts of the Offshore Electricity Infrastructure Regulations 2022, Offshore Electricity Infrastructure (Regulation Levies) Regulations 2022 and Cost Recovery Implementation Statement. These documents was open for public consultation until 22 April 2022.

It is important for participants in the offshore wind sector to understand the draft regulations which specify how the Minister may assess the merits of a licence application. Importantly, the Minister is not bound to consider the criteria in the legislation or regulations and may consider any other relevant factors. Under the draft regulations, licence holders will also be subject to application fees and annual levies, which are in place to recover regulatory costs. The final quantum of each charge has not been determined and will vary depending on the type of licence held.

Victoria

Energy Innovation Fund (EIF)

The Victoria EIF supports the commercialisation of innovative, emerging renewable energy technologies in Victoria, required to meet its legislated net-zero emissions by 2050 target.

The fund aims to bring intellectual property, innovation, local economic development and environmental benefits to the state, local businesses and communities and will be achieved through supporting activities that progress innovative projects in their commercialisation continuum.

The fund is being delivered in multiple rounds with Round 1 of the EIF dedicated to offshore wind. Three projects secured funding under Round 1 with a total of $37.9 million provided to support the completion of feasibility and pre-construction activities:

Offshore Wind Policy Directions Paper

The Victorian Offshore Wind Policy Directions Paper, released on 4 March 2022, signals the Victorian Government's commitment to developing its offshore wind industry and supporting the 2050 net-zero goal. In the report, the Victorian Government outlined its plan to develop Australia's first offshore wind industry which relies on the state achieving three staged offshore wind capacity targets:

1. 2GW by 2032 (this will involve procuring an initial offshore wind tranche);
2. 4GW by 2035; and
3. 9GW by 2040.

These targets are supported by the EIF as explored previously.

Studies to assess the potential to generate power through offshore wind off the Victorian coast note that the waters near Gippsland and Portland have the potential to support 13GW of capacity, equating to more than five times the current renewable energy generation in Victoria. These regions are close to existing grid infrastructure and experienced personnel in the energy sector, which means that they are ideally positioned to support Victoria's plan for clean energy transition.

The Victorian Government will subsequently release an Offshore Wind Implementation Statement to provide further detail on the expected scale and timing for the first offshore wind procurement, as well as the state's approach to developing a transmission network and port upgrades.

An offshore wind business case will be developed in 2024 and the 2032 target will be finalised in turn.

Blue Economy Offshore Report

In July 2021, the Blue Economy Cooperative Research Centre released its Offshore Wind Energy Report which found that Australia has high quality and abundant offshore wind resources with the potential to support 2,000 GW of power generation – far in excess of total current electricity generation.

In particular, the report found that ongoing expansion to large 15 MW turbines can enable single projects with capacity of 1-2 GW. This means that offshore wind can upscale rapidly as coal plants close and the energy transition accelerates. It also highlighted the need for a regulatory regime to facilitate these renewable energy projects, which is now coming to fruition with the implementation of the Offshore Electricity Infrastructure Act.

Australian Energy Market Operator – Draft Integrated System Plan (ISP)

The Draft ISP released by the Australian Energy Market Operator in December 2021 also reported that offshore wind has great potential in Australia because it is a high quality resource which comes with lower social licence hurdles.

While offshore wind did not feature prominently in the Draft ISP, the increased regulatory support from the Commonwealth and Victorian Governments is a critical development which could see this change in future ISPs.

First of its kind energy experience

As an independent firm, we are able to forge deep working relationships with other large, pre-eminent law firms working in the renewable energy space and offshore wind more specifically, thereby accentuating our domestic depth and being able to employ international best practice. For any further information, do not hesitate to get in contact with one of our market leading partners listed below.

Star of the South

Clayton Utz acted as Australian legal counsel to Danish fund manager Copenhagen Infrastructure Partners (CIP) on its partnership with Australia's Offshore Energy Ltd (Offshore Energy) to develop the proposed A$8 billion 2GW "Star of the South" project  –  Australia's first offshore windfarm, and the country's largest ever windfarm project. We worked closely with Watson Farley Williams (as CIP's global counsel) and Bruun & Hjejle (CIP's Danish counsel) with both firms having worked with CIP on numerous offshore wind projects.

Australia Pacific LNG (APLNG) Project

We are the project counsel to APLNG and its shareholders since its inception in 2008, with a number of legal practice groups collaborating effectively to implement and successfully develop one of Australia's largest energy projects. Working with both Sullivan & Cromwell and Latham & Watkins, we worked to market this energy project to foreign institutional investors.

Advising on the development of Australia's first hydrogen energy production plant pilot project

Clayton Utz is the Australian Counsel on the Hydrogen Energy Supply Chain (HESC) project in Victoria which involved the formation and operation of joint venture arrangements with six consortium members in Japan and Australia. Consortium members include Kawasaki Heavy Industries Ltd (KHI), its wholly-owned Australian subsidiary Hydrogen Engineering Australia Pty Ltd (HEA), J-Power, Iwatani Corporation, Marubeni Corporation, Sumitomo Corporation and AGL. Clayton Utz has been involved throughout the project, including in the development and negotiation of the arrangements between the State of Victoria and the Commonwealth in relation to funding arrangements, and the consortium agreements between the (now) eight other members of the project.