The Offshore Electricity Infrastructure Bill 2021 establishes a regulatory framework to facilitate the full life-cycle of offshore electricity infrastructure, from construction through to decommissioning, in the Commonwealth offshore area.

Snapshot

Once passed, the legislation will:

  • establish a licencing framework for three categories of offshore electricity infrastructure activities in Commonwealth offshore areas: commercial (including feasibility), research and demonstration, and transmission; and
  • appoint NOPSEMA as the regulator to administer and enforce compliance with the licencing framework.

On 2 September 2021, Federal Minister for Energy and Emissions Reduction Angus Taylor introduced the Offshore Electricity Infrastructure Bill 2021 (Bill) into Commonwealth Parliament. The Bill provides a licensing and regulatory framework for offshore electricity generation and transmission projects and prohibits such activities other than through the new licensing regime.

Licence framework

The Bill creates a licensing framework to allow licence holders to undertake certain offshore activities within declared areas in the Commonwealth offshore area (waters beyond three nautical miles to the edge of Australia’s Exclusive Economic Zone).

In considering whether a specific area is suitable to be a ‘declared area’ for offshore infrastructure activities, the Minister will consider existing uses and potential interactions with offshore infrastructure activities. The responsibility for managing interactions in a declared area will rest with the licence holders.

To obtain licences, proponents will need to satisfy ‘merit criteria’, which will be further detailed in Regulations yet to be provided but which relate to demonstration of technical and financial capability to carry out the project, viability of the project and suitability of the proposed licensee (including its controlling entities).

The framework implements a licensing scheme for three categories of activities:

  1. Commercial (including feasibility)

Commercial licences are available for electricity-generating commercial-scale projects. Holding a commercial licence authorises the licence holder to both carry out an offshore electricity generation project in the licence area and undertake offshore infrastructure activities for the purposes of the project.

To obtain a commercial licence, applicants must first obtain a feasibility licence. Of note, the Minister will issue a public invitation to apply for feasibility licences in respect of all or part of a declared area, which may influence the appetite of private entities to initiate exploration or assessment of potential declared areas. An example given in the Explanatory Memorandum to the Bill highlights that funding demonstrating financial viability is likely to be a key factor in meeting the merit criteria.

A feasibility licence will allow the licence holder to undertake scoping activities within the prescribed licence area for up to 7 years. Feasibility licence areas (and commercial licence areas) cannot overlap.

The feasibility licence holder can apply for a commercial licence for a duration of up to 40 years. Extensions can also be sought for both feasibility and commercial licences. We anticipate that the duration of licences will be relevant for proponents in ensuring consistency with the term of other key approvals, including EPBC Act approval.

Conditions for grant of a commercial licence include consistency with the conditions of the feasibility licence and consistency with the project the subject of the feasibility licence. Any amendments to the project scope or conditions may need to be made at the feasibility stage to facilitate grant of a commercial licence.

  1. Research and demonstration

Licences are available for small-scale projects which engage in research, testing or demonstration of emerging technologies (e.g. wave, tidal or ocean thermal electricity generation) in declared areas. Available for up to 10 years, all infrastructure installed under this licence must be removed after the end of the licence period. While the ten year period can be extended, research and demonstration licences cannot be converted to commercial licences. Unlike feasibility and commercial licences, research and demonstration licences:

  • are granted through direct application (rather than through a public application process); and
  • can overlap with other research and demonstration licence areas, provided impact on existing users and use in the area can be managed.
  1. Transmission

Transmission licences will permit licensees to construct and operate infrastructure that will store, transmit or convey electricity or a renewable energy product. These licences permit connection to onshore grid infrastructure or other end users. Transmission licences can be issued for the life of the asset rather than being limited to a specified period with the potential for extension. Similarly to research and demonstration licences (but unlike commercial licences), transmission licences may also overlap with other licence areas provided that impact on existing users and use in the area can be managed.

As distinct from the other categories of licences, transmission licences may be granted inside and/or outside of a declared area. As noted above, licences granted under the framework are limited to the Commonwealth offshore areas, with the result that projects may also be subject to additional State/Territory licensing requirements for infrastructure in coastal waters and coastal onshore, such as connection to onshore transmission and distribution infrastructure. The obligations and timing required to meet these additional licensing requirements will also need to be carefully factored in by developers.

Other noteworthy aspects

Before installing any offshore electricity infrastructure, licence holders must have an approved management plan and provide appropriate financial security.

Management plans

Applicants will be required to provide management plans describing how the licence holder will manage potential impacts and risks of the infrastructure activities carried out under the licence. The management plan must be approved by the regulator (defined below) before any infrastructure is installed and, for commercial licence applicants, before any commercial licence is granted.

These impacts and risks to be addressed under a management plan include: environmental management and compliance with obligations under the Environment Protection and Biodiversity Conservation Act 1999 (Cth), work health and safety, infrastructure integrity, emergency management, consultation and financial security arrangements.

Financial security

Licence holders will be required to provide financial security that will cover the estimated cost for the government to decommission all infrastructure proposed to be installed. The security (form, amount and timing) will need to be agreed upon with the regulator on a case-by-case basis and must be in place prior to the installation of any infrastructure.

Work health and safety

The Bill has a strong focus on protecting the work health and safety of workers and other users of the marine environment and protecting the offshore energy infrastructure from damage from the actions of other marine users. Features include creating safety zones and protection zones that may be established around offshore energy infrastructure on a temporary or permanent basis. Features for the protection of workers in an offshore environment include adopting the Work Health and Safety Act 2011 (Cth), with modifications to the extent relevant for an offshore environment.

A variety of other maritime safety regimes will continue to apply, such as the Navigation Act 2012 and the Occupational Health and Safety (Maritime Industry) Act 1993 in relation to vessels and structures that will navigate through a Commonwealth offshore area.

Administration and regulation

The Bill establishes the National Offshore Petroleum Titles Administrator as the Registrar to administer to licensing framework, including maintaining a licence register and managing the licence application process.

The National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) has been identified as the regulator, with the principal functions relating to work health and safety, environmental management and regulation of day to day operations.

The regime is proposed as a ‘user pays’ system where the cost of regulation is to be recovered through fees under the Bill and levies under the associated Offshore Electricity Infrastructure (Regulatory Levies) Bill 2021 and future Regulations.

Concluding comments

The Bill represents an exciting step in the development of Australia’s offshore renewable energy industry. As at the date of this publication, the Bill has passed through the first reading in the House of Representatives and been referred to the Senate Environment and Communications Committee to report by 14 October 2021 and is subject to further changes.

Herbert Smith Freehills will continue to provide updates on the progress of the Bill as it passes through parliament.

Key contacts

Alison Dodd
Alison Dodd
Partner, Melbourne
+61 3 9288 1870
Heidi Asten
Heidi Asten
Partner, Melbourne
+61 3 9288 1710
Neena Aynsley
Neena Aynsley
Partner, Melbourne
+61 3 9288 1826
Nick Baker
Nick Baker
Partner, Melbourne
+61 3 9288 1297
Gerard Pike
Gerard Pike
Partner, Melbourne
+61 3 9288 1974
Frank Li
Frank Li
Solicitor, Melbourne
+61 3 9288 1137