19/12/2022

On 19 December 2022, the Australian Government formally declared Bass Strait off Gippsland, Victoria as Australia’s first offshore wind zone and announced that feasibility licence applications for offshore wind projects in the Gippsland area will open soon. This note provides an overview of how the Minister will approach assessing applications for feasibility licences. For more information, please see our previous article, Hoisting the Sails: Charting Australia’s offshore wind legislation

Executive summary and key takeaways

On 8 December 2022, the Department of Climate Change, Energy, the Environment and Water (DCCEEW) released the Guideline: Offshore Electricity Infrastructure Licence Administration – Feasibility Licences (Guideline). The Guideline provides further detail on the requirements and processes relating to feasibility licences under the Offshore Electricity Infrastructure Act 2021 (Cth) (OEI Act) and the Offshore Electricity Infrastructure Regulations 2022 (Cth) (OEI Regulations). In the future the DCCEEW intends to release further guidance on the other licence types (commercial, research and demonstrated, and transmission and infrastructure).

The Guideline provides a helpful level of detail to the merit criteria that was lacking from the OEI Act and the OEI Regulations. Key takeaways include:

  • Comprehensive application - the more specific and comprehensive the application, the better (eg. specificity on plans, schedules, risks, uncertainties, funding, forecasts, stakeholders);
  • Comprehensive PDP - the project development plan should be detailed and comprehensive, including details on the key risks and uncertainties for the proposed offshore infrastructure project (Project) and activities to be undertaken during the feasibility licence term and how they will support a timely final investment decision (FID);
  • Indifference to certain factors - “indifference” (from a merits perspective) of various factors such as taking early steps to meet environmental approval requirements as well as whether the Applicant’s expertise is in-house or sourced from external advisers / consultants; and
  • Demonstrated experience - emphasis is placed on “demonstrated experience” (both in Australia and internationally) when assessing expertise.

The Guideline also provides helpful commentary on other aspects of the feasibility licence such as financial offers, conditions and change in control (discussed further below).

The Guideline goes some way to addressing industry feedback on merit criteria for feasibility licences applications. However, certain other matters remain uncertain for proponents.

Initial assessment

After receiving an application, the Offshore Infrastructure Registrar’s (Registrar) initial screening assesses the following requirements in respect of an applicant for a feasibility licence (Applicant):

  • Eligible person - the Applicant is an “eligible person”;
  • Application fee - the Applicant has paid the application fee;
  • Approved form - the application is made using the approved Feasibility Licence application form;
  • Timeframe - the application is made within the timeframe specified in the invitation to apply; and
  • Project - the application describes the Project to be assessed under the licence, and contains any other information or documents required by the application form or specified in the invitation.

Merit criteria for OEI license application

In deciding whether to grant a feasibility licence the Minister must be satisfied that:

  • granting the licence would be consistent with any conditions that apply to the declared area; and
  • the application meets the merit criteria.

The table below provides a high level summary of the guidance provided in the Guidance on the merit criteria.

 

Statutory factors the Minister may consider

Factors affecting merit of the application

Other guidance

1. 

Technical and financial capability

(a)

Technical advice available to Applicant to: (i) assess the feasibility of the Project; and (ii) carry out the Project as proposed
  • Demonstrating quality and availability of expertise.
  • Demonstrating (either the Applicant’s or its external advisers’) experience in:
    • similar projects (in Australia or offshore) or, failing that, experience in large-scale infrastructure projects; and
    • delivering preferred technology.
  • Holding other licences (in Australia or internationally).
  • Fields of expertise considered include:
    • engineering (civil, mechanical, project, electrical / electronic and instrumentation, aerospace / aeronautical);
    • construction, manufacturing, logistics and procurement;
    • commercial, project management, governance and planning / scheduling, stakeholder engagement;
    • environment and work health and safety; and
    • risk assessment / management and audit, inspection and quality assurance.
  • No preference for expertise that is internal to the Applicant or externally sourced (via advisers / consultants).

(b)

Financial resources available to Applicant
  • Having funds in place (in the Applicant’s own account) for at least 150% of the estimated cost of the Project for the next 12 months.
  • Having a detailed funding plan on how the Project’s remaining funding needs will be met.
  • Funds should be in cash, cash equivalents or undrawn debt facilities. Failing that, other forms of funds can be considered (eg. guarantees).

(c)

Applicant’s ability to carry out the project
  • If the Applicant has other project interests / licences, it has sufficient resources to meet competing demands.

-

(d)

Applicant’s ability to discharge its obligations relating to the licence
  • Defined team structure and responsibilities.

-

2. 

Project viability

(a)

Complexity of the Project
  • Feasibility activities are designed to address key risks and uncertainties leading towards the FID.
  • Applicant is able to address the conditions of the declared area.
  • The application is specific and comprehensive in detailing key risks and uncertainties.
  • The PDP is robust, comprehensive and specific.
  • Key risks and uncertainties include:
    • site / resource considerations (geotechnical and geophysical uncertainties, soil / seabed matters etc.);
    • technology and infrastructure considerations (engineering, installation etc.); and
    • supply chain assumptions.
  • This criterion is assessed on a phase-by-phase basis.

(b)

Route-to-market for the Project
  • The Applicant’s preferred option for supply / transmission is likely to be viable.
  • Specific offtake / supply options are identified for further investigation, and the Applicant has detailed plans / schedules for such investigation.
  • The application comprehensively covers route-to-market options and associated risks.

