The Australian government has released draft regulations and guidelines for the country's Offshore Electricity Infrastructure (OEI) framework, with public consultation to run until 22 April 2022.
Last year, we reported on the Federal Parliament passing the Offshore Electricity Infrastructure Act 2021 (OEI Act) and Offshore Electricity Infrastructure (Regulatory Levies) Act 2021, which establish a framework for regulating electricity infrastructure in Commonwealth waters. A suite of draft accompanying regulations and guidelines – the Offshore Electricity Infrastructure Regulations 2022 (Regulations), Offshore Electricity Infrastructure Licensing Scheme Guidelines 2022 (Guidelines), Offshore Electricity Infrastructure (Regulatory Levies) Regulations 2022 and the Cost Recovery Implementation Statement (CRIS) – have been released for public comment. The draft Regulations and Guidelines set out the proposed licensing scheme for carrying out OEI activities, as well as the potential fees and levies payable by licence holders and applicants.
As the OEI framework begins to take full shape ahead of its commencement on 2 June 2022, we take a close look at the draft Regulations and Guidelines and provide some key takeaways for our clients to consider.
Merit criteria for licence applications
The OEI Act sets out three merit criteria for assessing licence applications – technical and financial capability, project viability and the suitability of the applicant. The draft Regulations and Guidelines set out the factors for assessing each of these three merit criteria, while also adding a fourth criterion – national interest. These criteria apply to any licence type, and the applicant must demonstrate that there is a substantial likelihood that each criterion can be met.
The merit criteria are:
- Technical and financial capability: The applicant has the technical and financial capability to carry out the project, based on the technical advice available to them, their ability to carry out operations and works, and their ability to comply with obligations under the licence and broader OEI regime.
- Project viability: The proposed project is likely to be viable, based on its complexity, route-to-market (taking into account any supply/distribution agreements, grid capacity assumptions and/or grid connection infrastructure) and estimated commercial return.
- Suitability of applicant: The applicant is suitable to hold the licence. This assessment is based on their past performance in OEI projects over the past five years in similar operating environments (whether in Australia or internationally, and taking into account any health, safety and environmental incidents) and their corporate governance structure (e.g., account transparency of its corporate structure, chain of command and compliance with a corporate governance code).
- National interest: The proposed project is in the national interest, based on its impact and contribution to the economy and community, national security considerations and any potential conflicts with other users or uses in the licence area (including any measures proposed to mitigate such conflict).
In addition to the above, the Minister can take into account any other relevant matter for each criterion.1
Overlap of application areas
If two or more licence applications overlap in area, the Offshore Infrastructure Registrar (Registrar) will assess the merit of each and whether one has more merit than the other(s). If they are equal in merit, and the applicants cannot resolve the overlap by amending their applications, the Minister may:
- for a feasibility licence, invite the applicants to make a financial offer to the government. The offer should reflect the value of the proposed project to the applicant in order to differentiate between two otherwise equal offers, though it is possible the Minister could simply go with the highest offer made; or
- for a research and demonstration or transmission and infrastructure licence, offer to grant a licence over a different area to the applicant(s).2
Overlapping applications for commercial licences should never arise, as the default position is that the applicant for a commercial licence must already hold a feasibility licence. Any overlap issues should have been resolved at the feasibility licence application stage, in the manner outlined above.
Furthermore, to minimise the risk of interference between licence areas, the draft Guidelines require licence areas to contain the following "buffer zones":
- for a feasibility or commercial licence, any infrastructure must be located at least 2.5 km from the edge of the licence area; and
- for a transmission and infrastructure licence, any easement or transmission corridor should not exceed a maximum of 250 metres on either side of the cable or infrastructure.3
Change in control of licence holder
The Registrar must approve a change in control of a licence holder. 'Control' means holding 20% or more of the voting rights or issued securities in the licence holder.4 An unauthorised change in control is an offence that may result in a fine and/or imprisonment, as well as the licence being cancelled.5
At the application stage, the applicant must provide details of any change in control that may occur within nine months of the anticipated approval date.6 When a change of control is proposed, the licence holder must make the relevant application to the Registrar and pay the required fee.7 The Registrar will then make a decision based on the following:8
- whether the merit criteria can still be met if the change of control occurred;
- any matters prescribed in the licensing scheme; and
- any matters raised in consultation with the National Offshore Petroleum Safety and Environmental Management Authority (NOPSEMA) or the Minister, as well as any matters the Registrar considers relevant.
