Legal development

Feasibility Licences for Offshore Wind Projects 

By Justin Jones, Alyssa Phillips, Bree Miechel, Peter Grayson and Robert Gough

09 November 2023

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    Meritorious applications and staying on the right side of Australia's competition law.

    Overlapping project issue: How can applicants (legally) navigate declared overlaps in the Feasibility Licence award phase?

    Overlapping project issues

    One of the challenges with the feasibility licence award process is that two or more competing projects may apply for a feasibility licence over the same or overlapping areas.

    If that occurs, and the Minister believes overlapping projects are of equal merit, then the Minister has the power to make an “overlapping application group determination”. The projects within that group will then be invited by the Registrar to revise and resubmit their applications to remove the overlap. If they do not, then the overlap is determined by a financial offer process in which the strongest financial offer to the Minister will win.

    The problem is that competition law requires competitors to act independently and compete rather than collaborate. This creates challenges for projects who want to collaborate about how to resolve any overlaps (before or after the Minister’s determination).

    Key opportunities   Key challenges
    • There are ways to structure discussions to comply with competition law. A competition protocol should be agreed and implemented before starting discussions to ensure, and demonstrate, compliance.
    • Similarly, any resolution to the overlap will also need to comply with competition law. The potential solutions will depend on the nature of the overlap and how, as a practical matter, it could be resolved.
    • The consequences of breaching competition law are serious, including potentially very high penalties and, cartel conduct (like bid rigging) is a criminal offence.
    • The licensing scheme does not provide a statutory exemption from competition law in connection with the process. The fact the Registrar invites projects to revise and resubmit applications does not provide any legal protection.

    Competition law and overlapping applications

    Before engaging with competing projects about any actual or potential overlap, projects should be clear on the potential competition law risk, and implement measures to ensure any discussions, and solutions, comply with competition law.

    Government should consider whether a statutory exemption should be granted to facilitate discussions between members of an overlapping application group.

     

    Merit and award process: How can parties position themselves for capacity award at a level attractive for investment?

    Navigating Market Entry

    Australia's strong wind resource, location of priority areas for offshore wind development near demand centres and existing transmission infrastructure presents an attractive opportunity for investors, notwithstanding competing global opportunities.

    Parties wanting to develop a capacity pipeline in Australia's offshore wind market are considering their market entry strategy, including whether to invest in multiple project opportunities in parallel (without any certainty of success in obtaining a feasibility licence for any projects).

    Australia's feasibility licence award process

    Unlike many other jurisdictions, Australia's offshore wind regulatory framework provides for feasibility licence award without a financial offer process, but only where an application: (1) meets the merit criteria and there are no overlapping applications, or (2) any overlapping applications are not equally meritorious.

    Given the early stage of Australia’s offshore wind sector and associated uncertainties (including on development costs, supporting infrastructure and the availability and form of any financial supports), there is significant merit in not saddling early projects with a rent tax through an auctions process. However, in the case of the Gippsland declared area, the number of applications for feasibility licences and the calibre of the known applicants means financial offer processes for overlapping applications may be inevitable. Accordingly, applicants may have to bear significant comparative cost and resource commitment upfront to establish their application’s merit and nonetheless face an auction process.

    Key uncertainties Managing challenges
    • Public consultation, feasibility licence application and review processes are live in respect of several of the priority areas identified by the Australian Government for offshore wind. This increases uncertainty for sponsors who among other things will not know (1) if their application for a feasibility licence in a declared area is successful ahead of application deadlines for other areas, or (2) if subsequent project opportunities in areas yet to be declared will once declared be attractive (noting the curtailment of the Hunter declared area following public consultation process).
    • As there has not yet been an award of feasibility licences for the first declared area, it remains unclear how the award process will unfold and the weighting that will be applied in the assessment of merit.
    • The merit criteria include that the applicant has the technical and financial capability to carry out the proposed project. Aspects of this are likely to be more challenging where parties are submitting feasibility licence applications for multiple projects (or significant capacity).
    • By working in consortiums parties can leverage greater financial and technical capabilities and improve award prospects (and diversify risk). Consortium members may also take different roles across project opportunities to better substantiate ability to deliver feasibility works and the commercial viability of each project.
    • Work involved in establishing consortiums is not always “scalable” – parties may need to form new consortia across projects including to reflect different commercial strategies, appetite, technologies (e.g. fixed or floating), market cap, workforce capability and size. The costs involved in establishing new consortia can be significant. The silver lining can be access to substantial new financial, technical and human and resources.
    • Engaging third party consultants and contractors can be an effective tool to support inhouse resources and substantiate technical expertise and human resources available to the project. Project proponents have been public with plans to retrain and hire employees from old generation assets scheduled for decommissioning and to partner with local education institutions. They might also take a cue from developers in Japan and bring fisheries associations into O&M resourcing plans.

    Optimising award prospects

    Partnering with different consortiums, strategically performing different functions within consortiums, and working with third parties, may allow parties to tap into additional financial, human and technical resources and expertise for opportunities across declared areas.

    The market will need to respond to the Government's approach in the first award processes, including (1) how merit is assessed, and (2) the comparative strengths of any successful application where award is made without a financial offer process in the case of overlapping applications.

    The market will also need to respond to the evolution of the applications process. We have seen governments elsewhere adjust their applications and auctions processes to defray the upfront costs of tenderers/applicants. While proponents have shared some reservations, Japan is considering a "Central Model" pursuant to which the government will provide certain core data (such as site and grid surveys). In the same vein, VicGrid's approach to managing transmission infrastructure may be an indication of what is to come in other regions.

    Authors: Justin Jones, Partner; Alyssa Phillips, Partner; Bree Miechel, Partner; Peter Grayson, Partner; Charlotte Inglis, Senior Associate; and Robert Gough, Senior Associate.

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.

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