Offshore Electricity Infrastructure Draft Regulations: An overview for industry

The Act has established a regulatory framework for the development of offshore electricity infrastructure in Australian waters for the very first time. This includes the assignment of a regulatory body – the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) – and the creation of a licensing framework through which developers can gain approval to investigate, develop and operate new energy projects offshore.

Those of us who work in offshore wind have been eagerly awaiting the release of the Offshore Electricity Infrastructure Regulations that support the Act – the mechanisms that will allow our industry to successfully license, and eventually construct offshore wind farms. In March, the Commonwealth Government released the draft regulations for public comment (submissions close on 22 April 2022 and can be made here).

Here are a few key takeaways from the draft regulations and cost recovery plan, and what they could mean for projects seeking a feasibility license.

License requirements

When applying for a feasibility license, the draft regulations stipulate that a number of criteria are met. These include:

Applicant requirements

• The license applicant (‘Eligible Person’) must be:

  • A body corporate that has a registered office (within the meaning of the Corporations Act) in Australia, or

  • A body corporate established for a public purpose by or under a law of the Commonwealth or a State or Territory.

• Licenses can be held by only one Eligible Person (ie: no joint venture license holders) and licenses will likely need to be held by special purpose corporate vehicles.

Application requirements

When preparing a feasibility license application, proponents must provide details about:

• The proposed project’s design, capacity, and the infrastructure to be installed.

• The proposed grid connection.

• Any proximity agreements in place with other users of the environment.

• Spatial details of the license area (areas must be one defined zone with a maximum size of 700km², and no infrastructure must be installed within 2.5km of the license boundary).

Making the case for license approval

When preparing an application, license seekers will need to demonstrate how their project stacks up from a technical and commercial perspective, and their own capacity for seeing the project through.

Applicants must show:

• Their technical and financial capability to carry out the proposed commercial offshore infrastructure project, including:

  • The technical advice and support they will have through employees, consultants, or other providers.

  • Their experience in prior or current offshore electricity projects and their performance – in Australia and overseas. Performance measures include regulatory compliance, legal enforcements, occupational health and safety matters, and environmental incidents.

  • Their corporate governance structure, including how chain of command, transparency, and governance responsibilities are handled internally.

Past performance of the applicant and/or parent company and its directors may also be considered during the licensing assessment and decision-making process.

• The indicative viability of the proposed project for which the feasibility license is sought, including:

  • A proposed workplan to test the project’s feasibility, including the identification of areas of uncertainty for the project, and how this will be dealt with during feasibility studies.

  • Commercial assumptions and cost estimates ($/MW installed and MW/km²).

  • The estimated commercial return to the project’s developer.

  • Any route-to-market arrangements for supply or distribution of the project’s generated or transmitted electricity to onshore (applicants should include evidence of a Connection Enquiry having been made with energy regulators, where relevant).

Considering the national interest

The Commonwealth Government has introduced the Offshore Electricity Infrastructure Act 2021 to support the establishment of a successful offshore renewables sector that will help Australia decarbonise its energy landscape.

Doing so is in the national interest, and operators who wish to apply for licenses must demonstrate that their projects are as well.

In assessing applications, the Regulator will consider how projects contribute to (or erode) Australia’s national interests, including:

• Economic and community benefits such as jobs creation, emissions reduction, and regional development.

• National security considerations.

• Project complexity.

• Conflicts that may arise with other users within the project area (fisheries for example) and how such conflicts could be managed.

Process for dealing with competing applications

Recognising that there may be instances where applications for a feasibility license are submitted at the same time and cover the same area (wholly or in part), the draft regulations put the following process forward for assessment and decision-making:

• Where applications have equal merit, the Minister may invite applicants who have overlapping applications to make financial offers to determine which applicant should be offered the license.

• Depending on the nature and extent of overlap, applicants may be willing to revise the area they are applying for (presumably in consultation with each other) to avoid making a financial offer.

Fees for licensing: application and annual levies

Application fees

The Offshore Electricity Infrastructure Act 2021 and supporting regulations will operate on a cost recovery basis – meaning fees charged to projects are designed to cover only the costs incurred by the Government in regulating the industry, and not to generate additional revenue. We believe that the application fee bracket should work to discourage speculative submissions.

Annual levies

The remainder of the Commonwealth’s cost recovery will come in the form of annual levies broken down into a base rate for the first 100km² per license type, and a variable component based on a project’s size.

Where projects require a Transmission and Infrastructure License, this is charged at essentially a flat rate (regardless of area).

Moving the offshore wind industry forward

The draft regulations are another important step forward for the offshore renewables industry, providing additional certainty and direction to offshore wind developers about the pathway towards construction and operation.

RPS is continuing our work with clients to prepare projects for the license application process ahead (and beyond to construction and operations), and we look forward to the release of the next tranche of supporting documents by the Department of Industry, Science, Energy and Resources in the second half of 2022. We expect these to include more technical detail around the content requirements for the Management Plans that need to be approved by NOPSEMA before a license is issued.