WA is home to some of the best land for renewable energy projects—in particular the Pilbara, where the combination of intense sun and wind presents an unparalleled opportunity to generate renewable energy during the day and through the night for most of the year. On a global scale, land like this is highly valuable in terms of its renewable energy potential. Any policy surrounding wind, solar and green hydrogen projects therefore needs to ensure that value is fully realised.
Given this, the release in June 2022 by the WA Department of Planning, Land and Heritage (DPLH) of its Exposure Draft on the Proposed Policy Framework guiding the use of Diversification Leases on Crown land under the Land Administration Act 1997 (Exposure Draft) (which we first commented on in our article Diversification leases policy released for public comment in WA) requires a closer look at whether adequate protections will be incorporated into the diversification lease regime to ensure valuable land assets, such as the Pilbara, are fully utilised.
The Exposure Draft sets out the proposed policy framework in relation to the diversification lease regime, expected to be implemented later this year pursuant to the proposed Land and Public Works Legislation Administration Bill 2022 (WA). The Exposure Draft includes policies regarding the grant of diversification leases to project proponents as well as indicating that proponents will need to ‘use’ their diversification lease or risk ‘losing’ it.
Key takeaways – Realising the value in diversification lease land for renewable energy projects
- Diversification lease proponents must demonstrate the necessary capability, capacity and experience to deliver the project they intend to operate.
- Looking to examples of ‘capability’ or ‘capacity’ requirements in other WA and Commonwealth legislation, proponents will likely be required to demonstrate technical and financial capacity at the very least.
- Competitive tendering for diversification leases rather than granting tenure by application will allow the WA Government to realise the most value from land, given that it will create a formal process for identifying the most suitable applicant.
- Where proponents do not adequately realise the value of the land granted under a diversification lease, the WA Government should revoke the grant. There are adequate policy reasons for taking a strict stance on this issue.
Proposed grant regime
Under the Exposure Draft, diversification leases will only be granted where a proponent demonstrates the “capability, capacity and experience to deliver the intended outcome” (paragraph 3(e)). The terms capability and capacity are not explained further in the Exposure Draft, other than a subsequent reference to “financial and management capacity” (paragraph 15(a)). It would seem that capability is therefore a reference to technical capability.
The Minister for Lands will be able to grant a diversification lease through private treaty or a public tender-type process (paragraph 5). Where there are competing applications for a diversification lease, the Minister for Lands will have discretion as to the grant, including considering (paragraph 8):
- “the benefits to the State, the relevant region or locality;
- the rights and interests of existing land users/interest holders;
- ensuring a diversity of investment; and
- any other considerations the Minister may deem relevant.”
Where the consent of pastoralists and/or native title parties is required for the grant of the diversification lease, we expect that some considerations the Minister may deem relevant include which applicant has or will be able to obtain those third party approvals. This could give negotiating power to those third parties who obtain this first.
A proponent will also be expected “to commence using the diversification lease within a reasonable period of time”, or risk the lease being terminated (paragraph 17).
DPLH has also indicated that it will be utilising the grant of options to lease land, which it can do under section 88 of the Land Administration Act 1997 (WA) (LAA). This not only provides certainty for project proponents seeking to assemble all of the parts of their project before making their final investment decision, but enables a process for the State to ensure that all necessary approvals are obtained and the project will proceed before the lease is actually granted.
Existing regimes requiring demonstration of capability
Requirements around the capability and capacity of a proponent as well as commencement of land use is not currently captured by the LAA, the legislation into which the diversification lease concept will be incorporated. These are a matter for Departmental processes, Ministerial discretion and the eventual lease terms. However, questions arise as to how the State will determine a proponent’s capacity—to which some answers can be found in existing legislation.
The Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGS Act) sets out a tender process by which petroleum acreage is released for bidding by project proponents. The application for such a “work-bid petroleum exploration permit” requires details of an applicant’s technical qualifications and the financial resources available to it. The Department of Industry, Science, Energy and Resources (DISER) has issued guidelines on applicant suitability, stating that the rationale for this approach is to ensure that “Australia’s petroleum resources and [greenhouse gas] storage permits” are entrusted to capable applicants. Suitability is not only “tested on entry into the regime” but also “at major decision-points”; where the decision-maker is not satisfied of the applicant’s suitability, the relevant application will be refused. Such a policy aims to ensure that, from the beginning, a proponent is suitable to undertake a project and, indeed, that the proponent continues to have the requisite skills. Ultimately, this ensures that the value of offshore resources is fully realised.
Similarly, the Pipelines Act 1969 (WA) requires an applicant for a pipeline licence to demonstrate their technical qualifications and financial resources, as well as the technical advice available to the applicant. Under the Offshore Electricity Infrastructure Act 2021 (Cth), an applicant for a licence provided under that Act must also demonstrate technical and financial capability. With hydrogen production there is, of course, the question of whether the State will be comfortable with an entity demonstrating the requisite technical experience through the use of offshore consultants and contractors, given the current dearth of local hydrogen project experience in Australia. However, we expect that DPLH, on advice from the Department of Jobs, Tourism, Science and Innovation, will take a practical approach that will recognise and work with these realities.
Use it or lose it
In relation to ensuring prompt commencement of projects, WA Government environmental approvals frequently contain the requirement that the proposal must be ‘substantially commenced’ within a certain time frame. Consequently, if an applicant does not undertake their project within the time frame, the environmental approval will terminate and the project proponent will be required to re-apply for the approval.
While the use of options can assist to ensure land tenure is only granted once the project is assured of commencement, as flagged by the Exposure Draft we expect diversification lease terms to also reflect the approach above and prescribe a period of time in which the project must commence before the tenure is revoked by the Minister.
In some African countries, valuable assets are simply nationalised if their full potential is not realised. While one could argue that this may reflect less democratic nations, it is likely the case that this reflects the principle of utilising land for the greatest public good. By no means do we suggest that the WA Government should consider nationalising valuable land assets for renewable energy generation, but it should implement a clear policy that allows it to revoke diversification lease (or any preceding option) grants to holders that do not commence using the tenure within a certain time frame. There are adequate policy reasons for taking a strict stance on this issue, most importantly ensuring that maximum value is obtained from prime land locations.
Realising the Pilbara’s potential
The Pilbara has been identified as a promising renewable energy and green hydrogen hub, one amongst only a few such sites in the world. A report by Net Zero Australia has found that solar hubs the size of Tasmania will be required for Australia to continue exporting current rates of energy and we expect that mega projects will flood the Pilbara with green electrolysers. Given the scarcity of land perfectly suited for green hydrogen production in particular and the once in a generation opportunity being afforded to our State, the WA Government should dispense with private treaty applications and instead focus on tendering access rights for highly productive land. This will ensure that, as under the OPGGS Act, the proponent most able to realise value from the land is given the rights to that land. We will watch with interest the extent to which the WA Government will focus on tendering.
The Exposure Draft provides a starting point for the policy that will underpin the diversification lease regime. We expect that proponents will need to demonstrate their technical and financial capability, and that DPLH will work with proponents to ensure this can be achieved. However, rather than allowing proponents to apply for diversification lease tenure, DPLH may focus on competitive tendering for the most valuable locations. In the absence of a tendering regime, the Government should be quick to revoke diversification leases where proponents are slow to realise projects.