Your chance to shape the latest offshore wind regulations and transmission licence guidelines

Introduction

The Department of Climate Change, Energy, the Environment and Water has released an exposure draft of the proposed Offshore Electricity Infrastructure Amendment Regulations 2024 (Draft Regulations) covering operational requirements for offshore electricity infrastructure projects in Australia, with comments requested by 12 May 2024. The Draft Regulations contain critical details on operational requirements of offshore wind, including the content of, and consultation on, licence holder management plans and financial security requirements for offshore operations.

It is concurrently seeking feedback on its draft transmission and infrastructure licence guidelines, with comments requested by 7 June 2024. The guidelines are designed to provide prospective licence holders with practical guidance to understand the requirements and processes for transmission and infrastructure licences, and how merit criteria for them are assessed. They will complement existing guidance for feasibility licences and, once finalised, will be merged into a single guidance document. 

Regulation of offshore wind: background

The Offshore Electricity Infrastructure Act (2021) (Cth) (OEI Act) established a framework for the licensing and development of offshore electricity infrastructure in Commonwealth waters, including offshore wind. The OEI Act was the first legislative step towards the establishment of an offshore wind industry in Australia. While the OEI Act sets the framework for licensing and development of offshore electricity infrastructure, much of the detail around the operation of the framework was left to regulations to be developed in consultation with industry.

The first set of regulations came into force in October 2022 and largely focused on matters relating to the licensing process. The Draft Regulations aim to complete the picture, providing detail on operational requirements including, crucially, management plans, consultation requirements and financial security. With the Gippsland feasibility license window nearing a close, and similar processes for the Hunter and Southern Ocean regions heating up, it will be critical for developers to understand the impacts of these new regulations on their projects.

Key aspects of the Draft Offshore Electricity Infrastructure Amendment Regulations 2024

The Draft Regulations provide much anticipated detail on some key aspects of offshore wind regulation in Australia:

Management plans

An OEI Act licence holder must have a management plan in place and approved by the Offshore Infrastructure Registrar (Regulator) before construction or installation of offshore renewable energy infrastructure. Management plans are required for activities under an OEI Act licence (incl. feasibility licences) and are enforceable by the Regulator. Breach of a management plan by the licence holder may result in termination of the licence and may attract civil or criminal penalties. 

A management plan sets out how a licence holder intends to undertake activities relating to licence infrastructure and comply with its obligations, including workplace health and safety, infrastructure maintenance and decommissioning. The content requirements of a management plan are set out in further detail in the Draft Regulations and include:

• the proposed licence infrastructure and activities of the licence holder;
• the consultation carried out by the licence holder in relation to the management plan, a report on such consultation and ongoing stakeholder engagement strategy;
• the licence holder's management system for compliance with its legislative obligations;
• notification requirements of certain incidents;
• measures for maintaining structures, equipment and property;
• how the licence holder intends to decommission licence infrastructure;
• emergency management procedures;
• work health and safety obligations and compliance plan; and
• financial security requirements.

The Draft Regulations are, in part, based upon the equivalent regulations for petroleum titles and "well operations management plans" under the Offshore Petroleum and Greenhouse Gas Storage (Resource Management and Administration) Regulations 2011. This offers some benefits for industry participants and NOPSEMA who are already familiar with the management plan approval process in the context of petroleum titles.

Enhancements in the Draft Regulations relating to consultation and engagement with traditional owners appear to be informed by the recent Scarborough and Barossa cases involving challenges by traditional owners on the grounds of inadequate consultation.

The Draft Regulations require licence holders to consult with interested stakeholders in relation to the initial management plan and revisions to the management plan, and develop a stakeholder engagement strategy for ongoing consultation.

The initial consultation is broad in scope, covering "all licence activities carried out, or to be carried out, under the relevant licence". The licence holder must make reasonable efforts to identify and consult various persons, organisations and groups including but not limited to:

• each government agency or authority, whether State or Commonwealth, that has a function related to the activities subject that are subject of the consultation;
• Aboriginal or Torres Strait Islander communities or groups that the licence holder reasonably considers may have native title rights and interests, or sea country, in relation to the licence area;
• the holder of any licence that overlaps with the relevant licence;
• local communities and people and organisations the licence holder reasonably considers may, in or near the licence area, undertake activities that may directly interact with the licence holder's activities; and
• organisations representing recreational fishers whose activities may be affected.

