New Energy Quarterly Distributed Energy Resources

Distributed Energy Resources (DERs) Distributed energy resources (DER) are gaining prominence in the Australian National Energy Market (NEM). These decentralised energy technologies include solar panels, battery storage and electric vehicles which, in contrast to centralised power generation, are intended to satisfy the energy needs of their respective owners on-site. The Clean Energy Council (CEC) states that in 2023, 11.2% of Australian energy was generated by rooftop solar. This is however set to increase, with UNSW estimating that there is approximately 45.8GW of untapped solar PV potential in Australia, and the CSIRO stating that by 2050 45% of Australia’s energy could come from consumer owned DER. In a market where volatile energy prices dominate, it is to be expected that consumers will act to mitigate market exposure by adopting DER technologies. Generating for own use, managing demand, storing and selling energy back to the grid are concepts that is now part of the suburban nomenclature. The interest in DER is however not limited to the consumer sector, but extends to traditional utility scale developers, network operators and gentailers, many of which argue that they should have the ability to orchestrate DER assets. Research supports this argument, showing that only small amounts of DER generation are contributing to the existing wholesale energy market, with larger contributions derived mainly from commercial and industrial providers. This increased interest is only natural in a market where stakeholders are confronted with reduced grid capacity, regulatory burdens, lack of large EPC contractors, retiring synchronised generators and shrinking profit margins. An example of this is the Origin Energy and Coles partnership to co-invest in DER rooftop solar and battery assets at up to 100 of Coles supermarkets across Australia.1 The stores will be fitted with 20MW solar panels while batteries will be installed at one-third of sites. This will reduce participating stores’ grid reliance by an average of 20% and furthers Coles’ objective to achieve 100% renewable energy generation by June 2025. This seems to be supported by Origin’s VPP portfolio growth from 258 MW in 2022 to 815 MW by June 2023.2 Traditionally such DER portfolios have been difficult to invest in, with investors being uncertain how to value assets and arguing that the payoffs are not commensurate with the effort to invest. This is however changing, and in October 2023 Aware Super partnered with Birdwood Energy to form the Birdwood Distributed Energy Platform.3 Aware Super made an initial commitment of $300 million (as part of a $2 billion partnership). The platform will invest in smaller-scale DER assets, often coupled with battery storage for firming capacity. This transaction has redefined the way in which the Australian energy market views DER,4 with many investors now favouring portfolio investments above single assets. The growth of DER, in a market designed for centralised generation, clearly necessitates market reform. The 2024 ISP refers to a greater recognition of the role of consumer resources and distribution networks, and on 25 July 2024 the Australian Energy Market Commission (AEMC) issued a draft rule which integrates price-responsive resources into the NEM by allowing aggregated distributed energy resources to be scheduled and dispatchable. It is clear that DER will play a substantial role in realising a more sustainable, resilient, flexible and equitable energy future. Early adopters are therefore primed to gain from investing in established portfolios. In this New Energy Quarterly we explore the exciting developments in the DER market and provide insights into unlocking its full potential. Editorial Editorial 1 Market Update 3 Conferences and Events 3 Market Recognition 5 New Starters 6 Spotlight - Alistair Newton 7 Rising Star - Conor Bates 8 Watt is ARENA Funding? 9 Hamilton Locke New Energy Team 11 Power Play: Can DER be Regulated? 13 Virtual Power Plants: Five Things you Need to Know 17 The Symbiotic Relationship Between Agriculture and DER 21 Leading the Charge: The Growth of EVs in Australia 23 New Energy Explainer: DER and the Utility Death Spiral 25 Don’t Short Circuit Your Project: DER Engineering Risks 27 Dispute Minimisation in DER Projects 31 Integrated Resource Provider – Are you Ready? 33 Reforming Australia’s Environmental Laws: The Impact on New Energy and Planning Projects 36 New Energy Insights Federal Budget 2024: Batteries and Hydrogen all the Way 39 Unlocking Clean Energy: The Crucial Role of Rare Earth Minerals 43 Unlocking Clean Energy: The Crucial Role of Rare Earth Minerals - Recent Announcements and the Path Forward 46 Foul Winds or (Offshore) Wind’s Foul? Four Lessons from the Port of Hastings Rejection 48 5 Key Proposals Under the Proposed Offshore Electricity Infrastructure Amendment Regulations 2024 51 New Energy Experts Insights Distributed Energy Resources with Myles Carrucan – Green Peak Energy 53 New Energy Experts Insights Investment Outlook for the Renewable Energy Sector - Rodrigo Arias Lopez - Pottinger 55 New Energy Experts Insights From Local Jobs to Global Expertise: Developing Australia’s Renewable Energy Workforce with James Simpson – Part I 57 New Energy Experts Insights How will the Closing the Loopholes Act Affect the Renewable Energy Industry with James Simpson – Part II 61 New Energy Associates Network – NEAN 64 New Energy Quarterlies 65 Expert Insights 65 We explore the anticipated impact of bidirectional charging by EVs and the futureproofing of agriculture through agrisolar. We set out strategies for effective contracting and mitigation of technical risks, delve into the feared utility death spiral and discuss the opportunities offered by Virtual Power Plants. As always, please contact us if you would like to further discuss the exciting opportunities that DER holds for Australia. For more information, please contact: Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 Adriaan van der Merwe Special Counsel +61 403 120 410 Conor Bates (Consultant, admitted in Ireland, not admitted in Australia) +61 431 958 212 1RenewEconomy, ‘“Landmark alliance:” Origin, Coles strike solar and battery deal to cut emissions, balance grid’, https://reneweconomy.com. au/landmark-alliance-origin-coles-strike-solar-and-battery-deal-to-cutemissions-balance-grid/ 2Origin, ‘2023 Sustainability Report’ (2023), https://www.originenergy.com. au/about/investors-media/sustainability-report-2023/ 3Australian Financial Review https://www.afr.com/companies/energy/ aware-super-has-2b-green-plan-to-dodge-energy-grid-logjam-20231017- p5ecuz 4Hamilton Locke https://hamiltonlocke.com.au/hamilton-locke-advisesbirdwood-energy-on-aud2-billion-distributed-energy-partnership-withaware-super/ New Energy Quarterly Distributed Energy Resources 3 Return to contents page 4 Market Update The Federal Government announces a 6 GW renewable energy tender under the Capacity Investment Scheme. Read more On 22 February 2024, the Clean Energy Council published “A leading practice guide for engaging with Australia’s First Nations peoples on renewable energy projects”. Read more Consultation for the $1 billion Solar Sunshot funding program is now open. The program aims to accelerate the development of Australia’s solar manufacturing industry through production subsidies and grants. Read more The NSW Roadmap – Tender Round 5 is designed to recommend high-quality projects that deliver electricity infrastructure in the long-term financial interests of NSW electricity consumers. On 28 June 2024, the Treasury released a consultation paper seeking feedback on the Hydrogen Production Tax Incentive introduced under the 2024-25 Budget as part of the Future Made in Australia package. This incentive aims to accelerate Australia's hydrogen industry by offering a refundable tax offset to eligible producers of renewable hydrogen. Read more Read more On 26 June 2024 the Australian Energy Market Operator published the 2024 Integrated System Plan. On 13 March 2024 the Clean Energy Council released its Clean Energy Australia Report. Read more Read more On 15 February 2024, the Institute for Energy Economics and Financial Analysis has found that distributed energy resources (DER) such as rooftop solar, electric vehicles and smart appliances could deliver economic benefits for Australia of at least $19 billion by 2040. Read more On 14 March 2024, the Victorian Government made all new renewable projects in Victoria significant economic development. The status means that development applications for these projects will benefit from an accelerated assessment pathway under the Development Facilitation Program. The projects will not be subject to the planning panel process and third party appeals to the Victorian Civil and Administrative Tribunal. Read more On 16 April 2024, the Clean Energy Council published its “Rooftop solar and Storage Report”. The report found that rooftop solar now accounts for 11.2 per cent of Australia’s electricity supply. Read more Conferences and Events WA Clean Energy Forum The Hamilton Locke New Energy team attended the WA Clean Energy Forum to discuss all things grid stability and new technology in the energy space. AON’s 2nd Renewable Energy Forum AON’s Renewable Energy Forum ignites thought provoking discussions on opportunities, risks and trends the insurance sector is experiencing in relation to renewable energy projects. Renewable Energy Cup New Energy Partner and Lead Matt Baumgurtel spends a fantastic afternoon out on the water for the TagEnergy Renewable Energy Cup race. The annual race benefits the Australian Marine Conservation Society – “the voice for Australia's oceans”. Sundowners 2024 The Hamilton Locke New Energy team attended Sundowners. The event was a great opportunity to catch up with friends, clients and industry participants. Annual Quintas and Hamilton Locke Networking Event The Hamilton Locke New Energy team was delighted to co-host our annual networking event with Quintas Energy in June 2024. Argus Media SAF and Renewable Diesel Forum Conor Bates and Eamonn Carpenter attended forum discussions hosted by Argus Media on sustainable aviation fuel and renewable diesel. Australian Large-Scale Solar & Storage Summit 2024 Coinciding with the Clean Energy Council’s publication of ‘The Future of Long Duration Energy Storage’ report, the Hamilton Locke New Energy team attended the Australian Large-Scale Solar & Storage Summit 2024 at the Brisbane Convention & Exhibition Centre. Smart Energy Conference and Exhibition The Hamilton Locke New Energy team attended the 2024 Smart Energy Conference and Exhibition. Engaging speakers delivered talks on topics including renewable manufacturing, storage, distribution, grid transition and other domestic and international opportunities. Pottinger Hosts New Energy Team Hamilton Locke was pleased to participate in Pottinger’s renewables development and investment event. AIE event: Bioenergy State-of-Play The Hamilton Locke team had the pleasure of hosting the Australian Institute of Energy's (AIE) event on the Bioenergy State-of-Play. Experts Jonty Richardson (Argus Media), Shahana McKenzie (Bioenergy Australia) and Brent Davis (Jemena) delved into the exciting world of bioenergy projects, technologies, and opportunities in Australia and beyond. How can Energy Storage be Harnessed by Distribution Networks? Adriaan van der Merwe moderated a thoughtprovoking discussion on how energy storage can be harnessed by distribution networks at the Energy Storage Summit. Powering Australia’s Future: South Australia Energy Developments Conference New Energy team members Matt Baumgurtel and Adriaan van der Merwe moderated panel discussions at the South Australian Energy Developments Conference on “Energy Investment and Financing” and “Community Engagement and Social Licence”. Matt and Adriaan also presented on the Distributed Energy Transformation. Future Clean Energy Expo 2024 Lana Knaggs and Suwathie Rajeswaran attended the Future Clean Energy Expo hosted by the University of New South Wales. Presentations included engaging discussions on the emerging technologies and research that is propelling the future of clean energy. Connecting Green Hydrogen APAC 2024 Conference Matt Baumgurtel and Kusum KC attended the Connection Green Hydrogen Conference in Melbourne. Matt chaired the Central Queensland Regional Development Forum with an excellent line up of experts who shared their insights on what is needed to deliver Queensland’s clean energy future. New Energy Quarterly Distributed Energy Resources 5 Return to contents page 6 Partners Damien Bourke Amelia Prokuda Corin Maberly Michael Tooma Kiri Jervis Elena Stojcevski Andrew Vincent Kath Booth Tim Grave Alistair Newton Special Counsel Stephanie Patterson Joanne Casburn Melissa Doran Laura Driscoll Jack Conway Catherine Nufer Liesl Ellies Joel Whale Michael Tuck Marni Riley Lawyer Thu Vo Eamonn Carpenter Sally Yang Rob Abrahams Maimoon Khan Akshya Perera Jonathan Burt Michael Liu Consultant Conor Bates Graduate Archie Shrotriya Mabel Hung Kaitlin Pauly Kate Koh Janice Lau Market Recognition New Starters Hamilton Locke Recognised in the 2025 Edition of Best Lawyers in Australia Read more Hamilton Locke recognised in The Legal 500 2024 Asia-Pacific Guide Read more Hamilton Locke Wins in the Client Choice Awards 2024! Read more Hamilton Locke Recognised in Chamber and Partners 2024 Asia-Pacific and FinTech Guides Read more Hamilton Locke Tops National M&A and ECM Rankings! Read more Hamilton Locke Recognised in the Australasian Lawyer Best in Law 2023 Special Report Read more Hamilton Locke Ranked in the 2023 Doyle’s Guide Read more Hamilton Locke Included in AFR Legal Partnership Survey Read more We were named a winner in the Client Choice Awards 2024 in the category ‘Most Innovative Law & Related Services Firm’. Read more New Energy Partner and Lead Matt Baumgurtel Named a Dealmaker of the Year Australian Lawyer and NZ Lawyer’s inaugural Dealmakers of the Year list celebrates the top 25 dealmakers from Australia and New Zealand’s legal profession, chosen based on quantity, quality importance and innovation of their deal involvements. We are thrilled to see Matt recognised for his ongoing dedication to the sector! Read more William Ryan promoted to Senior Associate The New Energy team is proud to announce the promotion of a key member, William Ryan to Senior Associate. Since joining the Hamilton Locke, Will has been an invaluable asset to our team, clients, and the entire firm. We look forward to Will’s continued success. Read more Hamilton Locke advises Energy Vault on ACEN's New England BESS Project The project will deploy two BESS systems at ACEN Australia’s 720MW New England solar and battery project (the largest solar farm in NSW). The project will have a capacity of 200MW/400MWh. Read more Partner of the Year Awards Matt Baumgurtel and Jo Ruitenberg are named finalists in Lawyers Weekly’s 2024 Partner of the Year Awards. Read more Hamilton Locke Advises European Energy on 56MW Mokoan Solar Farm The project is a significant step for renewable energy in Australia. The Mokoan Solar Farm will supply over 15,000 households while reducing carbon emissions by over 85,000 tonnes. The Hamilton Locke team is proud to have supported European Energy every step of the way in this important transaction. Read more Paralegal Tasmin Cilliers James O'Malley Sam Poulsen Rita Cammaroto Leila Huthart Charlotte Coakes-Jenkins Sinead Kelly Michael Kallidis Suwathie Rajeswaran Lana Knaggs Jimmie Rees New Energy Quarterly Distributed Energy Resources 7 Return to contents page 8 = = Alistair Newton conduct, consumer guarantees and unfair contract terms. If something might involve the Australian Competition and Consumer Commission (ACCC), whether it be upfront advice on compliance or an enforcement investigation that may well end up in the Federal Court, I will be your first port of call. I work across industries, from digital platforms and media to fast-moving consumer goods, health, energy and manufacturing. Each sector presents its own set of intellectual challenges, requiring a thorough understanding of market dynamics. It’s a particularly interesting time to be a competition lawyer, with the ACCC’s role in the economy constantly expanding. Two examples in recent times are proposed reforms to give the ACCC a greater say in potentially anticompetitive mergers through a new mandatory notification process, and the ACCC’s renewed focus on unfair contract terms in standard-form consumer and small business contracts (which is a live compliance issue in the energy space). Career Highlights Throughout my career, I’ve had the privilege of working on high-profile and complex matters that have contributed to the development of Australian competition law and practice. A highlight was acting for BP in its proposed acquisition of Woolworths' petrol station network – described by the ACCC as one of its most complex merger reviews ever – and in the context of that proposal successfully obtaining ACCC authorisation for a BP / Woolworths convenience alliance. On the international stage, a