How a regulatory framework impacts the evolution of offshore wind in Australia

Offshore wind turbines with beautiful sunset in the background
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By Dr Graeme Hutchison, Principal Consultant Strategic Advisory, PSC UK Limited

Australia’s offshore renewable energy infrastructure is regulated under the Offshore Electricity Infrastructure (OEI) Act 2021 and the OEI Regulations 2022. The framework aims to facilitate the development, construction, operation and decommissioning of fixed and floating renewable generation and transmission projects (e.g., offshore wind and solar farms, wave energy plants, and undersea interconnectors) within Australia’s territorial sea.

There are three essential components of this framework:

  1. Legal structure: The OEI Act creates the mechanism to license and operate offshore wind. It establishes the legal entity or entities responsible for enforcing regulations and sets the stages of project development. The OEI Act enables flexibility in the ownership and sale of the power (i.e., how transmission assets are owned and operated).
  2. Licensing: Offshore renewable energy infrastructure projects require a licence. Commercial licences allow offshore renewable energy infrastructure projects for up to 40 years.
    • Transmission and infrastructure licenses permit the installation and operation of undersea interconnectors to transmit electricity.
    • Research and development (R&D) licenses enable short-term projects (up to 10 years) to trial and test new offshore renewable energy technologies.1
    • A feasibility license is required before getting a commercial license. The feasibility license allows the holder to identify viable land and sea areas to implement projects for up to seven years.
    • There is also a license to purchase for project development, including wind farm generation and ownership and operations of the transmission assets that connect the wind farm to the main line.

After these preliminary licences, there are standard licence conditions for each licensable activity, such as transmission, offshore transmission, distribution, interconnector, generation, and supply.

  1. Regulations: The regulations component of the offshore energy framework operates as a user’s guide or standard operating procedure (SOP) for administering the OEI Act. It provides higher granularity and details around the technical and economic processes and procedures. Some regulations can prompt technical re-evaluation, but generally, they don’t instigate wholesale changes in approach. It is reasonable at this stage of the licensing implementation to assume the process may be elongated, based on the experience of most jurisdictions thus far.

The OEI Act and OEI Regulations outline how and where infrastructure projects for renewable energy generation or transmission can operate. Offshore energy projects require a significant investment, so it’s important to optimise implementation. This necessitates advanced strategic planning to ensure alignment with the offshore energy framework. The Act and Regulations don’t stipulate the ownership/operational structure of offshore transmission assets that connect to the mainland. As such, it’s still unclear if there would be a separate entity to own and operate the offshore transmission assets: Does the wind farm generator take ownership of the assets? Or, potentially, does the onshore transmission system operator take ownership of the associated assets and augment its existing license to enable this structure? Currently, it’s all up for grabs.

Offshore wind schemes

Determining which offshore wind scheme to use results from a confluence of events, including preference, geographic accessibility, investment and alignment with regulatory structures that various countries currently operate under. The selected offshore wind scheme must also maintain a degree of alignment with the current regulatory framework, like the OEI Regulations or the wider price control structures in Australia.

Although there are various options for offshore wind schemes, the longer-term question is how regulators choose to disaggregate these options. The new regulations provide flexibility because the generator doesn’t have to be the transmission operator, but both have to have licenses to that effect. This approach offers adaptibility in long-term decision-making, which can then be optimised based on the long-term decisions made by the Australian Government. It is envisaged that consultation on such schemes would enable developers and broader stakeholders to support shaping the regime.

It should be noted that one offshore wind scheme is not necessarily better or worse than another regarding regulations. It is a culmination of preference, aligning with the overarching regulatory framework and assessing how to make the best-value decision in tandem with the practicalities of the project parameters.

Considerations for new offshore wind entrants to Australia

The offshore wind market is expected to grow significantly, with the APAC region showing significant long-term growth potential.2 Banks want to diversify their portfolios away from carbon- intense technologies and toward net-zero projects. However, it takes several elements working together to get these projects off the ground and running smoothly and continuously. These projects are complex. They have a 30- to 40-year investment profile, dealing with large assets and the seabed, which greatly impacts costs, operations and maintenance. The ROI for offshore wind projects averages 20 years, but these projects are a relatively secure long-term investment. Having the appropriate experience and knowledge to deliver these projects adequately with the right infrastructure is key to success. Before getting too deep into the water, ensure common project requirements are evaluated, such as:

Project Consideration Questions to ask and answer
Feasibility Was it done to a standard that is comprehensive?
Asset location Is adequate data available for long-term bathymetric changes (and other factors) available for the proposed location?
Existing documentation If procuring existing assets, how comprehensive is the data room, are commissioning logs complete with supporting evidence?

Going on this journey alone can be cost-prohibitive for a new entrant. Consider engaging a firm with specialist strategic advisory services and deep experience in these areas and in different geographies—one that understands how to (1) integrate best practices from other areas where Australia doesn’t and (2) work with dynamic regulatory structures and legislations. A strategic advisor could share lessons learned and best practices from previous projects to help you avoid unnecessary financial, business, or reputational loss.

  1. Australian Government, Department of Climate Change, Energy, the Environment and Water. «Establishing offshore wind: Licensing offshore renewable energy projects.» establishing-offshore-infrastructure#toc_2
  2. McKinsey & Company. How to succeed in the expanding global offshore wind market. April 2022. industries/electric-power-and-natural-gas/our-insights/how-to-succeed-in-the-expanding-global-offshore-wind-market
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