The Regulations will provide further detail on operational requirements that licence holders will need to comply with before commencing installation and construction of offshore electricity infrastructure. Importantly, the Draft Regulations cover the design notification scheme, process for the approval of management plans and financial security requirements.
Introduction to Australia's Draft Offshore Electricity Infrastructure Regulations
On 12 April 2024, the Australian Federal Government released the Draft Regulations and accompanying consultation paper on the DCEEW website. This follows on from the enactment of the Offshore Electricity Infrastructure Act 2021 (OEI Act) on 2 December 2021 and the Offshore Electricity Infrastructure Regulations 2022 (Cth) (OEI Regulations) on 30 November 2022 (for more details on the OEI Act and OEI Regulations, see our previous articles Unfurling the sails - the future of offshore electricity investment in Australia and Setting sail: Australia launches draft Offshore Renewable Energy regulations).
The consultation is open for comments until 12 May 2024. The Draft Regulations aim to guide holders of offshore electricity infrastructure licence (OEI Licence) on the operational requirements post receiving an OEI Licence and prior to constructing the infrastructure. While the Draft Regulations are subject to change, its key features are summarised below.
Obligations for Licence Holders before commencing installation and construction
Overview of OEI Act and OEI Licence
The OEI Act required that, after an OEI Licence is granted, the holder of the OEI Licence (Licence Holder) must have a management plan approved by NOPSEMA and meet certain financial security requirements. The Draft Regulations provide additional details to the above requirements. The following diagram provides a high-level overview of the process Licence Holders need to undergo before commencing installation and construction of offshore electricity infrastructure (OEI).
Design notification scheme
The Draft Regulations introduce a design notification scheme where Licence Holders must notify and seek feedback from NOPSEMA on the overall layout and design of an OEI project. This design notification scheme occurs before a management plan (MP) is submitted, and is intended to be an early engagement process for NOPSEMA to have input on critical decisions that are often made early in the lifecycle of large-scale infrastructure projects.
Currently, the design notification requirement only applies to transmission and infrastructure licences and commercial licences. Importantly, it does not apply to feasibility licences (but this may change in the final OEI Regulations).
A design notification must address the following matters:
the layout and location of licence infrastructure;
environmental characteristics at the location of the infrastructure;
how the infrastructure will be constructed, operated and removed;
significant risks and hazards associated with the above and measures to address them; and
the design process used to select the infrastructure.
Once NOPSEMA is notified of the above specifics, it has 60 days to consider the design and provide feedback. The Licence Holder must then address NOPSEMA’s feedback in the MP it submits.
Management Plan
The Draft Regulations propose the following requirements for MPs:
Public consultation - Licence Holders must consult relevant stakeholders and include the outcome of the consultation (including summarising and addressing claims from the consultation) in the MP. Licence holders are required to consult on all subject matters arising from their planned activities and consult a range of persons, such as relevant Government departments, First Nations groups with native title rights and interests, and communities located near the licence area. Licence holders must also provide stakeholders with sufficient information to allow for an informed assessment of their activities.
Provision of financial security - see section 4 below.
Design notification scheme - see section 2.2 above.
Other obligations - the MP must outline how the Licence Holder will comply with environmental obligations, work health and safety, emergency management, monitoring, auditing and other matters.
NOPSEMA may request revised MPs from Licence Holders if any information is unclear or missing.
The Draft Regulations provide guidance on the process of getting an MP approved. Note that there is a 90-day statutory timeframe within which NOPSEMA must approve or refuse the MP and NOPSEMA has powers to extend this time frame. However, there are currently no limitations on the basis/length /number of any such extensions.
When submitting an MP for approval, Licence Holders must pay:
a $10,000 application fee;
$10,000 additional application fee(s) for each revised MP submitted (whether required by NOPSEMA or on the Licence Holder’s own volition); and
an assessment fee (for the fees incurred by NOPSEMA in assessing the MP).
Overlapping licences
The OEI Regulations currently provide that where multiple feasibility licence applications overlap, the Minister will assess the merits of each application and may ask applicants to resubmit their applications to remove the overlap. If an overlap still remains after resubmission, then the Minister may invite applicants to make financial offers related to their applications.
The Consultation Paper proposes (for efficiency reasons) that where two applications are of equal merit, the Minister may skip the resubmission process and directly invite financial offers from applicants. The Consultation Paper also considered potential regulation to allow the Minister to resolve the overlap in licence areas on its own initiative (especially in cases where the overlap is minor). There is currently no further detail and no draft language on this proposed change.