highlight was assisting Comcast Corporation in its proposed US$65 billion acquisition of Twenty-First Century Fox, Inc. Why Hamilton Locke? Having previously worked closely with a number of outstanding Hamilton Locke partners at another firm, the opportunity to collaborate with them again was a significant draw. More broadly, I think Hamilton Locke is that rare combination of high-quality work, a genuinely (and unusually) supportive environment for partners and staff, and exceptional client commitment. It’s a firm at which you can happily do the best work of your life. Journey to Becoming a Lawyer I’ve always been an analytical and critical type, which is probably why I had an interest in law from a fairly young age. At the University of Melbourne I took a bit of a detour and first studied classics and politics, but it became obvious that a fulfilling career in those fields was unlikely! I then pursued a law degree, and it was in the law that I found a perfect outlet for the urge to problem-solve. I also discovered this interesting thing called competition law, a discipline that combines legal thinking with the principles of economics. I completed my articles in the M&A practice of Allens Arthur Robinson, as it then was, and then moved into its competition law practice. Following that I did a stint at Slaughter and May in London, where I worked on complex, cross-border merger clearance matters and gained some valuable insights into the global legal landscape. After I returned to Australia, I joined the partnerships of Corrs and then Hamilton Locke. Specialisation As a competition lawyer, I handle a diverse range of matters, including merger clearances, cartels (e.g., price fixing), and misuse of market power issues. I also advise on Australian Consumer Law issues including misleading What are you most proud of in your career to date? I’m generally very proud to be working in the New Energy industry. Making any contribution, however small, to facilitating the solution to one of the most critical issues facing our society is a source of pride for me. On a more personal level, receiving recognition for hard work done well is another source of satisfaction for me in my early career. It is greatly appreciated when a client takes the time to leave positive and constructive feedback. For example, in the Legal 500 EMEA 2023 publication, it was fulfilling to see one client’s feedback that “Conor Bates has a bright future ahead of him, and is technically strong and pragmatic.” What do you enjoy about working in the legal industry? I most enjoy problem-solving, people, and projects. Problem-Solving. I love the satisfaction that comes with the process of breaking complex problems into workable solutions. Particularly where this leads to positive outcomes for our clients. People. The legal industry is based on relationships, networks and teamwork. I find working in such a collaborative and social environment, where we share in the successes and challenges of our varied clients extremely rewarding. Projects. Working in the New Energy Team gives me the opportunity to present legal solutions to, and build relationships with, clients who are developing some of the most exciting, dynamic and critical engineering projects worldwide. Playing a small part in facilitating the delivery of these projects is something I am grateful to be a part of. What do you enjoy most about Hamilton Locke? I enjoy how Hamilton Locke is led by a collaborative culture with a focus on growth and development. The focus on creating an environment that promotes collaboration, the sharing of ideas and knowledge and building success together is excellent for professional development. This in turn empowers us to collaborate effectively and deliver commercial results for our clients. In your opinion, how does HPX Group empower communities? HPX Group empowers communities not only directly through its community and pro bono programmes (supporting Youth Insearch and The Hunger Project, respectively), but also by empowering its people and its clients. By promoting genuine, tangible initiatives such as the DaVinci programme, HPX Group members are supported in their endeavours to be active in a community of their choosing outside of work. By collaborating with New Energy clients in the DER space, we are empowering our communities to transition to a stable, secure and independent energy future. This support and community focus all comes together in the long run to create a positive impact on the communities in which we live. If you have taken part in the Da Vinci program, what activity did you undertake and why? Yes, I’m learning Brazilian Jiu Jitsu. I wanted to get outside of my comfort-zone and learn a new skill that would challenge me but also be social and it has delivered so far. Favourite movie and why? I don’t have a number one, but I do find the Christopher Nolan style mind-benders such as Inception, Interstellar and Oppenheimer really enjoyable, not least for the soundtracks. Favourite cuisine/meal? Italian cuisine is my number one, it needs no explanation! Conor Bates Alistair Newton Partner +61 450 922 876 [email protected] Conor Bates Consultant +61 431 958 212 [email protected] SPOTLIGHT = RISING STAR New Energy Quarterly Distributed Energy Resources 9 Return to contents page 10 Advancing Renewables Program (ARP) Powering the Regions Industrial Transformation Stream Hydrogen Headstart Round 2 The ARP awards grants to a range of projects that seek to: • optimise the transition to renewable electricity; • commercialise clean hydrogen; and • support the transition to low emission metals. The Industrial Transformation Stream seeks to support existing industrial facilities, and new clean energy developments, in regional areas to reduce their emissions, in line with Australia’s 2030 targets and in support of reaching net zero by 2050. Hydrogen Headstart Round 2 was announced in the May 2024 Federal Budget. The Program will provide up to $2 billion of revenue to support largescale renewable hydrogen production projects. Further information on Hydrogen Headstart Round 2 will be made available in the coming months. Up to AUD $50 million AUD $400 million AUD $2 billion Ongoing Regional Microgrids Program (RMP) The Regional Microgrids Program (RMP) aims to support the development and deployment of renewable energy microgrids across regional Australia that contribute to the Program Outcomes. Funding has been allocated across two Streams under the Program, each with its own Outcomes: 1. Stream A – Regional Australia Microgrid Pilots – to fund Projects that contribute to the innovation and/or acceleration of developing and deploying equipment that enables the coordinated use of distributed renewable energy technologies, improving the resilience and reliability of electricity supply in regional areas and addressing barriers to deployment of microgrid solutions. 2. Stream B – First Nations Community Microgrids – to fund Projects that contribute to the provision of cleaner, cost effective and reliable energy in First Nations Communities and empowering these Communities to participate in electricity supply arrangements and the development of energy infrastructure. Total AUD $125 million Stream A - $50 million Stream B - $75 million 19 December 2025 Driving the Nation Program The Program is focused on accelerating the uptake of Zero Emission Vehicles (ZEVs). ZEVs include Battery Electric Vehicles, Hydrogen Fuel Cell Vehicles and biofuel vehicles. The Program has various focus areas that will be funded (Focus Areas). The current Focus Area for funding is projects which encourage uptake of battery electric vehicles by supporting innovation in the deployment and use of charging infrastructure that accelerates the adoption of managed charging. AUD $500 million Ongoing Ongoing Applicants can register their interest to get updates on information about Hydrogen Headstart Round 2 when it becomes available. Program Summary Funding available Closing Date Program Summary Funding available Closing Date Solar Sunshot The Solar Sunshot program will support AUD $1 billion Australia’s photovoltaic (PV) manufacturing capabilities. The program aims to support innovative manufacturing facilities in Australia across the solar PV supply chain. The solar PV supply chain includes polysilicon production, production of ingots, wafers, solar PV cells and solar module assembly. The program may also support complementary aspects of the solar PV supply chain such as solar glass, module frames, deployment technology and other innovation or manufacturing elements required for solar deployment. The Program is currently in design. Round 1 funding will launch in early August 2024, with Round 1 applications due in early November 2024. National Industrial Transformation Program A range of technology solutions targeting industrial emissions abatement may be supported, from electrification and energy efficiency to fuel switching and zero emissions vehicles. Enabling technologies such as energy storage, demand management and critical infrastructure supporting onsite decarbonisation will also be considered. Projects can range from studies to scale demonstration and deployment. AUD $40 million National Industrial Transformation Program Ongoing Watt is ARENA Funding? New Energy Quarterly Distributed Energy Resources 11 Return to contents page 12 Senior Associates David O’Carroll Senior Associate +61 421 497 311 Gareth Howard (Consultant admitted in South Africa, not admitted in Australia) +41 424 372 390 Hannah Jones Senior Associate +61 450 584 149 Cormac Foley Senior Associate +61 2 8072 8271 Special Counsel Eliza Buchanan Special Counsel +61 2 8072 8271 Adriaan van der Merwe Special Counsel +61 40 312 0410 Kaday Conteh Special Counsel +61 439 335 094 Veno Panicker Partner, Construction & Infrastructure +61 409 495 242 Partners Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 Brit Ibanez Partner, Litigation +61 421 355 503 Michael Boyce Partner, Mining & Resources +61 400 142 494 Tricia Moloney Partner, Finance +61 434 154 180 Margot King Partner, Property +61 406 056 651 James Simpson Partner, Employment +61 407 061 641 Jo Ruitenberg Partner +61 427 182 390 Alistair Newton Partner +61 2 8072 8271 Amelia Prokuda Partner +61 410 032 358 Andrew Vincent Partner, Finance +61 417 544 925 Hamilton Locke New Energy Team Lawyers William Ryan Senior Associate +61 2 8072 8271 Tariq Alardah Lawyer +61 2 8072 8271 Matthew Dean Lawyer +61 2 8072 8271 Sally Yang Lawyer +61 2 8072 8271 Conor Bates (Consultant, admitted in Ireland, not admitted in Australia) +61 431 958 212 Ally Frizelle Lawyer +61 2 8072 8271 Paralegals Kusum K C Graduate +61 2 8072 8271 David Wan Graduate +61 2 8072 8271 Megan Chau Lawyer +61 2 8072 8271 Raymond Deng Lawyer +61 430 813 873 Akshya Perera Lawyer +61 2 8072 8271 Eamonn Carpenter Lawyer +61 2 8072 8271 Michael Liu Lawyer +61 458 311 888 Graduates Sinead Kelly Paralegal +612 8072 8271 Rita Cammaroto Paralegal +612 8072 8271 Sam Poulsen Paralegal +612 8072 8271 Michael Kallidis Paralegal +612 8072 8271 Leila Huthart Paralegal +61 2 8072 8271 Lana Knaggs Paralegal +61 2 8072 8271 Suwathie Rajeswaran Paralegal +61 2 8072 8271 Marni Riley Special Counsel +61 7 3036 7886 New Energy Quarterly Distributed Energy Resources 13 Return to contents page 14 Power Play: Can DER be Regulated? The regulation of energy products, resources, networks, and markets is vital for the maintenance of energy security, reliability, and affordability. In the context of evolving energy landscapes, the regulation of Distributed Energy Resources (DER) or Consumer Energy Resources (CER) becomes more crucial, given its additional mandate to align with climate objectives promoting sustainability and minimising environmental impact. Purpose of energy regulation Energy regulation serves many objectives, and a valuable perspective for understanding the complexities related to DER regulation is through the lens of the energy trilemma. This trilemma is comprised of three essential factors – energy security, energy equity, and environmental sustainability. Each factor includes critical dimensions that energy regulation attempts to address. Australia's current standing at 22nd place in the 2024 Energy Trilemma Index is due to the scarcity of diversity in Australia’s energy generation and storage methods, coupled with a high dependence on energy sources that emit high levels of carbon dioxide. DER regulation The regulation of DER should be designed to promote fair practices, align DER deployment with overarching energy goals, and provide a foundation for innovation. Balancing incentives and innovation become a crucial element of regulatory efforts in the DER landscape. The effective regulation of DER holds the potential to address the energy trilemma. Energy security can be enhanced by moving away from a large single source of energy Authors: Matt Baumgurtel and David O’Carroll Information asymmetry Interoperability Variability and technological advancement generation. Energy equity is enhanced by making energy more affordable and accessible for energy consumers. Finally, environmental sustainability is promoted with the deployment of clean and renewable energy sources closer to energy users. The regulation of traditional power systems was achieved by dividing the system into four primary domains: a) the wholesale energy market; b) the retail energy market; c) the transmission system; and d) the distribution system. Each of these systems is characterised by a few large-scale generators, suppliers and transmission and distribution operators. Regulating such a centralised system is more straightforward as there are only a few dominant entities which provides a locus of control that facilitates regulation with relative ease. The uniformity of operations, pricing structures, and compliance standards further simplifies the regulatory process. In a DER world, the energy system involves multiple, diverse entities contributing to the system through various technologies and ownership models. This diversity introduces complexities in coordination, compliance, and standardisation, making it more challenging for regulatory authorities. Addressing the evolving landscape of decentralised energy generation requires the recognition that traditional, hierarchical regulatory methods may no longer suffice. These regulatory challenges are complicated further because the DER landscape is nascent and there is no experience or prior learnings that can be used to develop best practice. Challenges and solutions 1. Information asymmetry DER systems are ‘behind-the-meter’ situated within the premises of energy consumers who are prioritising their own needs, such as cost savings or revenue generation, through the adoption of DER. This poses a challenge in accessing vital data on performance, maintenance, and capabilities. This complicates the formulation of effective regulation, requiring a delicate balance between oversight and respecting the privacy of DER owners. This challenge increases at the intersection of DER with multiple sectors and industries. Traditional regulatory bodies may lack the structure or expertise to address risks that are connected to unrelated sectors or industries. From a relationship management perspective, DER has exponentially increased the number of interventions that need to be managed, creating a resourcing issue for regulators and businesses alike. Recommendation: Improve visibility The conventional 'fit and forget' grid connection model lacks the necessary visibility over DER and their interactions with the grid. To address this, there is a need for an evolution in the responsibilities and functions of key system actors. For example, distribution service providers could take on more proactive roles such as balancing demand and supply, while transmission responsibilities may include addressing overall system imbalances. Implementing smart metering offers a short-term solution to enhance visibility until the low voltage grid can be upgraded to support variability, a process incurring considerable expenses. Policymakers and operators play a crucial role in this evolution. They should focus on identifying data gaps, leveraging existing data sources effectively, establishing robust data management systems, creating a common flexibility resource registry, and improving demand forecasting and network modelling. Reflects a nation's capacity to Reflects a nation's capacity to meet current and future energy demand reliably, withstand and bounce back swiftly from system shocks with minimal disruption to supplies. Assesses a country's ability to provide universal access to affordable, fairly priced and abundant energy for domestic and commercial use. Represents the transition of acountry's energy system towards mitigating and avoiding potential environmental harm and climate change impacts. New Energy Quarterly Distributed Energy Resources 15 Return to contents page 16 1 Rooftop solar has key benefits, and one critical weakness, over large-scale solar farms. https://reneweconomy.com.au/rooftop-solar-has-key-benefitsand-one-critical-weakness-over-large-scale-solar-farms/ 2Improved Regulatory Approaches for the Remuneration of Electricity Distribution Utilities with High Penetrations of Distributed Energy Resources. https://energy.mit.edu/publication/improved-regulatoryapproaches-remuneration-electricity-distribution-utilities-highpenetrations-distributed-energy-resources/ 3Unlocking the potential of Distributed Energy Resources : Power system opportunities and best practices, International Energy Agency. https://www.iea.org/reports/unlocking-the-potential-ofdistributed-energy-resources 4Delivering a highly distributed electricity system: Technical, regulatory and policy challenges Keith Bell and Simon Gill, Energy Policy 113 (2018) 765. https://www.sciencedirect.com/science/article/pii/ S0301421517307851 For more information, please contact: Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 Recommendation: Reliable and flexible grid connection To navigate challenges in integrating DER into the grid, regulators and system operators should update grid codes, ensure advanced inverter functions for DER, prepare for potential operational challenges, and introduce flexible grid connection arrangements that consider the impacts of each resource. David O'Carroll Senior Associate +61 421 497 311 2. Interoperability Interoperability, in the context of DER, refers to the seamless integration of different systems, devices, or components, allowing them to work together, exchange information, and operate cohesively. This becomes particularly crucial for ensuring that diverse technologies, such as solar panels, energy storage systems, and microgrids, can effectively communicate and integrate within the broader energy infrastructure. The effective regulation of DER relies heavily on establishing technical standards that facilitate interoperability among various components. Examples include standards like AS/NZS4777.2.2020 for small-scale inverters, simplification of device settings by Original Equipment Manufacturers, and consistent installation practices. These measures ensure a harmonious integration of DER technologies, promoting efficiency and reliability in the broader energy system. Furthermore, addressing the previously discussed challenge of information asymmetry is integral for achieving interoperability in DER systems. 