Offshore wind is an emerging sector in New Zealand on the back of the opportunity afforded by its globally recognised abundant wind resources. The New Zealand Government has confirmed its intention to establish an offshore renewable energy framework by 2024 and has released the first of two consultation documents requesting submissions on the framework (submissions close on 14 April 2023). The consultation document is available here.
The Government has signalled that it is keen to utilise expertise from successful offshore jurisdictions to implement a best practice approach that will support the sector to establish itself and support New Zealand's decarbonisation plans.
The Government presented two key options for consideration:
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Developer-led: This approach would see developers granted exclusive feasibility permits with sole/exclusive rights to apply for the corresponding construction and operation permits. There will be minimal early stage Government involvement, with developers expected to confirm site viability and engage with stakeholders (including local iwi and hapū from the indigenous Māori peoples).
- Collaborative approach: Under this approach, developers, the Crown, and Māori would collaborate under contractual arrangements negotiated between them to conduct feasibility activities, with developers selected later in the project lifecycle. This would not necessarily require a regulatory framework and non-participating developers would naturally be excluded since they would lack the detailed site information secured through the collaboration.
The Government clearly appears to favour a developer-led approach and recognises that such approach provides the exclusivity and long-term rights necessary to attract the significant investment required for feasibility and construction of offshore wind facilities, requiring only minimal Government resources to facilitate this.
We set out below our key takeaways on the Government's consultation document and proposed approach to New Zealand's offshore renewables framework.
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Speed is of the essence
Given the significant financial investment required for feasibility and development of offshore wind facilities, attracting international capital is critical. New Zealand is behind (but can catch up!) in the race to establish itself as a credible and ready-to-go offshore wind jurisdiction. Delay will see international investors head to competing jurisdictions that are moving more quickly to establish offshore wind, including Australia and Asia.
For New Zealand to be 'competitive' at a global level, the framework must be easy to use and apply, provide for a transparent process, and grant certain, enforceable and long-term rights to international developers and investors.
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Strong political appetite
The Government recognises clear benefits that offshore wind can provide to New Zealand, including in relation to carbon reduction goals, energy transition plans, and the role offshore wind can play in unlocking other technologies (such as green hydrogen and green ammonia production). Offshore wind is particularly attractive to retain and transition highly skilled industrial workforces such as in Taranaki and Southland, some of whom were trained and skilled in offshore oil exploration and production.
We expect offshore wind to continue to enjoy strong cross-party political support, which is welcomed and clearly required if the industry is to be stood-up at pace.
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Pragmatic approach rather than ideological
Offshore wind is not a new industry at a global level and there is opportunity for New Zealand to leverage the 'best of the best' from international markets – both in terms of regulatory set-up and technology and operational expertise.
The Government has indicated that it is happy to be led by international expertise and is willing to play an enabling role with developers leading feasibility activities. This will benefit local industry as they work alongside international experts, including from upskilling of local workforce.
In our view, there is a role for New Zealand Trade and Enterprise to actively target and attract international capital, developers, and suppliers to New Zealand for this sector.
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Locking in long term rights
Whilst the details of the long-term permitting process are not yet clear it seems likely that there will be a first-mover advantage for those developers that obtain feasibility permits within the near term, as the regulatory framework is set up in the next year or so. International developers and investors that miss out now would need to contend not only with the generation capacity being developed by others but (depending on the permitting process adopted) potentially also a lack of availability of permits, while the first-movers 'test the water' (and reap the benefits if successful).
New Zealand offshore wind is 'open for business' but the door may close quickly. If investors are interested, they need to be ready to act.
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Close partnership with iwi and hapū
The Government has indicated that implementation of an offshore renewables framework would support positive cultural impacts for Māori. We agree and note that local iwi and hapū are logical co-investors, partners and contributors to offshore wind projects, given the projects' long life-cycle, integral connection to the moana, and ability to provide jobs and opportunities for the local community.
We hope to see a clear pathway for Māori engagement included in the regulatory framework. Co-ordination across interested developers and stakeholders will be important to avoid duplication of consultation processes and engagement fatigue.
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Overseas Investment Office (OIO) approval and other consents
International investors into New Zealand offshore wind may require approval under the New Zealand Overseas Investment Act 2005 (OIA) if they trigger the thresholds for project value (expenditure >NZ$100m as a 'significant business' before business commences) or 'sensitive land' (for example obtaining an interest in marine or coastal areas, and/or an interest in farm land over a certain size). However, even if approval is required, the likely scale of job creation and associated regional economic development, and general benefits to New Zealand's carbon reduction and energy transition aims, mean that we do not see securing OIO approval to be an insurmountable hurdle for any credible international investor.
The Government has also indicated that the permitting criteria will include a requirement for the proposed development not to be contrary to New Zealand's national interest – being a test that will be imported from the OIA. Under that test, the Government recognises that the bar for prohibiting a transaction is high and the presumption is that overseas investment is in New Zealand’s national interest. Accordingly, for a credible offshore wind project, an international investor is unlikely to fail the national interests test required to obtain OIO approval.
During feasibility, regulatory consents will be required under the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 2012 (EEZ Act) (activity 12 to 200 nautical miles out from New Zealand's coast) and Resource Management Act 1991 (RMA) (activity up to 12 nautical miles out from New Zealand's coast), or such replacement/amended legislation (with the RMA currently under reform). A credible offshore wind development will factor in its impact on other interests (for example, fisheries, environmental and cultural) to secure consent and achieve the right balance of New Zealand's interests.
You can see our thoughts on the consenting regime covered in our previous blog posts here and here.
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Transparent and competitive process
It is implicit under the Government's proposed 'developer-led' approach that feasibility permits will be issued through a competitive process based on merit (rather than being a financial tender). However, the process for declaring relevant areas as 'open' for feasibility applications and ensuring that all relevant persons have a chance to submit a feasibility application is not yet clear or transparent.
It is critical for there to be a clear and transparent process to invite industry participation in the allocation of feasibility permits, including to ensure that New Zealand has the benefit of investors that can bring relevant, best of breed, and financially-backed experience and expertise to the New Zealand sector.
Submissions close on the Consultation on 14 April 2023.
Please feel free to reach out if you would like to discuss.
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