A licence holder will be required to prepare a revised management plan in certain circumstances (for example where activities will significantly change or a new risk or hazard is identified) and every 5 years after approval of a management plan or revised management plan. As part of the submission process of the periodically revised management plan, the Regulator may direct further consultation on the plan to be completed by the developer. Failure to prepare and submit for approval a revised management plan before the five-year revision date is an offence.

Industry may wish to comment on whether the five-year period appropriately balances the administrative cost and burden of preparing a revised management plan (and resubmitting for approval by the Regulator) with the benefit of updating the management plan for latest operational best practices and information.

Design notification

Prior to submitting a management plan for transmission and infrastructure licences and commercial licences for Regulator approval, the licence holder must provide the Regulator with a "design notification", which must cover:

• the layout and location of licence infrastructure;
• environmental characteristics at the location of the infrastructure;
• how the infrastructure will be constructed, operated, maintained, decommissioned and removed;
• significant risks and hazards associated with the above and measures to address them; and
• the design process used to select the infrastructure.

The purpose of the design notification is to ensure early engagement with the Regulator on project design and ensure best practice safety, integrity and environmental management principles are built into project designs from the earliest stage.

As project design will form part of the management plan, amendments to the project design (for example, changes to proposed layout or technology used) will require the licence holder to revise the management plan giving rise to a further regulatory decision point and potentially further consultation (at the Regulator's discretion).

Design notifications are not required for feasibility licences or research and development licences in recognition of the smaller scale and short-term nature of infrastructure installed under those licences.

Financial security

The OEI Act requires licence holders with a management plan in place to provide financial security to the Commonwealth. The financial security must be sufficient to cover certain costs, expenses, liabilities and debts, including those that might arise in relation to decommissioning of infrastructure, removal of property and remediation of the licence area and any other affected areas.

The Draft Regulations contain some much anticipated detail regarding financial security requirements, including:

• amount of financial security: under the Draft Regulations, it is the responsibility of the licence holder to determine the amount of financial security necessary. Calculation methods will need to be demonstrated in the management plan and verified. However, if the Regulator considers that the calculation or verification method is inadequate or not appropriate, it may require improvements be made before approving the management plan. During the life of the project the amount of financial security may increase (for example, due to additional infrastructure resulting in an increase of the amount required) or decrease (for example, where financial security requirements reduce due to the stage of the project). The Department's consultation paper notes that calculation methodologies may include developing "bespoke estimation tools or methods used in other countries", however, at this stage there is no contemplation of a formal rehabilitation cost calculator to be developed and applied at an industry level.
• form of financial security: While licence holders will generally have discretion to select the form(s) of financial security they wish to provide (which will be proposed by the licence holder and set out in its draft management plan), the Regulator has ultimate discretion whether to approve the form of financial security proposed by the licence holder on a case-by-case basis.

  The Minister may also decide that financial security for a particular licence must be in a specific form. The Draft Regulations list the arrangements that 'may' be treated as financial security, although this is a non-exhaustive list:

• cash deposit held by a financial institution;
• a credit facility with a financial institution;
• a guarantee from a financial institution; and
• an insurance policy with a financial institution.

We make the following observations which developers should note and consider as part of their feedback:

• self-insurance and related company guarantees are not considered as acceptable forms of financial security, whereas these may be considered as financial assurance for petroleum titles under the equivalent offshore oil and gas legislation. Developers should consider the cost implications for their projects;
• "financial institution" is defined as a corporation that is an authorised deposit taking institution (ADI) for the purposes of the Banking Act 1959 (Cth), this requirement may significantly narrow the pool of potential security providers and potentially impact the availability and cost of financial security for licence holders as financial institutions of a foreign country are not explicitly listed. While the Regulator retains discretion to consider other arrangements (incl. financial security from non-ADIs), this would not appear to be the Regulators starting position and we note the contrast with equivalent legislation for petroleum titles under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) which explicitly includes financial institutions of a foreign country; and
• in some jurisdictions, cash reserving arrangements may be considered by the regulator as financial security for decommissioning obligations (ie. resulting in a build-up of financial security during operations, rather than a costly financial instrument posted at commencement of construction for the full decommissioning cost). It is questionable whether the Draft Regulations allow for cash reserving as arguably it would not satisfy the requirements of section 103(2) of the Draft Regulations that it be "highly certain the Commonwealth would be able to recover amounts under the arrangement when required". Developers may wish to see this addressed in the final regulation.