3. Variability and technological advancement A distinctive feature of DER is that it deviates from the characteristics of traditional dispatchable energy and introduces challenges such as timing and voltage fluctuations that impact system stability. As a result, the energy system as a whole now requires increased flexibility, with DER technologies themselves emerging as integral components of the solution. The rapid evolution of DER, marked by continuous technological advancements and innovations, poses a regulatory challenge as regulations may struggle to keep pace with these changes. Incentives Regulating DER is as difficult as orchestrating a swarm of fireflies into the shape of a lightbulb. Not impossible, but requiring agility, adaptability, and a keen understanding of the intricate dynamics at play in the ever-evolving landscape DER. Incentives play a pivotal role in shaping the regulatory framework, encouraging adherence, and promoting desirable actions. Fair compensation for the flexibility benefits of DER is essential, and regulators can enhance market dynamics, improve price signals, and establish rules for multiple revenue streams while maintaining grid reliability. Opening markets to aggregated small-scale resources further promotes competition and efficiency, necessitating regulatory support for independent aggregators, defined roles, and adaptable market participation models. Conclusion In conclusion, the regulation of DER stands as a formidable challenge and requires a dynamic and adaptive regulatory framework. As energy regulation and DER development coalesce, effective communication among stakeholders will become paramount. The interplay between regulators, operators, and DER owners is pivotal in crafting a balanced environment that addresses challenges while fostering collective goals. Only through open dialogue and collaborative efforts can we navigate this intricate terrain, ensuring a resilient, sustainable, and innovation-driven future for our energy systems. New Energy Quarterly Distributed Energy Resources 17 Return to contents page 18 1. What is a Virtual Power Plant? A Virtual Power Plant (VPP) is a sophisticated energy management system that aggregates various Distributed Energy Resources (DERs) and flexibly aligns energy supply with demand. DERs can include solar panels, wind turbines, batteries, electric vehicles (EV), and demand response systems distributed across multiple locations. VPPs effectively bundle these separate resources and engage as a single entity in the energy market. 2. How does a VPP operate? VPPs continuously monitor real time data from each connected asset and analyse the data using advanced algorithms to optimise the dispatch of energy. This ensures efficient utilisation of available resources and minimises reliance on traditional power plants during peak demand. This is possible due to advancements in technologies such as internet of things, artificial intelligence, and real-time data analytics. The below graphic illustrates how energy produced behind the meter (BTM) is aggregated from residential and commercial entities connected to a VPP. VPPs can remotely control DERs for the most efficient utilisation of energy and optimise operation based on factors such as energy market prices, grid conditions, and user preferences. VPPs can generate revenue under local network services agreements with local distributors to supply energy. Further, as an energy retailer, VPPs can buy energy from the grid when the wholesale spot price is low and sell electricity to the grid when the spot price is high. The bi-directional flow of energy from the VPP to the grid distribution network is reflected in the graphic below. By matching supply and demand, VPPs can achieve a dual purpose of stabilising the grid and maximising profit. VPPs can also provide ancillary services to the grid, such as frequency regulation and voltage control. Insights Authors: Matt Baumgurtel, Adriaan van der Merwe and Kusum K C. SOLAR WIND HYDRO COAL/GAS PLANT TRANSMISSION DISTRIBUTION RESIDENTIAL AND COMMERCIAL BEHIND THE METER Benefits Network: Export energy Provide grid services MICROGRIDS CONTROLLABLE LOADS (RESIDENTIAL) Heating and cooling, pool pumps, washing machines, hot water systems ELECTRIC VEHICLES BATTERY STORAGE AND SOLAR (RESIDENTIAL AND COMMERCIAL) AGGREGATION ORCHESTRATION VIRTUAL POWER PLANT Consumer: Financial Environmental Shared benefits with community Figure 1 Virtual Power Plants schematic overview. Source: AEMO NEM Virtual Power Plant Demonstrations Report, September 2021. 3. Who regulates VPPs in Australia? VPPs are required to comply with National Electricity Laws (NEL). Given the adoption of VPPs is still relatively new in the market, regulators are catching up on how to create an effective regulatory framework to ensure grid reliability, promote energy security and safeguard the interests all stakeholders. Between 2019 and 2021, AEMO led VPP demonstrations across Australia to understand the capability of VPPs to deliver across multiple value streams across FCAS, energy and potential network support services.1 Amongst the other objectives, the demonstrations were designed to inform changes to regulatory frameworks and operational processes so DERs can be effectively integrated into the NEM. A key finding was the importance of AMEO having operational visibility of VPPs for the efficient management of energy resources. The demonstrations were only the first step, and was followed by Project EDGE to test the feasibility of a DER marketplace within the constraints of the distribution network. The trials have led to important rule changes plotted in the timeline below and further regulatory reforms are planned to better integrate DER resources into the grid. In the 2024 ISP plan, AEMO indicated hope that trials like Project EDGE will give consumers confidence to connect their DER assets to VPPs.2 DER/VPP regulatory reform and capability roadmap Sep 2021 Oct 2021 Nov 2021 Dec 2021 2022 2023 2024-25 Registration type Market Customer/MASP DRSP Integrated Resource Provider (IRP) ESB Flexible Trading Arrangements Governing Document DER Interim Arrangem Updated MASS NER - WDR Rule Change NER - IESS Rule Change ESB Flexible Trading Arrangements 24 Oct '21 24 Oct '21 Current Added Capability DER can operate bi-directionally at the load, interim arrangements. DE can operate bi-directionally at the load, formalised in MASS. Role expansion of MASPs to act as WDR unit (if large enough) Bidirectional in eneray & FCAS Multiple connection points at site Current Figure 2 Source: AEMO Virtual Power Plants: Five Things you Need to Know New Energy Quarterly Distributed Energy Resources 19 Return to contents page 20 1AEMO, ‘Virtual Power Plant (VPP) Demonstrations’, (Web page) https://aemo.com.au/en/initiatives/major-programs/nem-distributedenergy-resources-der-program/der-demonstrations/virtual-powerplant-vpp-demonstrations [Date Accessed: 02 February 2024]. 2Gabrielle Kuiper, ‘What Is the State of Virtual Power Plants in Australia? From Thin Margins to a Future of VPP-tailers’ (2022), Institute for Energy Economics and Financial Analysis. 3Ibid. 4Ibid n 3. 5Origin, ‘2023 Sustainability Report’ (2023). 6Asas Tariq, ‘Exploring the Opportunities and Challenges in Australia’s Virtual Power Plant Market’ (2023), PTR Inc, (Web Page) https://ptr. inc/exploring-the-opportunities-and-challenges-in-australias-virtualpower-plant-market/ [Date Accessed: 02 February 2024]. For more information, please contact: Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 Adriaan van der Merwe Special Counsel +61 403 120 410 4. The status of VPPs in Australia There are currently around 18 commercially available VPP products in the NEM.3 While current profit margins for operators are thin, energy retailers without VPP capabilities are expected to struggle to be profitable in the future.4 Most of the prominent energy service providers have already entered the VPP market, and are offering packages that includes the installation of solar panels and battery storage systems, along with energy management software to monitor and control energy usage. Participants can benefit from reduced energy bills and increased energy security through backup power during outages. 5. What will drive the future development of VPP? The future development of VPPs is expected to be primarily driven by an increased adoption of EVs, expanding rooftop solar and battery storage in commercial and industrial settings. Energy retailers tend to market VPP products as part of a package to increase the market penetration of their VPP platforms. By offering payment plans and incentives (in the form of cashback schemes and energy credits), energy retailers are increasing the uptake of DERs by lowering the up-front costs for households (which can be a major financial barrier). The interest in VPPs by energy retailers and consumers is seen in the industry as a natural evolution of advancements in renewable technology. The advancements in Battery Energy Storage Systems (BESS) have created an opportunity for VPPs to enter the market to maximise the value of new storage capabilities. Developers are integrating BESS into their large energy projects to maximise their future revenue streams, and we’re already seeing significant deals in the distributed energy market that will change the future energy landscape (for example, the recent Birdwood Energy Distributed Energy Partnership with Aware Super). Other key drivers for the adoption of DERs and in turn the adoption of VPP include the planned decommissioning of traditional utility scale energy providers (such as thermal power plants), further advancements in technology and increasing economics of scale in the sector. VPPs represent a paradigm shift in the way we generate and consume electricity. By harnessing the power of advanced technologies and DERs, VPPs offer a pathway to a more sustainable, resilient, and efficient energy future. Kusum K C Graduate +61 2 8072 8271 New Energy Quarterly Distributed Energy Resources 21 Return to contents page 22 The Symbiotic Relationship Between Agriculture and DER Modern agriculture relies heavily on substantial energy inputs for irrigation, machinery operation, and greenhouse climate control. This demand for energy is likely to increase in future to mitigate against effects of climate change such as temperature increases, rainfall pattern changes and extreme weather events. In fact, climate change and energy security have been identified as key risks for agriculture in Australia.1 Between 2022 to 2023, the value of Australian agriculture exports reached $79.9 billion.2 In this article we explore the symbiotic relationship that emerges between agriculture and Distributed Energy Resources (DERs). DERs refer to small-scale power generation or storage technologies often located close to the point of use. Examples include solar panels, wind turbines, small-scale hydroelectric systems, and batteries. Many of these technologies have already been installed on farms by farmers who seek to be selfsufficient and generate their own electricity to meet local needs and safeguard the future of their farms.3 Regional areas are generally at a disadvantage when it comes to energy networks. This is because regional areas were often the last to be serviced by long transmission lines when early electrification efforts involving small, localised power plants evolved into large-scale centralised systems as the demand grew. More recently, even with large-scale renewable infrastructure being built in regional areas, regional users continue to pay higher network charges. The intermittency of renewable energy (RE) has meant an ongoing reliance on transmission networks to ensure a continuous supply of energy. Regional customers are disproportionately affected by increasing electricity prices due to the high costs of maintaining extensive transmission and distribution networks for a limited number of customers.4 Fortunately, the advancements in energy storage technologies, particularly batteries, is reshaping the energy network to a more distributed network. Batteries are now more efficient due to improvements in energy density technology, have faster charging capacity, longer lifespans and are more affordable than ever. Sundrop Farms desalinates ocean water to produce freshwater for irrigation, enabling the cultivation of crops in greenhouses. This integration of RE and hydroponic farming not only promotes sustainable practices but also minimises the environmental footprint of both energy production and agriculture. Despite the overwhelming benefits of integrating DERs into agriculture, a report commissioned by the Australia Alliance for Energy Productivity (for the NSW Department of Primary Industries) found the upfront capital required for installation and lack of independent expertise and guidance remains a barrier for farmers wanting to explore DER options.9 We’re seeing this firsthand in the market, as many of our clients are seeking advice on co-location opportunities to leverage the full benefits of DERs. The report also examined the potential for farmers to generate additional income by selling surplus energy to the national grid and found with current market conditions the primary value of DERs lies in installing generation capacity tailored to local energy demands. However, the horizon looks promising for grid connected farms to export energy into the grid, especially with the anticipated regulatory and market updates that could bolster the scalability and effectiveness of large-scale virtual trading networks. This is good news for farmers, as a recent poll of almost 700 people in regional areas (Hunter and Illawarra regions in NSW and Central Queensland) revealed the majority of farmers support renewable infrastructure on their land as they view DERs as an essential source of additional income.10 The symbiotic relationship between agriculture and DERs exemplifies the potential for transformative change in both sectors. As the world seeks sustainable solutions to address energy and food security challenges, the integration of renewable energy into agricultural practices emerges as a win-win scenario. Farmers can reduce their reliance on the grid and mitigate the impact of fluctuating energy costs by harnessing DERs on-site and storing excess energy in batteries to be released during periods of high demand or when renewable generation is low. The availability of low-cost energy on demand enables farmers to rethink traditional practices and embrace innovative solutions. For example, farmers may leverage energy-efficient technologies, such as LED lighting or precision irrigation systems powered by RE, to optimise resource use and enhance crop yields. Additionally, DER installations can serve as multifunctional assets, providing shade for crops or shelter for livestock while generating electricity. An Australian study found that solar panels and solar farm fences enhance sheep welfare, potentially reducing merino lamb mortality rates from 20% in open fields to 12% within panelenclosed areas. Additionally, the quality of wool remained high even during drought conditions.5 Recently, the French National Research Institute for Agriculture, Food and the Environment (INRAE) carried out two agrivoltaic research projects and observed improved grass forage production under solar panels.6 Furthermore, several studies have also proven that crop yields increase when crops are partially shaded with solar panels as the soil below is protected from excess sun, wind, hail, and soil erosion.7 By strategically co-locating RE infrastructure with bee-friendly habitats, such as pollinatorfriendly plants and nesting sites, DER projects can also contribute to bee restoration efforts while promoting sustainable energy production.8 The complementarity between solar panels and pumped hydro and agriculture is explored further in our Agrivoltaics: The Future of Australian Farming? and Floating Towards a Sustainable Future – Floating Solar Photovoltaics (FPV) articles. Sundrop Farms is a good case study of a commercially successful Australian business that showcases the applicability of DERs in agriculture. Sundrop Farms contributes approximately 15% to Australia’s total tomato crop yield. As illustrated in the following flowchart, the Sundrop System operates by harnessing solar technology, particularly concentrated solar power. 