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Energy Blog: Lessons from Australia on Offshore Wind

Home Insights Energy Blog: Lessons from Australia on Offshore Wind

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Contributed by: Mei Fern Johnson and Peter Callus

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Published on: June 02, 2022

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For this latest edition of our Energy Blog, we interviewed Andy Evans, former CEO and co-founder of Star of the South, and co-founder and CEO of Oceanex Energy (Oceanex).



Andy, along with his business partner Peter Sgardelis, have been heavily involved in the creation of the offshore wind industry in Australia for over a decade – Star of the South is Australia's first offshore wind project. Andy offers a unique and insightful perspective on this emerging sector. Oceanex is currently progressing the development and construction of five offshore wind farms in Australia and also in early-stage development of up to three projects off the coast of New Zealand.1 

 

Creating an industry

On 2 June 2022, Australia's offshore wind regime will officially come into force with the commencement the Offshore Electricity Infrastructure Act (Act). While there is still work to be done, the Act sends a clear signal to the world that Australia is open for business (and investment) when it comes to offshore wind.
 
For Oceanex, this is a long-awaited development – the certainty provided by a regulatory framework will herald in the next phase, and wider scale, of feasibility and implementation, not to mention provide the clarity sought by various investors in the sector. Contrast this against the somewhat ad hoc nature of the deed of exploration granted by the federal Government of Australia to the Star of the South to develop the first Australian offshore windfarm.

Uniquely positioned

According to Andy, Australia has some significant natural advantages when it comes to the viability of offshore wind. These include:

  • Strong wind resource above the water-level which, given the vast coastline, can be harnessed in locations with minimal impact on the sea floor, marine life and bird life.

  • An existing grid and transmission infrastructure built around existing coal-fired power stations that can be repurposed for offshore wind, with the current electricity grid built around coal mines, all within 50km of the coastline.

  • Facilities close to the customer base, with 85% of the Australian population living within 50km of the coast.

There are also other natural advantages of offshore wind:

  • Offshore wind has a fairly constant generation profile which is usually used to serve peak capacity, so can replace gas and coal plants which are of most use during peak periods when onshore wind and solar is not generating.  

  • It is accessible energy, powered by a 'marine-based fuel' that sits above the water, and therefore, once built, causes less environmental impact.

  • Initial feasibility is known, as the wind resource available is already mapped from available meteorology data.

  • Viability is not left to chance, as feasibility can be assessed more economically than if drilling into the ocean floor is required.

  • There is less public criticism that offshore wind facilities create "visual pollution", compared to onshore windfarms.

With the new regulatory framework, the opportunity is real, ready and waiting to be harnessed.

Australia's offshore wind regime

The Act takes inspiration from the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (offshore oil and gas legislation) and utilises a number of existing precedents and processes. This has proven to be very effective at streamlining the Act's drafting and enactment.

At a high level, the regime sets up two phases for licensing commercial projects:

  • feasibility licence (seven years): available for an area declared by the Minister for Energy – in parallel, the developer must also have a management plan (which includes construction through to decommissioning and a decommission cost estimate) approved by the Offshore Infrastructure Regulator; and

  • commercial licence (40 years): available to a feasibility licence holder (if feasibility is successful and the management plan is approved), where financial security requirements are met under the Act and requires the developer to have made a final investment decision.2

In terms of government involvement, Victoria and New South Wales have been especially supportive of the industry and are eager to be involved in its development. For example, the Victorian Government has announced offshore wind targets including at least 2GW for Victoria by 2032, and first power by 2028.3 In addition to funding specific projects to date, the Victorian Government has also signalled that further work will be undertaken to determine the form of future government support, including funding pathways to ensure a net beneficial investment for Victoria and value for money for taxpayers and electricity consumers. In general, the Government focus appears to be on supporting the industry rather than being concerned with making a return (eg through royalties), which is welcomed by Andy.