The Draft Regulations also set out operational matters regarding the Commonwealth's ability to recover under such security.

Safety zones and protection zones

Under the OEI Act:

• a safety zone is a specified zone around eligible infrastructure (to a limit of 500 metres) that would prohibit vessels from entering a specified area for a period of time without the Regulator's written consent, to minimise risks to the safety of workers and to other users of the marine environment. Access will likely vary during different phases of construction, commissioning, operations and decommissioning of a project, and more limited exclusions are expected during operations; and
• a protection zone is a longer term, specified area around offshore electricity infrastructure (to a maximum of 1,852 metres, equivalent of one nautical mile) in which certain activities may be restricted or prohibited. Protection zones are intended to protect offshore electricity infrastructure from activities that may pose a risk to damaging infrastructure, rather than restricting access.

The Draft Regulations set out further details of procedures to determine safety zones and protection zones.

The exact details and duration of safety and protection zones will be determined on a project-by-project basis. It is the applicant's responsibility to provide the Regulator sufficient information to make its decision, including details of consultation with other marine users. It is then for the Regulator to decide on the safety zone or protection zone within the areas specified above.

It is important to note that an application may be made for a safety zone or protection zone affecting part of a licence holder's area (for example, by a neighbouring licence holder). In this case the affected licence holder must be notified, and can make written submissions about the application. Developers should consider the practical implications of a protection zone determination affecting part of their licence area in the future.

Work health and safety

Work health and safety is primarily managed through the Work Health and Safety Act 2011 (Cth) and the Work Health and Safety Regulations 2011. The Draft Regulations propose to make various amendments to the latter for matters specific to offshore electricity infrastructure, for example relating to diving activities.

Three further areas for industry consultation

The consultation paper accompanying the Draft Regulations raises three additional matters for industry consultation.

Data management

While it is not currently in the Draft Regulations, the Department intends to develop regulation requiring licence holders to provide the Commonwealth with geophysical and geotechnical survey data, collected as part of offshore feasibility studies. The Department acknowledges that such data has significant commercial value to licence holders, however, it may have a "confidential shelf life", and once it has served its original purpose could benefit the broader community. The Department also suggests that survey reports and data generated from feasibility studies could provide insight into offshore geology and natural resources which could inform future activities such as future zone declarations.

We expect there will be diverging views amongst developers on this matter, especially in relation to survey reports and data that may contain commercially sensitive IP.

Local content

The existing Offshore Electricity Infrastructure Regulations 2022 (Cth) provide that licence holders must report annually on a range of information relating to the project. The Draft Regulations propose to expand on this, requiring that licence holders report annually on how they are contributing to, or will contribute to, to the Australian economy and local communities, including in relation to:

• regional development;
• job creation;
• Australian industries; and
• the use of Australian goods and services.

It is understood the purpose of this is to ensure early engagement between feasibility licence holders and Australian businesses and workers to build local industry capability to support both the construction and operation phase of projects. We expect industry will be broadly supportive of a collaborative approach and note the proposed changes do not impose a firm requirement in relation to local content. Nonetheless, we expect local content will be in sharp focus for offshore wind developers especially considering the offshore wind supply chain is largely overseas and the experience of some developers in Taiwan, where local content requirements for early projects caused significant cost pressure for developers.

Overlapping applications

The Department is seeking feedback on its proposal to amend the process for dealing with licence applications. The current Regulations provide for overlapping licence applications of equal merit to revise and resubmit applications to remove the overlap. If overlaps are not resolved following resubmission of applications, there is a process for the Minister to invite overlapping applications to participate in a "financial offer" process.

The Department is considering amending the current Regulations to allow the Minister to skip the process of resubmitting applications and move straight to a "financial offer" process instead. We expect this is in response to the lengthy feasibility licence process for Gippsland which has taken over a year to reach an outcome. The Department also notes that given the level of interest in Australian offshore wind it is likely feasibility licence applications will overlap and allowing flexibility to move straight to a "financial offer" (especially in cases of significant overlap) will lead to a more efficient process.

Make a submission on the Draft Offshore Electricity Infrastructure Amendment Regulations 2024

The Draft Regulations contain critical details on operational requirements of offshore wind, including the content of, and consultation on, licence holder management plans and financial security requirements for offshore operations.