1 NSW Department of Primary Industries & Australian Alliance for Energy Productivity, ‘Distributed energy resources for primary industries - Exploring barriers to deployment’ (2021), Energetics. 2Australian Agricultural Exports 2022/23, Rural Bank (Web Page, 2023) 3Gabrielle Chan, ‘Rural Australia believes in self-sufficiency, so let’s set the terms of the renewable energy boom’, The Guardian (online, 13 February 2024) 4Ibid n 1 5Tim Fookes, ‘Trial of sheep grazing under solar panels shows positive results’ ABC News (Web Page, 25 August 2020) 6Gwénaëlle Deboutte, ‘New Agrivoltaics date shows improved grass, forage production under solar panels’ (Web Page, 28 June 2024) PV Magazine 7Hélène Marrou et al, ‘Microclimate under agrivoltaic systems: Is crop growth rate affected in the partial shade of solar panels?’ (2013) Agricultural and Forest Meteorology 177, 117 – 132. 8National Renewable Energy Lab InSPIRE, ‘Suitable Agricultural Activities for Low-Impact-Solar Development’ (Web Page, 2020) 9‘Majority of farmers support renewable infrastructure on land’, RN Breakfast (ABC Radio National, 05 February 2024) The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact: Authors: Matt Baumgurtel, Adriaan van der Merwe and Kusum K C. Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 Figure 1 The Sundrop System. Source: Sundrop ELECTRICITY THE SUN HEAT SOLAR ENERGY SYSTEM STORAGE DESALINATION SEA WATER COOLING FRESH WATER IRRIGATION GREENHOUSE Figure 1 The Sundrop System. Source: Sundrop Adriaan van der Merwe Special Counsel +61 403 120 410 Kusum K C Graduate +61 2 8072 8271 New Energy Quarterly Distributed Energy Resources 23 Return to contents page 24 Leading the Charge: The Growth of EVs in Australia From the creation of the first battery powered electric vehicles (EV) in the 1800s to the production of the first commercial EV in 2008, it is no secret that Australia has traditionally been slow on the EV uptake. However, recent studies show that EVs are due for exponential growth within the next decade. This is due to a global shift towards net zero and the realisation that EVs have the potential to become an effective and consumer-friendly Distributed Energy Resource (DER). Growth of EVs Forecasts by the Australian Energy Market Operator (AEMO) show that underlying residential energy consumption is due to increase by 31% over the next decade, amounting to approximately 75 TWh worth of energy being consumed by 2033.1 The substantial spike in energy consumption is largely attributed to the growth of residential dwellings and the transition from vehicles with traditional internal combustion engines to electric ones – in other words, EVs. In Australia, EVs have gained popularity over the years, due in large part to a nationwide commitment to achieving a net zero emission economy by 2050.2 This has resulted in more emerging policies incentivising EV uptake – most recently, the proposed vehicle efficiency standards.3 These standards aim to impose a carbon cap across the fleet of vehicles that a supplier may source and sell in the country. Each year, the cap decreases, such that suppliers will either have to bring across more EVs in the first instance or sell more EVs to offset the high emission vehicles they may be selling in parallel. EVs as DERs – Benefits and Challenges For consumers, DERs – which also include rooftop solar and home battery storage – represent a cost-effective and efficient way of sourcing and supplying their own power. EVs take this one step further by providing consumers with the option of bi-directional charging. Bi-directional charging enables homeowners to use their idle EV as a battery to power their home. The homeowner can then sell any excess power from the battery back into the grid during peak hours. This not only allows the homeowner to make a profit off their EV when not in use, but can also contribute to stabilising the grid. In theory, this would result in fewer power outages and interruptions across the grid. In Australia, consumer uptake of bi-directional charging is still uncertain. According to a recent report by ARENA,4 this is because Australia lacks a policy framework to accelerate the supply of bi-directional charging equipment. Compared to countries like Germany and the Netherlands, Australia has not standardised many key aspects of EV supply equipment (EVSE) design and has little engagement with international specifications. As a result, there is: 1. uncertainty surrounding acceptable standards of EVSE in Australia. This deters many original equipment manufacturers from wanting to expand into the Australian market due to the higher risks and costs associated with enduring an ambiguous approval process; and 2. delays to the process of EVSE certification and listing to make these products available to consumers. To date, only Nissan and Mitsubishi have supplied vehicles capable of bi-directional charging in Australia, though ARENA predicts this will increase over the next two years subject to clearer technical standards being implemented. Authors: Adriaan van der Merwe, David O’Carroll and Megan Chau For more information, please contact Matt Baumgurtel; David O’Carroll and Megan Chau. Other items which must be addressed in building a new policy framework include costs and vehicle manufacturer warranties. EVs still incur higher costs compared to their high emission counterparts, particularly when it comes to the costs of installation to enable bidirectional charging. There is also the question of whether bi-directional charging contributes to the faster degradation of the car battery. If so, there may be issues regarding the consumer’s ability to make a claim under the manufacturer’s warranty which often depends on a certain lifespan or mileage of the vehicle. Australia’s Response In response to these issues, further efforts have been made to encourage the smooth integration of EVs to the Australian market and existing infrastructure. At a federal level, the luxury car tax thresholds5 distinguishes between fuel efficient versus other vehicles, such that EVs have a significantly higher threshold before the obligation to pay tax kicks in compared to other vehicles. Each Australian State and Territory has also implemented subsidy schemes and/or contributed substantial funding to developing infrastructure to incentivise both commercial businesses and consumers to make the switch to EVs. Consequently, AEMO forecasts that EVs will be close to cost parity with high emission vehicles by 2026-27.6 In December 2023, AEMO requested the Australian Energy Market Commission (AEMC) to extend the scope of Section 91 of the National Electricity Law such that the DER Register data and collection framework would include standing data for EVSE.7 The idea is for Distributed Network Service Providers (DNSPs) to collect EVSE data to share with AEMO, who would then record the data in the DER Register. AEMO and DNSPs would then use this data to integrate EVs into the National Electricity Market whilst reducing the risk of interruptions, increasing visibility of any potential issues, ensuring capacity needs are met and ensuring a more reliable, efficient and secure system for all consumers. Furthermore, the data may be used to facilitate more targeted investments and inform incident response, ensuring any registered EVSE are well maintained to continue operating smoothly. 1Australian Energy Market Operator, ‘2023 Electricity Statement of Opportunities’ (August 2023), https://aemo.com.au/-/media/files/electricity/ nem/planning_and_forecasting/nem_esoo/2023/2023-electricity-statementof-opportunities.pdf?la=en&hash=D8CC2D9AC8D9F353194C9DD117095FB4 2Department of Climate Change, Energy, the Environment and Water, ‘Annual Climate Change Statement’ (2022), https://www.dcceew.gov.au/sites/ default/files/documents/annual-climate-change-statement-2022.pdf 3Department of Infrastructure, Transport, Regional Development, Communications and the Arts, ‘Cleaner, Cheaper to Run Cars: The Australia New Vehicle Efficiency Standard’ (February 2024), https://www. infrastructure.gov.au/sites/default/files/documents/cleaner-cheaper-to-runcars-the-australian-new-vehicle-efficiency-standard-consultation-impactanalysis-february2024.pdf 4ARENA, ‘V2X.au Summary Report – Opportunities and Challenges for Bidirectional Charging in Australia’ (30 June 2023), https://arena.gov.au/ assets/2023/06/v2x-au-summary-report-opportunities-and-challenges-forbidirectional-charger-in-australia.pdf 5Australian Taxation Office, ‘Luxury Car Tax Rate and Thresholds’ (18 May 2023), https://www.ato.gov.au/tax-rates-and-codes/luxury-car-tax-rate-andthresholds#Luxury_car_tax_thresholds 6As above 1 7Australian Energy Market Operator, ‘Submission AEMO to AEMC – EVSE rule change – 12 December 2023’ (12 December 2023), https://www.aemc.gov.au/ sites/default/files/2023-12/Submission%20AEMO%20to%20AEMC%20-%20 EVSE%20rule%20change%20-%2012%20December%202023.pdf Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 Conclusion Now, more than ever, the appetite for EVs is at an all-time high. As a low emission vehicle, EVs support Australia’s commitments to achieving a net zero emission economy. As a DER, EVs afford all the standard benefits of cost efficiency and a reliable source of power, as well as providing a unique way for owners to make a profit via bi-directional charging. As a result, EVs now receive extensive social and regulatory backing, making them more affordable and accessible for both commercial suppliers and consumers. For Australia to achieve a future with net zero emissions, it is clear that EVs will play a pivotal part. David O'Carroll Senior Associate +61 421 497 311 Megan Chau Lawyer +61 2 8072 8271 Adriaan van der Merwe Special Counsel +61 403 120 410 New Energy Quarterly Distributed Energy Resources 25 Return to contents page 26 Cost Approximate proportion of total cost Wholesale cost derived from the wholesale cost of producing energy 42% Networks costs 35% Retail costs 10% Environmental schemes 4% Profit margin 8% New Energy Explainer: DER and the Utility Death Spiral More consumers are taking responsibility for meeting their energy needs by investing in solar, battery storage systems and energy management tools, known collectively as ‘consumer energy resources’ or ‘distributed energy resources’ (DER). Currently around 30% of Australian households have rooftop solar PV installed1, and AEMO has estimated this percentage will rise to 75% by 2050.2 This shift from the traditional energy delivery model to DER has raised concerns about the threat of the ‘utility death spiral’. How do traditional energy utility models work? Energy tariffs paid by energy consumers under traditional energy delivery models are made up of the following costs:3 Under the traditional energy delivery model, wholesale costs reflect the cost of generating electricity. These costs are affected by factors like generator breakdowns and severe weather events. Network costs comprise the costs of developing and maintaining the NEM’s transmission infrastructure (including upgrading existing infrastructure to meet increased demand and reliability requirements). The NEM’s transmission infrastructure is one of the longest in the world. Author: Matt Baumgurtel, Adriaan van der Merwe and William Ryan Retail costs and profit margin are costs that are retailer-derived. The movement of consumers away from the traditional energy delivery model to DER has been described as a ‘death spiral’ for traditional retails and gentailers. What is a death spiral? A death spiral in utilities arises for two reasons: 1. cheaper renewable energy: impacts spot prices and sales of utilities generating electricity from fossil fuels, reducing profits; and 2. DER: when high prices of traditionallysourced energy leads to consumers switching to cheaper alternatives or reducing demand (for example, by installing DER). Consumers are incentivised to adopt DER because they may benefit from exporting excess power to the grid (profit) and from importing electricity into battery storage systems during periods when electricity is cheaper (cost savings). It is called a death spiral because the loss of consumers causes utilities to raise prices further as the utility costs remain the same, but the number of consumers decrease. These increased costs are passed onto consumers, which also encourages consumers to leave the grid. This creates a ‘domino effect’ – a ‘death spiral’ for energy retailers and gentailers, leavings these companies in a precarious financial situation compromising their ability to maintain a reliable and sustainable energy infrastructure. Source: Aviad Navon, Juri Belikov, Ron Ofir, Yael Parag, Ariel Orda, Yoash Levron, “Death spiral of the legacy grid: A game-theoretic analysis of modern grid defection processes”, iScience, Volume 26, Issue 4, 2023. The victims Electricity network death spirals affect other stakeholders beyond retailers and gentailers: Much ado about nothing? Although much has been written about the threat of a utility death spiral, these fears are based on the premise that governments and businesses are passive actors in the sector. In practice, governments and businesses are incentivised to avoid this threat through innovation. For more information, please contact: Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 William Ryan Senior Associate +61 2 8072 8271 Adriaan van der Merwe Special Counsel +61 403 120 410 Vulnerable consumers Among the most vulnerable are grid-connected consumers lacking the means or necessary infrastructure to embrace DER. This demographic includes renters and economically disadvantaged individuals. These consumers are disproportionately burdened, giving rise to a pressing social welfare concern. The inability to access affordable and sustainable energy exacerbates existing economic disparities, contributing to a growing divide between those capable of transitioning to DER and those left behind. Broader stakeholders in legacy utilities Financial instability of the energy utility companies adversely affects: • employees: for example, through redundancies; and • shareholders and investors: for example, through diminished returns. Public goods Under potential death spiral conditions, the industry’s capacity to invest in research and development for large-scale clean energy technologies may be hindered. This impedes environmental goals and threatens an industry’s ability to address climate change. Sustaining ongoing grid reliability is essential for integrating new large-scale renewable energy plants and innovations. Insufficient investment in the grid poses a threat to energy security and jeopardises the transition to a low-carbon economy For instance, energy utilities are embracing DER aggregation and deploying advanced metering infrastructure (AMI) to optimise the use of diverse DER and enhance grid management. Some utilities are even investing in utility scale DER projects and fuelling the spread of DER. For example, Origin Energy’s Loop Virtual Power Plant (VPP) coordinates thousands of DER to work together like a traditional power station to manage supply and demand. Furthermore, governments are mandated to ensure energy system stability, reliability, and affordability and are unlikely to compromise on these prerequisite because of the growth DER. Together with regulators, initiatives are being implemented to improve integration, increase standardisation such as through the Review in Consumer Energy Resources Technical Standards and the development of a National Consumer Energy Resources Roadmap to explore how cost savings of DER users can be used to subsidise the cost of economically disadvantaged users, and the ways in which tariffs can be structured to ensure fair cost-sharing among consumers and incentivise efficient energy use. DER also presents an opportunity to utilities and the government to enhance energy security and reliability during natural disasters due to their localised nature. The recent blackouts in Victoria, caused by adverse weather, underscore the vulnerabilities of centralised generation and distribution systems. DER, especially battery energy storage systems, can enhance grid reliability and ensure critical services remain operational during natural disasters. Conclusion Sceptics of DER argue that it will lead to a ‘death spiral’ of traditional energy models. However, the uptake of DER is unlikely to mark the end of electricity retailers and gentailers, rather, it will herald a shift towards a flexible and sustainable energy model that address the evolving needs of both consumers and the broader energy landscape. 