-

(c)

Estimated commercial return on the Project
  • The Project’s financing methods, construction schedules, commercial assumptions, production forecasts and cashflow forecasts are reasonable.
  • Cost and price estimates are reasonable in light of industry standards.
  • Uncertainty ranges are refined and appropriate, and the PDP contains plans to address key uncertainties.
  • The application demonstrates a clear path to finalising requisite commercial agreements.
  • The Minister considers this criterion more holistically, relying heavily on its assessment of “reasonableness” (ie. the Minister does not take a bright-line approach).
  • The Minister considers base, low and high case scenarios.

(d)

Any other matters relevant
  • The application specifies plans and schedules to address any other issues relating to the Applicant’s:
    • identified environmental, State / Territory and energy regulator consent requirements; and
    • impacts on relevant stakeholders and users of the area.

3.

Sustainability

(a)

Past performance in other infrastructure projects
  • The Applicant has a history of compliance and positive financial performance in other projects.

-

(b)

Applicant’s past financial performance
  • The Applicant meets at least one of the following criteria:

Criteria

Previous 3-year average (USD million)

Annual turnover

>300

Net assets

>100

Cash at bank

>300

Assets / funds under management

>500

Undrawn debt facilities

>300

 

-

(c)

Applicant’s corporate governance
  • The Applicant’s Board has an appropriate size, and the Applicant can demonstrate appropriate experiences, skills, commitment and knowledge of the entity / industry within its Board.
  • The Applicant implements principles of a recognised corporate governance code that provides for:
    • clearly defined roles and responsibilities with a regular review process; and
    • a sound risk management framework.
  • The Applicant has appropriate audit processes to verify the integrity of corporate reports.

-

(d)

Other matters relevant
  • The Applicant does not have any history of bankruptcy, insolvency, administration, disqualification (from managing a company) or criminal offence.
  • Past offences are assessed in the context of the application and Project (ie. certain offences with no relevance to the Project may have limited bearing on the application).

4.

Other criteria

(a)

National interest factors
  • The Project has a positive impact on Australia’s economy and / or local communities (ie. socio-economic benefits), including a combination of:
    • broader economic impact;
    • Australian job creation;
    • regional development;
    • Australian content;
    • contribution to grid supply;
    • energy security;
    • emissions reduction; and
    • benefitting international relations.
  • The application should provide preliminary forecasts of its anticipated socio-economic benefits.

(b)

National security
  • The Project does not pose any national security issues.
  • This is a separate assessment to the Foreign Investment Review Board (FIRB).

(c)

Timing of the Project
  • The Project can be delivered within a reasonable time.
  • The application can demonstrate capacity to achieve its timing despite other project interests / licences held.
  • The timing of the Project should be supported by a robust and comprehensive PDP.
  • This criterion is assessed on a phase-by-phase basis.

(d)

Efficient use of the Commonwealth seabed area
  • The Applicant demonstrates good utilisation of the area (ie. high GW output) in light of the proposed infrastructure layout, spacing and operational area.
  • The proposed infrastructure layout is specific and considered.

-

(e)

Conflicts with other users of the area
  • The application considers potential conflicts with other users of the area and proposes means to investigate / mitigate the conflicts.
  • Other users include: defence; shipping; aviation; fishing; native title; local communities; oil and gas or greenhouse gas users; and other licence holders.

Overlapping areas and financial offers

If there are two or more overlapping applications that could be offered licences if not for the overlap (and each of the applications meets the merit criteria), Applicants will be invited to revise and resubmit their applications to remove the overlap. Each Applicant will be told the other Applicant’s (i) identity; (ii) type of Project; and (iii) any other detail that the Registrar considers reasonable.

If the resubmitted applications do not resolve the overlap, the Applicants will be invited to submit a financial offer. Financial offers are received on an invite-only basis (unsolicited offers will be rejected).

If financial offers are invited, the Minister may only offer a licence to the Applicant with the highest financial offer. The merits of the application will not be considered (ie. the Minister’s consideration is strictly monetary). In the event of equal financial offers, the Minister may either:

  • offer the licence to an Applicant who has no other overlap other than the one in question; or
  • invite further rounds of financial offers (failing that, offering the licence at the Minister’s discretion).

License Conditions in OEI Act and OEI Regulations

The licence holder must comply with the conditions under the OEI Act, including paying the applicable levy, reporting requirements, complying with the management plan and complying with conditions on the declared area and under the licensing scheme.

Additionally, the Minister has discretion to impose such licence conditions as they see fit, including:

Change in control

As noted in our analysis of the draft Regulations, a number of stakeholders expressed a desire for further clarity on change in control (CiC) issues. The Guideline has provided further colour on the Regulator’s approach towards dealing with CiC transactions.

The DCCEEW has provided the approved application form required for a CiC. Importantly, CiC applications are assessed against the merit criteria above, subjecting future owners of licence holders to the same requirements as the original Applicant.

The Guideline does not address industry feedback on intergroup restructures being potentially captured by the CiC regime. This may impede common funding activities for offshore electricity infrastructure projects. It remains to be seen if the Australian Government will address this issue.

Other matters

The Guideline: Offshore Electricity Infrastructure Licence Administration – Feasibility Licences provides further information on extensions, variations, cancellations and surrenders of licences. Further details regarding these matters can be found in the Guideline.

Previous Chapter
Hoisting the Sails: Charting Australia’s offshore wind legislation
Expertise Area
Clean Energy + Decarbonisation
Energy
Infrastructure
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