Financial Security
A Licence Holder must have the necessary financial security to meet the costs, expenses and liabilities relating to the decommissioning of infrastructure and the removal of property, and the remediation of the licence area. The Draft Regulations detail the financial security requirements and the process for the Commonwealth to recover against the financial security provided by Licence Holders. At a high level, the financial security requirements under the Draft Regulations have many parallels with the financial security regime under the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth).
Amount and verification of financial security
Licence Holders must calculate the amount of financial security that they need to provide to the Commonwealth. Licence Holders are required to set out in their MP the method used to calculate the amount, including being able to identify and quantify certain minimum costs, expenses and liabilities. The Draft Regulations do not prescribe a particular calculation methodology. However, Licence Holders will need to demonstrate that their calculation method has been ‘verified’. The verification process can vary and should be commensurate to:
the scale and complexity of the calculation method;
the amount of financial security calculated; and
the nature of the underlying project.
As a result, the methodology could range from an internal review (for smaller projects) through to specialist third-party verifications carried out by independent and reputable organisations or competent verification bodies (for larger and more complex projects). If the method of calculation or verification is inadequate, NOPSEMA has the discretion to request that the Licence Holder re-submit their calculation methodology before approving the MP.
Form of financial security
Licence Holders will generally have discretion to choose the form in which they will provide their financial security, subject to a number of exceptions. This is a welcome sight, as it provides Licence Holders with the flexibility to meet their financial security obligations in a number of ways.
Subsection 102(1) of the Draft Regulations provides a non-exhaustive list of arrangements that may be treated as financial security for the purposes of the OEI Act. On the other hand, subsection 103(1) prescribes arrangements that will not be treated as financial security. Some key examples are as follows:
| May be financial security (s 102(1)) | Not financial security (s 103(1)) |
|---|---|
| Amounts provided directly to the Commonwealth (i.e. a direct payment). Amounts held in a third-party bank account. Credit facility. Bank guarantee. Insurance policy. | Self-insurance (i.e. covering costs from cash flow). A trust with the Commonwealth as a beneficiary. Guarantee provided by a related company. |
The Draft Regulations leave open the possibility of Licence Holders using multiple forms of financial security to satisfy their obligations. As such, parties have the flexibility to devise creative financial security arrangements which are best suited to their financial and risk profile.
Generally speaking, NOPSEMA will be responsible for determining whether a proposed arrangement is an acceptable form of security. The Minister for Energy may make a formal determination to require financial security to be provided in a certain form, although the process for such a determination involves a level of consultation with the Licence Holder.
When must financial security be provided?
The financial security must be provided to the Commonwealth before any infrastructure is installed or constructed.
Changes to the financial security amount
The amount of financial security required is expected to vary from time to time and may increase at various points over the course of an OEI project. If a Licence Holder becomes aware that the amount of financial security required to be provided has increased, they must apply to revise their MP to account for this increase as soon as reasonably practicable.
Other changes for the OEI Act and OEI regulations
Fee updates
The Draft Regulations provide an updated fee schedule for applications arising under the OEI Act and OEI Regulations. The full fee schedule incorporating purported amendments is extracted below.
| Application | Fee |
|---|---|
| Feasibility licence application | $300,000 |
| Commercial licence application | $350,000 |
| Research and demonstration licence application | $300,000 |
| Transmission and infrastructure licence application | $300,000 |
| Application to extend the term of a licence | $36,500 |
| Application to vary a licence | $36,500 |
| Application to transfer a licence | $36,500 |
| Application for approval of a change in control of licence holder | $35,500 |
| Application to surrender a licence | $22,500 |
| Design notification | Assessment fee as deemed by the Regulator |
| Initial Management Plan approval application | $10,000 + assessment fee as deemed by the Regulator |
| Management Plan revision approval application | $10,000 + assessment fee as deemed by the Regulator |
| Application for Regulator to make, vary or revoke a safety zone | $10,000 + assessment fee as deemed by the Regulator |
| Application for Regulator to make, vary or revoke a protection zone | $10,000 + assessment fee as deemed by the Regulator |
Other changes
The above is just a high-level overview of the key features of the Draft Regulations. Other changes discussed in the Consultation Paper and Draft Regulations include:
modifications to the work health and safety standards under the Work Health and Safety Act 2011 to ensure they are more fit for purpose for OEI activities;
safety and protection zone determinations to restrict access to areas around the OEI project for the safety of workers and other users of the marine environment and to protect OEI from damage from other marine users; and
record-keeping obligations.
For more details please refer to the Draft Regulations and the associated consultation paper on the DCCEEW website .
Knowledge articles you may be interested in:
Unfurling the sails: the future of offshore electricity investment in Australia
Setting sail: Australia launches draft Offshore Renewable Energy regulations