1 Australian Renewable Energy Agency, Solar PV research and development in Australia 2 AEMO, “Draft 2024 Integrated System Plan for the National Electricity Market”, 15 December 2023, 47 3 Australian Energy Regulator 2024-25 Issues paper New Energy Quarterly Distributed Energy Resources 27 Return to contents page 28 Don’t Short Circuit Your Project: DER Engineering Risks Technologies like solar panels and battery energy storage systems (BESS), give rise to novel engineering challenges. This article highlights three critical engineering considerations in solar and BESS: weatherrelated damages, fire risks, and site conditions. Understanding and addressing these challenges are vital for risk mitigation and the successful and safe implementation of renewable energy technologies. 1. Weather-related damages Extreme weather events may affect the energy generation of renewable energy systems. For example, bushfire smoke impacted rooftop solar energy production in Sydney during the 2019-2020 bushfires season, and solar energy generation decreased up to 20% in polluted conditions compared to clean conditions.1 During particularly high bushfire activities, the hourly solar energy reduction could range from 20% to 65% across metropolitan Sydney.2 More significantly, extreme-weather events may cause physical damage to renewable energy facilities, posing a significant threat to the integrity and functionality of renewable energy systems. Engineers face the task of designing systems that are resilient enough to withstand weather-related risks, including severe hail, floods, and bushfires. Specifically, developers must prepare for the following weather-related events: • Floods: in a climate compromised world, ‘one-in-100 year’ floods are increasingly common. To mitigate this risk (particularly in flood-prone areas), developers must ensure that generation facilities are constructed on appropriate sites, and that the design includes suitable anchoring systems. Developers should also prepare a flood emergency plan to manage flood impact to address how solar panels will disconnect (including to mitigate risks to grid and the safety of persons). • Hail: severe hailstorms may break the tempered glass that solar panels are made from. For solar farms, developers may mitigate hail risk by procuring trackers with ‘hail stow’ mode (which adjust the panels to a high degree tilt during a hail event to reduce the kinetic impact of hailstones).3 By contrast, rooftop solar panels, which lack dynamic capabilities, are more vulnerable to hail damage. Managing hail risk is expected to become pressing as solar module design evolves towards larger sizes with thinner glass. Not all weather-related risks can be mitigated through effective design and engineering. In these circumstances, developer’s unwilling to accept a risk may consider whether they can pass the risk to another party. Often the other party is an EPC contractor or an insurer. Developers must therefore be diligent in negotiating commercial contracts (in particular, the extent of the compensation and force majeure events regimes), and must ensure that insurance policies procured are appropriate robust. 2. Fire risks Rooftop solar fires occasionally make headlines in the mainstream news. The primary cause of rooftop solar fires is poor installation of electrical units (DC isolators, inverters, and wiring).4 For example, poor installation may cause moisture to enter the DC isolator, resulting in an electric arc.5 Nevertheless, the ratio of fire risk is currently only 1 per 10,000 installations.6 To mitigate this risk, regular inspections and maintenance of solar panels are crucial to prevent moisture ingress, ensure tight connections, and minimise debris accumulation, thereby reducing fire hazards. Consumers may also prefer installation by New Energy Tech Approved Sellers under the New Energy Tech Consumer Code (NETCC). The NETCC is a set of standards designed to protect consumers when purchasing new energy technology and includes applicable safety standards for installation of solar, battery storage, EV chargers and more. Lithium-ion batteries, which are often used for BESS, face significant fire risks if damaged, installed or operated improperly. Since 2017, at least 28 BESS fires have been reported in South Korea.7 South Korea’s Ministry of Industry’s investigation report outlines the following key factors that contribute to the fires: • a lack of battery protection systems to identify and stop short circuits; • insufficient management of the operating environment (e.g., dust, humidity, temperature swings); • poor installation practices; and • lack of integrated BESS monitoring and control systems.8 To mitigate the risks, appropriate fire protection design, proper installation and pre-incident planning are essential to manage BESS fire risks. In 2021, a fire at the 300 MW Victorian Big Battery (VBB) destroyed two of the 212 Tesla Megapack BESS units installed, as a liquid coolant leak cause thermal runaway in battery cells.9 The independent investigation report highlighted that the VBB fire event proceeded in accordance with its fire protection design and pre-incident planning. VBB’s effective pre-incident planning included an Emergency Action Plan (EAP) and an Emergency Response Plan (ERP), both of which were available to emergency responders and were effectively used during the fire. Authors: Matt Baumgurtel, Adriaan van der Merwe, William Ryan and David Wan 3. Site conditions The physical conditions of a site significantly impact the engineering and overall development of renewable energy projects. Contractors must inspect a site before executing a contract, as Contractors may assume the risks arising out of the site’s physical conditions. For example, an underestimated problem for solar power systems is soiling, where solar panels become coated with dust, dirt or sand and therefore receive less sunlight. The International Energy Agency report estimated that soiling is the single most influential factor impacting solar system yield, which caused at least a 3% to 4% loss to global annual energy production from PV and generated losses of around AU$ 4.5-7 billion. Soiling is a highly site-specific issue, and even a single site can have quite different conditions in different areas.10 The severity of soiling depends on various factors, including composition of the dust, proximity to the ocean, and the weather conditions at the time.11 Clay-like dust is more likely to adhere than sandy dust. High humidity and salt air on a windless day would enhance dust adhesion.12 Current solutions to soiling include anti-soiling glass coatings and automated and manual cleaning products. From left to right: solar panel flooded in Greece, solar panel damaged by hail in Sydney, Tesla Big Battery on fire in Victoria, and soiling on solar panels. Source: Panhellenic Agriculture Photovoltaics Association; David K Clarke; Nine News; PI Berlin New Energy Quarterly Distributed Energy Resources 29 Return to contents page 30 Contractors typically assume the risk of known site conditions, but latent conditions—those not identifiable through reasonable site inspection and investigation—pose additional challenges. The question of whether a particular feature is a latent condition will depend on the terms of the contract. Among other things, parties must determine who will be responsible for the risk of latent conditions during contract negotiations. Conclusion The successful deployment of renewable energy technologies, including distributed energy resources, hinges on effectively addressing the key engineering challenges and relevant risks. Weather-related damages, fire risks, and site conditions require diligent management, including enhancing the resilience of renewable energy systems to weather impacts, implementing strict safety and installation standards, as well as thoroughly assessing and preparing for site-specific challenges. 1Alejandra Isaza et al, ‘Air quality impacts on rooftop photovoltaic energy production during the 2019–2020 Australian bushfires season’ (2023) 257 Solar Energy 240. 2Ibid. 3Renewable Energy World, ‘Solar farm pelted by giant hail as severe storm ripped through Nebraska’ (June 2023): https://www.renewableenergyworld.com/solar/solar-farm-pelted-by-giant-hail-as-severe-storm-ripped-through-nebraska 4Solar Emporium, ‘Tips To Prevent Rooftop Solar Fires In Australia’ (October 2023) 5Energy Matters, ‘Rooftop Solar Fire Incidents: Lessons Learned and Preventive Measures’ (October 2023) 6Solar Power World, ‘The facts on the fire risks of rooftop solar arrays’ (November 2020) 7PV magazine, ‘What’s behind South Korea’s battery fire accidents’ (July 2023) 8 Ibid. 9Energy Storage News, ‘Investigation confirms cause of fire at Tesla’s Victorian Big Battery in Australia’ (May 2022) 10PV magazine, ‘Soiling – a multibillion-dollar issue’ (2023) 11CSIRO, ‘ Solar power and extreme weather in Australia’ (2020) 12Benjamin Figgis et al, ‘Dominant environmental parameters for dust deposition and resuspension in desert climates’ (2018) 52(7) Aerosol Science and Technology 788. Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 William Ryan Senior Associate +61 2 8072 8271 Adriaan van der Merwe Special Counsel +61 403 120 410 David Wan Graduate +61 2 8072 8271 New Energy Quarterly Distributed Energy Resources 31 Return to contents page 32 Australia is the world leader in the decentralisation and digitalisation of electricity, positioning itself to spearhead the incubation and development of distributed energy resources (DER) technologies and product services.1 Dispute Risks in DER Implementation While compelling reasons exist for businesses to adopt DER technologies, the risk of disputes arising in relation to the procurement, installation, commissioning and operation phases of the implementation of these technologies should not be overlooked. With studies confirming that an average of 2.6% of project costs is spent on construction project disputes, understanding the main causes of disputes can minimise some of the pitfalls when installing DER technologies. Five Considerations for Dispute Minimisation We detail below some considerations for property investors, owners and managers of commercial buildings to bear in mind when contracting for DER technologies: 1. Procurement stage risk allocation: Traditional contract risk allocation entails a lump sum contract price where risk is borne by the head contractor. Experience shows that this can result in contractors lodging claims during various project phases to make up the difference between the lump sum price and actual costs, especially where contractors encounter issues such as adverse site conditions, supply chain disruptions, or potential changes in project requirements. The procurement and contract drafting stages present significant opportunities for the parties to take proactive steps to minimise potential issues later on, particularly regarding the potential costs associated with the procurement, installation and commissioning of DER technologies. 2. Design phase considerations: Design-related issues can lead to additional costs and cause delays when there is no planning sequence followed for the release of design information that can affect construction. In addition, inadequate or poor quality workmanship or inferior quality materials can delay a project’s completion and cause disputes. Incorporating clear product specifications and quality Dispute Minimisation in DER Projects Authors: Veno Panicker and Gareth Howard software with installed infrastructure, integrating equipment being installed by separate contractors, or when connecting DERs to the grid; 5. Incorporating specific dispute resolution processes: With no ombudsman schemes likely to be created to cater specifically for DER-related disputes, parties intending on procuring and installing DER technologies would benefit from considering incorporating tiered dispute resolution processes in their contracts where one process must be exhausted before another can be commenced. This may facilitate early and cheaper resolution of disputes while also avoiding interruptions to projects and preserving future commercial relationships.2 Depending on the specific circumstances and desired outcomes of the parties, this could include: a. Executive negotiations, where senior representatives from each party meet on a ‘good faith’ basis in an attempt to resolve the dispute with minimal cost and procedural formalities before proceeding with more formal dispute resolution procedures; b. Mediation, which is a more formal process than executive negotiation where the parties meet before a third party – the mediator – who facilitates the parties’ discussion on a ‘without prejudice’ basis while aiming to ensure that each parties’ position is heard while attempting to resolve some or all of the issues between the parties. Usually, any agreement reached at mediation is binding and enforceable between the parties; c. Expert determination, where the parties agree to appoint an ‘expert’ who has certain qualities or experience in a particular field to determine the dispute after the parties have presented their arguments and evidence. The parties may agree that the expert’s decision is either binding or non-binding (although parties often agree that it will be binding to reach finality to their dispute without the need for further escalation); d. Adjudication, which is a process typically provided for under security of payment legislation that is aimed at determining the value of work carried out and goods and services supplied under a construction contract; and e. Arbitration and litigation, which are the most formal, expensive and timeconsuming processes, are often seen as ‘last resort’ measures to determine a dispute. Each of these processes involves a form of trial of legal and factual issues before a decision-maker – for arbitration, the parties retain greater control because they agree on the rules governing the conduct of the arbitration, while in litigation the parties must follow the Court’s rules and any particular orders made as to procedure. standards in your contract can help avoid future disputes about the scope and quality of work. 3. Engagement across team members: A well-drafted contract will incorporate provisions that facilitate communication and engagement between the on-site project team and personnel making the ultimate decisions on the project. This may include scheduling regular meetings between the commercial, technical and delivery teams to help ensure that each party is aware of their obligations, responsibilities and applicable timeframes and also help ensure that potential issues can be identified, resolved or escalated timeously. 4. Common Causes of Delay to Project Completion: Contracts should address events causing delays to the date of project completion, which can lead to extra fees due to prolonged equipment hire, labour resourcing challenges and/or liquidated damages to protect a principal. Common issues for projects of this nature include: a. Latent Conditions: Project proponents often encounter unexpected site or adverse sub-surface conditions. This risk arises because tender bids are often submitted based on current site conditions or – worse still – without contractors inspecting the relevant site before submitting their bid for assessment. It is important to remember that when construction starts, assumptions regarding site conditions may prove to be incorrect due to subsurface conditions, soil conditions, unanticipated structures, and other kinds of obstructions – incorrect assumptions regarding site conditions can easily escalate into disputes; b. Weather: Taking the risk for adverse or inclement weather conditions, where severe or adverse weather conditions may hamper the ability of parties to complete their project on time, expose the contractor to potential delays, and result in liquidated damages being imposed; and c. Interface risks: Project delays often occur when attempting to integrate Key Takeaways DER technologies offer exciting opportunities for players in the commercial property industry to reap the rewards of clean energy production on a least-cost pathway to a net zero carbon built environment. However, there are risks to be mindful of when contemplating installing and commissioning DER technologies, which are best managed contractually between the parties. Sensible risk allocation (and not simply a top-down pass through of risk) and proactive management of certain ‘high-risk’ items that can cause delays, lead to increased project costs or easily trigger disputes is critical for project success. Parties opting to implement DER technologies are advised to seek specialist legal advice early on in order to best manage potential risk. For further assistance with regards to the procurement, installation, commissioning and operational phases of DER technologies, contact Veno Panicker, Matt Baumgurtel or Gareth Howard at Hamilton Locke. Gareth Howard Consultant +41 424 372 390 Veno Panicker Partner +61 409 495 242 1Guidehouse Insights, ‘Australia Is Positioned As an Incubator, Laboratory for Distributed Energy Resources Opportunities’, (Web page) [Date Accessed: 16 February 2024]. 