We asked Andy whether the issues faced by the oil and gas sector in New Zealand arising from an operator not being able to pay decommissioning costs leading to that burden being shouldered by the New Zealand Government (and taxpayers) could equally arise in relation to decommissioning of offshore wind facilities. He candidly agreed that it could - under the Act, applicants are required to provide financial security for decommissioning costs, and regulatory approval are required before a licence can be transferred.4 Further details are expected to be released in the regulations shortly. In Andy's view, decommissioning obligations need to be weighed up against incentivising investment in offshore wind – if such obligations are too onerous, then capital investment becomes less attractive and could be diverted elsewhere. He noted that in the oil and gas sector, only a very small number of operators failed to meet decommissioning obligations.
 
Overall, Andy sees the new regulatory regime in Australia as being fairly balanced and is optimistic it will facilitate investment and development through facilitation of a clear path to bring projects to market.

Unlocking New Zealand

We asked Andy what New Zealand can learn from the Australia experience.
 
Andy is of the view that New Zealand too has incredible natural advantages for offshore wind, similar to Australia. Arguably, New Zealand is even better prepared to capitalise on offshore wind than Australia, as New Zealand takes real steps to transition from offshore oil and gas to renewable energy, so there will be assets, infrastructure and expertise ready for repurposing.
 
In terms of next steps, first and foremost, New Zealand needs to be seen as a country which facilitates investments and is easy to do business, with low sovereign risk and a stable regulatory environment. The regulatory framework for offshore wind is critical to that picture and will be a signal either way to the market about whether New Zealand takes this opportunity seriously and is open for business.
 
More specifically, New Zealand should:

  • Keep it simple – There is already an existing offshore and oil gas regime with regulations in place through the Crown Minerals Act 1991. While there will undoubtedly be tweaks and adaptation, much of the existing legislation / regulation and principles should be able to provide a good roadmap and foundation to build on. In other words, don’t reinvent the wheel!

  • Leverage existing expertise – There are players in the global offshore wind industry who are interested in investing in New Zealand. Seek their input and feedback on what has worked in other comparable jurisdictions - developers and investors will want to see New Zealand get this off the ground as soon as possible, as New Zealand's potential in this space is well understood.

  • Mobilise the industry – The skills and expertise required to develop offshore wind is very similar to those already held by the existing workforce servicing the offshore oil and gas sector – this is an opportunity to retrain that workforce in renewable energy.

New Zealand has a short time to tap into the global investment capital looking to invest in projects that meet ESG requirements. These investors like offshore wind because of the scale of investment required, and are looking for reliable, long term infrastructure projects. There is fierce competition in this space from South East Asia (and others) that are willing to put cash on the table to incentivise investment. According to Andy, to ensure Australia (and New Zealand) are competitive against these markets (and able to secure investment), they ideally need to be in a prime position to capitalise on the opportunity by the end of 2023. Otherwise, available capital may be diverted into other markets that move more quickly or have a more attractive offering.

New Zealand and concluding remarks

Oceanex were excited by the announcement that the New Zealand Government has committed funding to the creation of a regulatory framework for offshore wind energy in Budget 2022, and will be looking to assist or share knowledge in any way it can.
 
Oceanex has its sights set on New Zealand, in particular Taranaki and Waikato Coast among a few other notable players. Oceanex is confident more investors will follow with the right regulatory settings.
 
The potential of this emerging sector is huge. We have the chance here to create a renewable energy industry that supports our decarbonisation efforts and creates careers that our kids and future generations aspire to be a part of. As Andy says, "We are not out to create a project, we want to create an industry!"

Thank you for speaking with us and sharing your insights, Andy.

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FOOTNOTES
  1. ∧  https://oceanexenergy.com/projects
  2. ∧  https://www.industry.gov.au/regulations-and-standards/regulating-offshore-renewable-energy-infrastructure
  3. ∧  https://www.energy.vic.gov.au/renewable-energy/offshore-wind
  4. ∧  Offshore Electricity Infrastructure Act 2021 (legislation.gov.au), section 117 and section 72.  

This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.

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