If approved, the change in control must occur no later than nine months after the approval is given.9
Form of licence application
An application must comprehensively describe the proposed project, including the infrastructure to be built (such as number of turbines and substations), life span, project scheduling and estimated construction and operation costs.10 It must also provide detailed information to demonstrate that the merit criteria for the licence can be met.
The prescribed form of the application has not yet been published, but will eventually be available through National Offshore Petroleum Title Administrator's website.
Licence holders will need to pay an application fee and three annual levies. Their values have not been officially set, but the draft CRIS provides estimates of the likely quantums for the 2022-23 financial year, as set out in the table below.
|Fee||Details and indicative values||Covers the costs of|
|Licence application fee11||Feasibility licence: $300,000 per application||Registrar|
|Commercial licence: $350,000 per application|
|Research and Demonstration licence: $300,000 per application|
|Transmission and Infrastructure licence: $300,000 per application|
|Annual licence levy12||Feasibility licence: Base fee of $120,000 plus an additional $1,000 for each 10 km2 of licence area over 100 km2||Registrar|
|Commercial licence: Base fee of $150,000 plus an additional $2,000 for each 10 km2 of licence area over 100 km2|
|Research and Demonstration licence: Base fee of $120,000 plus an additional $1,000 for each 10 km2 of licence area over 100 km2|
|Transmission and Infrastructure licence: $120,000 flat fee|
|Annual compliance levy13||Feasibility licence: Base fee of $200,000 plus an additional $7,500 for each 10 km2 of licence area over 100 km2||NOPSEMA|
|Commercial licence: Base fee of $300,000 plus an additional $10,000 for each 10 km2 of licence area over 100 km2|
|Research and Demonstration licence: Base fee of $100,000 plus an additional $5,000 for each 10 km2 of licence area over 100 km2|
|Transmission and Infrastructure licence: $100,000 flat fee|
|Annual Commonwealth levy14||Feasibility licence: $364,818||Department of Industry, Science, Energy and Resources (DISER)|
|Commercial licence: $198,224|
|Research and Demonstration licence: $198,224|
|Transmission and Infrastructure licence: $198,224|
Other fees will apply in respect of certain requests and applications (e.g., extending or varying a licence, applying for a change in control).
The OEI framework signifies both the beginning of an exciting new chapter in Australia's wind power industry and an important national step towards a greener and more sustainable future. The draft Regulations and Guidelines are currently open for public consultation until 22 April 2022, after which the government will consider the submissions received and prepare the final effective version of each document.
White & Case will continue to monitor the development of the Regulations and Guidelines and keep you informed as they approach their final form. In the meantime, if you have any queries on the OEI framework or the offshore electricity industry more generally, we would be very glad to assist.
1Guidelines, para 4.6.8 to 4.6.22.
2Guidelines, para 4.9.
3Guidelines, para 4.3.8.
4OEI Act, s. 84(1).
5OEI Act, s. 95(2) & (3).
6Guidelines, para 9.3.
7OEI Act, s. 86.
8OEI Act, s. 87.
9OEI Act, s. 85.
10Guidelines, para 4.3.5.
11Guidelines, table 5, page 16.
12Guidelines, table 4, page 15.
13Guidelines, table 16, page 37.
14Guidelines, table 10, page 24.
Michael Li (Associate, White & Case, Melbourne) co-authored this publication.
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