2PGC Legal, ‘Dispute Resolution in Australian Standard Contracts’, (Web page) [Date Accessed: 16 February 2024]. New Energy Quarterly Distributed Energy Resources 33 Return to contents page 34 Integrated Resource Provider – Are you Ready? In our previous three-part series (Part I, Part II and Part III) and recent article, we examined the upcoming changes to the National Electricity Rules (NER) through the introduction of the National Electricity Amendment (Integrating Energy Storage Systems into the NEM) Rule 2021 (IESS Rule) and the National Electricity Amendment (Implementing Integrated Energy Storage Systems) Rule 2023 (2023 Rule) (together, the Rules). The Rules will create a new market participant registration category in the National Electricity Market (NEM) called the Integrated Resource Provider (IRP). The Rules are scheduled to take effect in June 2024. In this article, we recap on what the Rules mean for participants in the NEM and examine: 1. Which participants are affected; 2. What needs to be done (if anything); 3. When it needs to be done by; and 4. How to do it. Authors: Matt Baumgurtel, David O’Carroll and Conor Bates First Published: 22/03/2024 Source: AEMO Source: AEMO Generator Customer MSGA Existing IRS Participant New IRS Participant Future IRP Participant Is registration mandatory? No, but they may choose to. No, but they may choose to. Yes Yes Yes Yes Is registration automatic? No No Yes No Yes No Implementation date for automatic registration N/A N/A 2 June 2024 N/A 3 June 2024 N/A Registration application deadline 3 September 2024 3 September 2024 N/A 35 business days prior to BDU cutover date, or 3 September 2024 latest N/A N/A Registration completion deadline 3 December 2024 3 December 2024 N/A 3 December 2024 N/A N/A Definitions Bi-directional Unit (BDU) A production unit that also consumes electricity. Consumption of electricity: a. includes the use of electricity to charge a production unit or to pump water for a pumped hydro production unit, and b. excludes auxiliary load. Customer A registered participant that purchases electricity supplied through a transmission or distribution system to a connection point. Existing IRS Participant A participant with an IRS registered prior to 9 December 2021. Future IRP Participant A participant with an IRS completing registration on and from 3 June 2024. Integrated Resource System (IRS) A system comprising one or more bidirectional units (and which may also comprise one or more generating units or other connected plant that is not part of a bidirectional unit), or A system comprising one or more generating units where the connection point for the system is used to supply electricity for consumption on the system side of the connection point. Generator A registered participant engaged in the activity of owning, controlling or operating a generating system in the NEM. Market Small Generator Aggregator (MSGA) A registered participant who can supply electricity aggregated from one or more small generating units, which are connected to a distribution or transmission network. New IRS Participant A participant with an IRS registered between 09 December 2021 and 02 June 2024. Key takeaways: 1. Generators and Customers must self-identify to AEMO if they are seeking to move into the IRP registration category, in which case they must complete their application by 3 September 2024 and complete registration by 3 December 2024. Registration is not mandatory for these categories. 2. MSGA and NEW IRS Participants will automatically be registered on and from 2 and 3 June 2024, respectively. 3. Existing IRS Participants must apply to transfer registration by: a. 35 business days prior to its BDU cutover date; or b. 3 September 2024 at the latest, and complete registration by 3 December 2024. 4. Future IRP Participants must apply to AEMO using a specific IRP transition registration form. AEMC Final Rule - IRP Classifications Integrated Resource Provider What can it classify? What can it classify? What can it classify? What can MSGA classify? Generator Customer *The classification will apply to the connection point for the small unit A Customer may have small generating or bidirectional units at its market connection points. Market Small Generator Aggregator Scheduled generating unit Semi-scheduled generating unit Non-scheduled generating unit Scheduled bidirectional unit non-scheduled bidirectional unit Connection point (non-scheduled) Scheduled load Small generating unit* Small bidirectional unit* Ancillary services A generator, IRP, Customer or DRSP can provide ancillary services subject to meeting the MASS. The plant that provides the service will first need to be classified as an ancillary service unit. Ancillary services All participants who are currently registered under the MSGA category will be transferred to the IRP and given the label Small Resource Aggregator, where they will continue to operate as an aggregator of small units, and can also now provide ancillary services. The following chart provides a comprehensive overview of the assets that can be classified under the IRP category, as well as illustrates the traditional classifications for Generators, Customers and Market Small Generator Aggregators (MSGA). Do I need to register as an IRP? The table below sets out the registration process and deadlines for the given categories of NEM participants. What is an Integrated Resource Provider? An IRP is a new market participant registration category in the NEM which will allow storage and hybrids to register and participate in a single registration category rather than under two separate categories. In the past, participants who wished to both export and import energy (e.g. battery energy storage systems) had to register both as a Generator and as a Customer. In particular, IRP participants will be able to classify the following systems, many of which are examples of Integrated Resource Systems, a new definition introduced by the Rules (see Definitions section, below): 1. storage (bi-directional units); 2. units within hybrid systems; 3. DC coupled units; 4. aggregated portfolios; 5. generating units; and 6. scheduled load and even retail load (end user connection points). New Energy Quarterly Distributed Energy Resources 35 Return to contents page 36 Reference Materials Participants should carry out a full assessment of the classification of their assets in consultation with the current AEMO Classification Guide and incoming Classification Guide from IESS commencement (03 June 2024). Worked example BESS Pty Ltd owns and operates a 500MW BESS (the Facility) which was registered in November 2021. The Facility was classified as a Scheduled Operating Unit and a Scheduled Load. The associated registration is that of a Market Generator and a Market Customer. Pursuant to the Rules, the Facility must now be classified as a Bi-directional Unit which can only be classified by an IRP. Due to the timing of the Facility’s existing registration, it will be considered an Existing IRS Participant. Therefore, BESS Pty Ltd must: 1. apply to transfer registration by at least 35 business days prior to its BDU cutover date or by 3 September 2024 latest, and 2. complete its IRP registration by 3 December 2024. How to register as an IRP Once the assessment is complete, to register as an IRP, participants must fill out a registration form (if required), pay the relevant fee (if any) and update business processes and systems accordingly. Registration Forms 1. MSGAs and New IRS Participants will not be required to complete an application form, but may be required to provide additional information to AEMO to complete the registration. 2. Existing IRS Participants should have received IRP transfer of registration documentation to complete in February 2024. 3. Future IRS Participants should have access to the IRP registration form from mid-May 2024. Future IRS participants who wish to start the registration process before the form is available should contact the AEMO onboarding team: [email protected]. In each case, AEMO will: 1. enable affected participants to undertake test activities under the new registration category; 2. register or re-register the participant (subject to receiving satisfactory and complete information); 3. notify the participant immediately beforehand that registration or reregistration is occurring; and 4. notify the participant immediately after that registration or re-registration is complete. Registration Fees New and Existing IRS Participants will not be charged a registration fee by AEMO for transitioning to the IRP category. However, future IRS Participants should consult the fee schedule of new registrations in the AEMO FY Budget and Fees document (published annually). Update Business Processes and Systems All IRS participants need to ensure that they update and develop appropriate business processes and systems in order to be IESS ready. AEMO has advised that participants should refer to AEMO’s: 1. Registration forms and guidance; 2. Market IT information, including technical specifications; 3. Market procedures; 4. IESS project’s readiness information (including the IRP Transition Plan, BDU Transition and Cutover Plan, IESS NCC transition plan and IESS June 2024 Go-live plan); and 5. IESS projects market industry testing and market trial information. Need assistance? If you are unsure where your project stands, or to stay informed on the evolving challenges and opportunities in the renewable energy sector, please reach out to our experts Matt Baumgurtel and David O’Carroll or our New Energy team. Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 David O'Carroll Senior Associate +61 421 497 311 Reforming Australia’s Environmental Laws: The Impact on New Energy and Planning Projects Australia’s unique environment and rich biodiversity face critical challenges, and the need for robust and effective environmental laws has never been more important. In response to an independent review of the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act or Act), the Australian Government has embarked on an ambitious journey to reform Australia’s central piece of environmental law. In this article, we delve into the key proposed reforms, explore their potential impacts on renewable energy projects and propose actionable steps organisations can take in preparation. Key Proposed Changes to the EPBC Act The Independent Review of the EPBC Act (Review), led by Professor Graeme Samuel AC, highlighted that Australia’s centrepiece national environmental law is outdated, ineffective, and requires fundamental reform.1 In response to the Review, the Government published its Nature Positive Plan in late 2022 (Plan). The Plan profiles the Government’s commitments to repair and uplift Australia’s environment and makes clear that the reforms in the Act will be guided by three principles:2 1. ensuring environmental protection laws are nature positive; 2. enabling business and making it easier for organisations to do the right thing; and 3. uplifting public faith in the environmental laws and systems in Australia. Since the Plan was published, the public has been invited to consult on the proposed reforms in the Act in October and November 2023 and recently in February 2024. Below, we outline some of the key proposals published by the Department of Climate Change, Energy, the Environment and Water (DCCEEW):3 • National Environment Standards: the National Environment Standards (Standards) will improve environmental protections and guide decision-makers for regulated activities under the Act; • Environmental Protection Agency: the Australian Federal Government has committed $121M in funding for a new, independent Environmental Protection Agency (EPA). The EPC will be responsible for project assessment and approvals that fall under the remit of the Act and for enforcing compliance with the Act and other applicable regulations; • Environment Information Australia: $51.5M in funding has also been committed for Environment Information Australia (EIA). The EIA will oversee national environmental data and information to support objective, faster and clearer decision making; • Regional planning: better and faster decision-making will be made under the EPBC Act by providing guidance on appropriate development areas; and • Restoration actions and contributions: formerly known as “offsets”, restoration action and contribution arrangements (Restoration Activities) will be required to return “net positive” impacts for the environment. These are the most drastic amendments to the EPBC Act since it came into force. But how will the reforms influence clean energy developments and the role of environmental and planning law in those projects? And how can organisations respond? Below, we outline three potential impacts and some key considerations for stakeholders. Effect of Changes on Renewable Energy Projects and Environmental & Planning Law Raising the bar on Restoration Activities The policy and legislative shift to implementing Restoration Activities to compensate for all significant residual impacts and support “net positive” environmental outcomes is a significant development from current guidance on the EPBC Act. The Act currently requires that where a project impacts a protected matter (such as a threatened species), Restoration Authors: Matt Baumgurtel, David O'Carroll and Megan Chau New Energy Quarterly Distributed Energy Resources 37 Return to contents page 38 Activities evenly balance those impacts by improving the protected matter in another area. This is known as a no “net loss” Restoration Activity. However, where a protected matter is improved to a state better than it was before the impact, this is considered a “net positive” Restoration Activity.4 While present legislative guidance encourages project proponents to achieve “net positive” Restoration Activities, it is not clear how often this is achieved. Clarity about the new “net positive” obligations under the reforms will be needed, given the impact they will have on project costs and timelines. We expect the reforms will place a stricter burden on proponents to not only identify and mitigate impacts on protected areas, species, heritage artefacts and so on, but also establish how projects will restore and even improve the affected matter through “net positive” Restoration Activities. Restoration Activities will be assessed against the Standards. The reforms indicate, among other requirements, that a Restoration Activity must deliver “like for like” benefits to the impacted matter consistent with priorities identified for the impacted matter in conservation management documents. For example, a Restoration Activity may need to provide for more and/or better nesting grounds for a threatened species consistent with a conservation plan, if that species is to be impacted by a renewable energy project. It appears Restoration Activities which have historically been approved are no longer likely to be sufficient as blueprints for proponents moving forward. Project proponents will instead be required to plan more sophisticated, and perhaps creative, activities they will undertake to deliver “like for like” benefits. Ultimately, this might require a greater degree of expert insight and input at the planning stages of a project to ensure compliance with the Standards. This may necessitate further blueprint consideration as to how impacts can be mitigated to avoid environmental concerns. Considerations like avoiding soil erosion by not using machinery during heavy rainfall or choosing specific machinery that will not disturb the ground during the clearing of trees are likely to impact project planning by requiring a higher level of environmental awareness. Provide clarity on process and procedure The reforms streamline the application and approval process for applicable projects. The EPA will have the responsibility of assessing and approving projects. Guidance has been drafted on the assessment pathways projects can follow, assessment procedures and timeframes, required information and the EPA’s decisionmaking criteria. This clarified application and approval process should assist in avoiding costly errors such as the Victorian Government’s rejection of Port of Hastings Corporation’s application for the Victorian Renewable Energy Terminal (Terminal), a large offshore wind farm. In our previous article, we identified the lessons learnt from the developer’s rejected project application, including that renewable energy proponents needed to thoroughly understand the regulatory and legal regime they worked in to secure approval. The proposed reforms may provide clarity for developers and assist them in avoiding failures to obtain consent such as that experienced by Port of Hastings Corporation through the establishment of a consistent outline. Tools to support decision making The reforms should also provide a range of tools to support decision making for renewable energy proponents. For example, EIA is developing a mapping visualisation tool to provide nationwide, regional level data and information on protected areas such as World Heritage places and Ramsar wetlands. The tools will assist renewable energy proponents in identifying suitable areas for development and areas where development is prohibited or allowed under certain conditions. This should help projects progress more quickly, avoiding unnecessary back-and-forward with regulators on proposed sites and allowing developers to be more targeted in their resource consent. What comes next? Proponents of renewable energy projects should prepare for these reforms to impact future developments. There are ample resources available online for organisations to review the changes in more detail. The DCCEEW, for example, has released recordings and information packs of the public consultation webinars on its website. Further, organisations are still able to have their say on the proposed reforms on the DCCEEW’s website here, although it is unclear how long for. The EPBC Act reforms are set to bring important and significant changes to the environmental legal landscape in Australia. Readers should consider how their renewable energy projects may be impacted by these changes, and what their organisations can do to prepare fully for them. Perhaps most importantly, developers should anticipate a necessary mindset shift towards planning projects to be “net positive” for the environment and consider how this will factor into budgeting and project timelines. 1Australian Government, Department of Climate Change, Energy, the Environment and Water, Nature Positive Plan: better for the environment, better for business, published December 2022 at iii 2Ibid. 3Australian Government, Department of Climate Change, Energy, the Environment and Water, EPBC Act Reform 4Australian Government, Department of Climate Change, Energy, the Environment and Water, Offsets Mitigation Hierarchy. Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 David O'Carroll Senior Associate +61 421 497 311 Megan Chau Lawyer +61 2 8072 8271 New Energy Quarterly Distributed Energy Resources 39 Return to contents page 40 New Energy Insights Federal Budget 2024: Batteries and Hydrogen all the Way The 2024 Federal Budget was delivered on 14 May 2024. The $22.7 billion ‘Future Made in Australia’ (FMA) package was a core part of the budget this year, which demonstrates the incumbent Government’s commitment to making Australiaa ‘Renewable Energy Superpower’. Authors: Matt Baumgurtel, David O’Carroll, William Ryan, Kusum K C and David Wan In this New Energy Insight’s article, we consider significant budget measures which affect our clients in the energy space, including investments in renewable hydrogen, critical mineral processing, clean energy manufacturing, green metals and low-carbon liquid fuels. Notably, these investments align with the priority sectors identified through the ‘Net Zero Transformation’ stream (of the National Interest Framework). Hydrogen – Continuing Investments in Renewable Hydrogen The Federal Government will invest $8 billion from 2024 to 2034 (and $1.2 billion per year from 2034 to 2040) to support the production of renewable hydrogen. This includes: 1. $6.7 billion of a Hydrogen Production Tax Incentive from 2024 to 2034 (and $1.1 billion per year from 2034 to 2040) for producers of renewable hydrogen to support the growth of a competitive hydrogen industry and Australia’s decarbonisation; and 2. $1.3 billion for an additional round of the Hydrogen Headstart program from 2024 to 2034 (and $151.6 million per year from 2034 to 2038) for an additional round to bridge the green premium for early-mover renewable hydrogen projects. A further $20.9 million has been allocated to incentives to support the production of, and demand for, low-carbon liquid fuels, as well as the development of a low-carbon liquid fuels certification scheme through the ‘Guarantee of Origin’ Scheme. In addition, the budget allocates $11.4 million to fast track the initial phase of the Guarantee of Origin Scheme for green hydrogen and bring forward work on green metals, including iron, steel and aluminium. Our article ‘Fifty Shades of Green: Hydrogen Guarantees of Origin’ provides further information in this respect, and discusses the consultation on the Guarantee of Origin scheme. Key Takeaways 1. The $22.7 billion FMA package demonstrates the government’s commitment to making Australia a “Renewable Energy Superpower.” 2. $7.1 billion funding has been allocated to support refining and processing of critical minerals, aiming to enhance Australia’s economic resilience and security. 3. $8 billion funding allocated to support the production of renewable hydrogen through tax incentives and programs such as the Hydrogen Headstart program. 4. $1.4 billion Investments to support manufacturing capabilities in clean energy technologies such as solar and battery manufacturing, with a focus on supply chain resilience. 5. $1.7 billion from 2024 and additional $1.5 billion from 2027 funding for innovation, pilot projects, and earlystage development administered by the Australian Renewable Energy Agency (ARENA), aiming to make Australia a renewable energy superpower. 6. $218.4 million funding to support the development of a skilled and diverse clean energy workforce, including vocational education, training, and support programs for workers impacted by the transition to net zero. 7. Significant funds committed to regulatory reforms to create a competitive business environment, attract investment, and promote sustainable finance markets. 8. Additional budget measures include support for projects like Snowy Hydro 2.0, energy bill relief funds, circular economy initiatives, and regulatory frameworks for carbon sequestration and vehicle efficiency standards. Prioritising Critical Minerals Investment The Federal Government has strategically prioritised investment in critical minerals to support Australia’s future economic resilience and security given the global demand for critical minerals is expected to grow by 350 per cent by 2040. Australia has some of the largest reserves of known critical minerals like lithium, cobalt and rare earths, however, 80 per cent of Australia’s landmass is unexplored. The Federal Government has granted $566.1 million to Geosciences Australia to explore and create detailed maps of critical mineral deposits under Australia’s soil and seabed. The Federal Government has also committed $7.1 billion over the next 11 years to support the refining and processing of critical minerals in Australia, by introducing: 1. a Critical Minerals Production Tax Incentive to support downstream refining and processing of 31 critical minerals to improve supply chain resilience. This program is expected to cost $7 billion; and 2. allocated $10.2 million for pre-feasibility studies for processing facilities to enhance Australia’s capacity to process critical minerals. A further $1.2 billion has been committed to strategic critical mineral projects, including the Alpha HPA alumina project in Queensland and Arafura Rare Earth’s Nolans Rare Earth project in the Northern Territory. We’ve recently published a two part series to explore the opportunities and challenges within the critical minerals industry in Australia: Part I: Unlocking Clean Energy: The Crucial Role of Rare Earth Minerals: Recent Announcements and the Path Forward; and Part II: Unlocking Clean Energy: The Crucial Role of Rare Earth Minerals: What’s all the Fuss About? Clean Energy Manufacturing The Federal Government will invest $1.4 billion from 2024 to 2035 to support manufacturing of clean energy technologies, especially solar and battery manufacturing capabilities. The focus to support clean energy manufacturing includes: 1. $835.6 million to establish the Solar Sunshot program to promote solar manufacturing capabilities and improve the industry’s supply chain resilience; and 2. $549 million to support battery manufacturing, through production incentives and enhancing industry and research collaboration. Our recent article discusses the consultation on the Solar Sunshot funding program in support of Australian solar manufacturing. A further $18.1 million has been allocated for the foundational initiatives for the emergence of Australia’s green metals industry. It aims to support the production of green iron, steel, alumina and aluminium. New Energy Quarterly Distributed Energy Resources 41 Return to contents page 42 David O'Carroll Senior Associate +61 421 497 311 Innovation and Renewable Energy Technologies – ARENA The Federal Government will invest $1.7 billion in the Future Made in Australia Innovation Fund, to be administered by the Australian Renewable Energy Agency (ARENA). This will support innovation, commercialisation, pilot and demonstration projects and early-stage development in priority sectors, including renewable hydrogen, green metals, low-carbon liquid fuels and clean energy technology manufacturing such as batteries. In addition, the Federal Government will invest $1.5 billion from 2027 to 2034 to supercharge ARENA’s core investments in renewable energy technologies, including development, demonstration, commercialisation, manufacture and deployment to make Australia a renewable energy superpower. Clean Energy Workforce The Federal Government has committed $218.4 million to support the development of a skilled and diverse clean energy workforce in Australia, including: 1. $90 million to address vocational education and training sector shortages, and funding new and existing training facilities upgrades; 2. $55.6 million to establish the Building Women’s Careers program to improve woman’s access to traditionally male dominated sectors; and 3. $10 million to establish a National Hydrogen Technology Skills Training Sector. The Federal Government has also committed $134.2 million to ensure workers impacted by the net zero transition are supported during the transition. A further $44.4 million has been committed to deliver the Energy Industry Jobs Plan to assist employees in the coal and gas sector to access new employment opportunities in the renewable energy sector or retire early. Regulatory Reforms for Investment, Sustainable Finance, and Approvals The Federal Government has committed significant funds to deliver regulatory reforms in key areas to create a competitive business environment in Australia to better attract and deploy investment. This will have a positive impact on facilitating and accelerating renewable energy investments. The reforms will be introduced as part of the Future Made in Australia Act for which the consultation is expected to open shortly. Promote investment: 1. $68 million to attract investment in key industries, including $54.7 million for regulatory reforms to develop a ‘single front door’ for major investment proposals; and 2. The Federal Government also intends to support Indigenous Business Australia to better leverage their capital to invest in First Nation communities and businesses. Sustainable finance: 1. $17.3 million to develop sustainable finance markets, including $10 million to the Australian Securities and Investments Commission to investigate and take enforcement action against market participants engaging in greenwashing and other sustainability-related financial misconduct; and 2. $5.3 million to deliver a sustainable finance framework. Strengthen approvals processes: 1. $182.7 million to strengthen the approval processes to deliver the Government’s Future Made in Australia Agenda, including: 2. $96.6 million to strengthen environmental approvals for renewable energy, transmission and critical minerals projects; 3. $20.7 million to improve community engagement and social licence outcomes in regional communities affected by the energy transition; 4. $19.9 million to develop, agree and maintain a national priority list of renewable energy projects; and 5. $15.7 million to streamline Australia’s foreign investment framework. A key part of this framework includes refunding 75 per cent of foreign investment application fees to unsuccessful applicants in the bidding process. Other Energy Measures The Federal Government has committed to other budget measures in relation to the clean energy transition, including: 1. $7.1 billion to support continued construction of Snowy Hydro 2.0 (noting $4.5 billion will be provided on commercial loan terms and expected to be refinanced once the facility is operational); 2. $3.5 billion to extend and expand the Energy Bill Relief Fund to provide a $300 rebate to all Australian households and a $325 rebate to small businesses (in 2024-25); 3. $23 million investment to continue to deliver the Government’s circular economy policy following the development of a new national framework; 4. $47.7 million to implement reforms to boost the supply of renewable energy resources, develop the Energy Made Easy website and make it easier for consumers to switch between energy retailers through ‘one click’; 5. $48 million to implement further reforms to the Australian Carbon Credit Unit scheme (building on the $18.1 million investment in the 2023-24 budget); 6. $32.6 million to develop regulatory frameworks on carbon sequestration; 7. $399 million to promote orderly and positive economic transformation and to ensure regions and workers realise the benefit of the net zero economy (building on the 2023- 24 budget measure titled National Net Zero Authority and Employment White Paper); and 8. $154.5 million to implement the recently introduced New Vehicle Efficiency Standard. For more detailed insights and expert guidance on navigating the opportunities presented by the 2024 Federal Budget’s clean energy initiatives, connect with our New Energy team. The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing and construction, including the buying and selling of development and operating projects. Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 New Energy Quarterly Distributed Energy Resources 43 Return to contents page 44 Unlocking Clean Energy: The Crucial Role of Rare Earth Minerals As the world transitions towards cleaner and more sustainable energy sources, the demand for rare earth minerals has surged. From wind turbines and solar photovoltaic (PV) cells to electric vehicles (EV) and battery storage, rare earth minerals are essential components in powering the technologies that will drive the renewable energy transition. Our previous article focused on the challenges faced by the rare earth mineral industry, including supply chain shortages and high costs for products, and how these challenges may be addressed to further progress the new energy transition. In Part 1 of our two-part series on Unlocking Clean Energy: The Crucial Role of Rare Earth Minerals, we outline what is driving the extraordinary attention towards rare earth minerals and provide an update on the recent challenges of the industry. What’s All the Fuss About? Rare Earth Minerals: The Unsung Heroes of Renewable Energy Rare earth minerals are major components of renewable energy technologies, however, the types and quantity of minerals required vary by technology. Neodymium and praseodymium, for example, are used in the production of magnets which are key to the operation of wind turbines and EV motors.1 Those elements strengthen the magnets, while other minerals (dysprosium and terbium) make them resistant to demagnetisation. Likewise, while silicon is still the dominant semiconductor metal used in solar PV cells, rare earth minerals cadmium and gallium are increasingly being used due to their conductive efficiencies. Without an abundance of rare earth minerals, renewable energy technologies would not exist in their current form or would be highly inefficient when compared with traditional generation methods such as oil, coal and gas. Similarly, technological advancements such as those between silicon solar PV and cadmium or gallium solar PV cells, could not occur. It is due to the availability of large amounts of rare earth minerals for use in renewable energy technologies (and other technology advancements) that the market and quality of renewable energy sources have been able to flourish. Australian businesses and the Government alike have realised the importance of supporting an industry essential to facilitating the domestic transition to net zero, including how the rare earth minerals industry will enable Australia to meet its own legislated emissions targets of 43% below 2005 levels by 2030 and net zero by 2050.2 Through investment in domestic infrastructure and in international partnerships, interested Australian stakeholders will be well positioned to take advantage of the renewable energy transition. More Capacity Equals More Minerals The International Energy Agency (IEA) notes that renewable power capacity additions for solar PV and wind will more than double by 2028 compared with 20223 and that the world is on course to add more renewable capacity in the next five years than has been installed since the first commercial renewable energy power plant built over 100 years ago.4 Demand for cadmium and gallium, for example, is expected to increase sevenfold and twofold respectively by 2040 for use in solar PV technology.5 These global trends are also important considerations for Australia given the vast investments that have been made into technologies which will eventually need to be updated or replaced. 1 in 4 houses in Australia have a rooftop solar PV system, the world’s highest per capita.6 Rooftop solar PV systems accounted for 28.5% of all renewable energy and 11.2% of total energy generation in 2023 in Australia.7 As such, Australia will be heavily dependent on the production of sufficient quantities of rare earth minerals to both supply new demand of the technology, and update or replace existing units. Authors: Matt Baumgurtel, David O’Carroll, Megan Chau and Sam Poulsen These market forces mean production of technology-ready rare earth minerals, such as cadmium and neodymium, will need to keep pace with the demand for the technologies themselves. However, a challenge for the industry will be bringing online sufficient new supply of raw materials to meet that demand and ensuring it is done in a sustainable manner. New mining processing and manufacturing projects can take years to reach production, particularly when done in a sustainable way supported by other stakeholders such as local communities.8 Challenges of a Global Industry Sustainable Supply Chains In our previous article we noted the rare earth minerals industry would be challenged by supply chain issues brought front of mind for many countries following the war in Ukraine. While general trade and supply chain issues continue, particularly given the recent escalations in violence in the Red Sea, the rare earth minerals industry has the additional challenge of implementing sustainable supply chain practices. As demand grows for rare earth minerals there will be increased pressure from potential new mines and processing facilities on people, the environment, local communities and indigenous groups.9 Australian businesses and governments must ensure that in meeting the market demand for rare earth minerals that the interests of those affected parties are not only recognised but enhanced. The importance of sustainable supply chains is not isolated to Australia. To ensure that rare earth minerals supply chains are sustainable and responsible, the IEA has recommended:10 1. ensuring robust legal and regulatory protections for the environment, workers and communities; 2. channelling public spending to encourage the development of better practices and rewarding good actors; 3. strengthening collection and reporting of granular and standardised data to enable benchmarking and progress tracking across the industry and throughout the supply chain; 4. undertaking due diligence and reporting publicly on risks and mitigation actions; and 5. supporting the development of credible voluntary sustainability standards and encouraging harmonised approaches consistent with international standards. New Energy Quarterly Distributed Energy Resources 45 Return to contents page 46 1International Renewable Energy Agency, Critical Materials for the Energy Transition: Rare Earth Elements at page 6. 2Department of Climate Change, Energy, the Environment and Water, Net Zero 3International Energy Agency, Renewables 2023: Electricity 4International Energy Agency, Renewables 5International Energy Agency, Mineral Requirements for Clean Energy Transitions 6Australian Government, Clean Energy Regulator, Related Industries: Critical Minerals 7Clean Energy Council, Clean Energy Australia 2024 at page 10 8Australian Government, Critical Minerals Strategy 2023-2030 at page 11 9International Energy Agency, Sustainable and Responsible Critical Mineral Supply Chains at page 3 10Ibid at pages 7-8. 11Giles Parkinson, ‘Rio signs Australia’s biggest wind energy deal to help power giant smelter and refineries’, Renew Economy, (online, 21 February 2024) 12Prime Minister of Australia, Major critical minerals funding unlocks Northern Territory jobs and positions Australia as renewable energy superpower Unlocking Clean Energy: The Crucial Role of Rare Earth Minerals - Recent Announcements and the Path Forward In Part 1 of this series on Unlocking Clean Energy: The Crucial Role of Rare Earth Minerals, we introduced the uses of rare earth minerals in renewable energy technologies and how rare earth minerals contribute to the clean energy transition. We also touched on the main challenges facing the industry. In Part 2, we delve into our domestic Critical Minerals Strategy and funding, and the international partnerships put in place to respond to those challenges. Recent Announcements Australia’s Critical Mineral Strategy: Paving the Way for Clean Energy Australia is endowed with a rich abundance of natural resources and has a strong track record as a global heavy weight in the mining and resources industries. Australia stands to benefit from the renewable energy transition, as clean energy technologies require vast amounts of processed rare earth minerals. The Department of Industry, Science and Resources, realising the potential benefits of the changing energy landscape, released its Critical Minerals Strategy in late 2022, which outlines a comprehensive vision to enhance Australia’s rare earth minerals sector. A recent manifestation of the Critical Minerals Strategy is the Government’s funding of Australia’s first combined rare earth minerals mine and refinery in the Northern Territory. On 14 March 2024 the Federal Government committed to providing an AUD $840 million funding package to help deliver the Nolans Rare Earths Project, 135 km north of Alice Springs.1 The funding includes AUD $495 million from the Federal Government’s Critical Minerals Facility and is one of the latest rounds of funding for projects which aim to diversify Australia’s rare earth minerals supply chain in a sustainable manner. For examples of other similar historical projects, refer to our previous article. The Federal Government’s contribution will also assist in creating over 300 new jobs and support economic development in the Northern Territory by facilitating further investment in the Nolans Rare Earths Project from other economies, international financiers and commercial banks. It is poised to unlock Australia’s ability to function as a major global supplier of the rare earth minerals required to decarbonise the global economy. International Coordination: Accelerating Progress As well as domestic investment, the Government has developed international partnerships to accelerate the rare earth minerals industry. In our previous article, we outlined how Australia and the United States jointly announced the Climate, Critical Minerals, and Clean Energy Transformation Compact (Compact). Since then, the U.S. and Australia held the inaugural meeting of the AustraliaU.S. Taskforce on Critical Minerals (Taskforce) in October 2023. The Taskforce is now actively engaged in a multifaceted approach to enhance the rare earth minerals sector by, among other initiatives:2 1. boosting investment in mining and processing projects; 2. supporting sustainable mining and mineral recovery technologies; 3. collaborating in mapping mining production capacities; 4. aligning Environmental, Social, and Governance (ESG) standards; 5. sharing information to help both countries shape local priorities and support investment; 6. enhancing traceability and provenance of minerals practices; and 7. addressing market dynamics. At the same time, the U.S. and Australia have also announced their commitment to building diversified supply chains and high-quality mining projects for rare earth minerals through collaborative finance projects, private-public sector partnerships, and supporting strategic rare earth mineral projects internationally in collaboration with other governments and the European Union. Authors: Matt Baumgurtel, David O’Carroll, Megan Chau and Sam Poulsen Domestically, there is vast potential to make the supply chains of the mining industry sustainable, particularly given the existing capabilities in the energy and resources sector. Already this appears to be underway, with the recent signing by Rio Tinto of the largest renewable energy power purchase agreement in Australia to supply its smelting and refining operations in Gladstone, Queensland.11 The deal involves taking 80% of the output from the 1.4GW Bungapan wind energy project. Once developed, the project could lower carbon emissions by about 5 million tonnes per year and generate the equivalent of 10% of Queensland’s current power demand. Starting construction in 2025, the Bungapan project is a step in the right direction for Rio Tinto to ensure that its supply chain is renewable. Similarly, a Northern Territory rare earth minerals mine and refinery project aims to secure 20% of the 300 new jobs it will produce as local Indigenous employment.12 Ensuring sustainable supply chains is perhaps the most pressing issue affecting the rare earth minerals industry. New mines, refineries and other facilities all bring attendant risks to the environment, workers, and communities. Relatedly, without the buy-in of communities and robust sustainable practices, projects risk stalling before approval stages, or encountering lengthy and costly dispute proceedings down the line. Under the Spotlight The spotlight on rare earth minerals has intensified recently due to their pivotal role in renewable energy technologies such as EVs, solar PV and wind turbines that will drive the clean energy transition. However, ensuring sustainable supply chains remains a formidable challenge, necessitating domestic and global cooperation, innovation and responsible practices from Australian organisations. We will cover these matters in Part 2 of this article series. Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 David O'Carroll Senior Associate +61 421 497 311 New Energy Quarterly Distributed Energy Resources 47 Return to contents page 48 In Part 1 of this series, we noted that ensuring supply chains meet ESG standards is one of the paramount challenges facing the rare earth minerals industry. Encouragingly, the Government’s recent strategic and policy focus on rare earth minerals strengthens and protects domestic sector business operators and demonstrates a commitment to sustainable rare earth mineral projects. Outcomes from the policies including supporting sustainable technologies, aligning ESG standards and enhancing traceability will assist in creating responsible rare earth mineral supply chains. Further, they promote international collaboration and innovation with other countries, most notably with the U.S., to achieve responsible supply chain solutions. The Path Forward: What Comes Next Investment in International & Domestic Strategies Australia’s global-leading position as a producer and exporter of rare earth minerals and energy production means it is in a prime position to take advantage of the renewable energy transition. While other heavy weights of the rare earth minerals industry including China will undoubtedly place pressure on Australia’s domestic rare earth minerals market through competitive pricing and other behaviours such as trade restrictions, investment by the Government in relationships such as the Taskforce and the Compact will position Australia competitively. The key to this will be the security and sustainability of supply chains. Recognised as a matter of importance, the Government has recently announced that applications for grants under a $40 million international partnerships program to build end-to-end rare earth mineral supply chains are now open until 2026.3 Applications for the grants may include: 1. pilot and demonstration plants, capacity expansions, and research and development activities; 2. development or commercialisation of technology and intellectual property; 3. rare earth minerals processing technologies; and 4. development of downstream processing capability. Not only do the grants strengthen Australia’s international engagement with other global partners such as the U.S., United Kingdom and others, but they also support the Critical Minerals Strategy. This initiative and others like it aim to build Australia’s sovereign capability in rare earth mineral processing, diversify global supply chains, and help Australia become a clean energy superpower. Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 David O'Carroll Senior Associate +61 421 497 311 1Prime Minister of Australia, Major critical minerals funding unlocks Northern Territory jobs and positions Australia as renewable energy superpower 2The White House, Fact Sheet: Delivering on the Next Generation of Innovation and Partnership with Australia 3The Hon Madeleine King MP, Grants to Strengthen International Critical Minerals Partnerships Foul Winds or (Offshore) Wind’s Foul? Four Lessons from the Port of Hastings Rejection In a pivotal moment for Australia’s nascent offshore wind sector, the federal government recently rejected the state-owned Port of Hastings Corporation’s application for the Victorian Renewable Energy Terminal at the Port of Hastings in Western Port Bay, Victoria (Project). The ‘clearly unacceptable’ application proposed constructing a terminal to serve as an installation port for offshore wind farm projects in Victoria. In her decision, the Minister for the Environment and Water, The Hon. Tanya Plibersek MP, cited concerns that the Project would breach both international environmental law under the Ramsar Convention on Wetlands and federal laws under the Environment Protection and Biodiversity Conservation Act 1999 (Cth) (EPBC Act). So why did the Port of Hastings application get rejected, and what lessons can other developers take away from the Project? In this article, we deep-dive into the implications of this decision, highlighting its significance in the broader context of Australia’s energy transition and the tension between managing impacts on the environment and the urgent need for renewable energy infrastructure. The argument in favour of the Project: Renewable energy transition Victoria’s ambitious and soon-to-be legislated targets for offshore wind energy – 2 GW by 2032, 4 GW by 2035, and 9 GW by 2040 – hinge on the development of suitable infrastructure for wind turbine assembly. In September 2023, the Victorian government selected the Port of Hastings as the most suitable installation port for Victorian offshore wind farms. In its announcement, the Victorian government cited the following benefits of the Port of Hastings: • its large areas of zoned land close to existing port precincts; • its deep-water channels; and • its proximity to proposed offshore wind projects off the coast of Gippsland. Industry seemed to agree. Notably, Star of the South, Victoria’s most advanced offshore wind project, also identified the Port of Hastings as its preferred construction port. The federal government’s decision to reject the Project is likely to delay the rollout of Victoria’s offshore wind and renewable energy transition. The construction of offshore wind infrastructure is central to developing Victoria’s offshore wind sector and is required to fill the supply gap caused by the retirement of coal-fired power stations. The argument against the Project: ecological impact on Ramsar-protected wetlands Minister Plibersek rejected the Project because of the ‘clearly unacceptable impacts on the ecological character of Ramsar wetlands protected’ under the EPBC Act. The Project entailed dredging and development activities in and around an internationally protected wetland, the Western Port Ramsar Wetland. Under the Ramsar Convention on Wetlands of International Importance (Ramsar Convention), signatories must establish and oversee a management framework to conserve Ramsardesignated wetlands. Among other things, wetlands are protected because of their ‘worldclass’ carbon sequestration, which is up to 50 times more effective at sequestration than land-based forests. Australia, one of the first nations to sign the Ramsar Convention, has 67 Ramsar wetlands, covering more than 8.3 million hectares (an area larger than Scotland). Significantly, of the Project’s 146-hectare site, 121 hectares are situated within the protected wetland. The application proposed that up to 92 hectares of wetlands area would be dredged to enable ship access. The Project also involved unavoidable clearance of vegetation, seabed reclamation, significant pollution risk, and irreversible destruction to the habit of waterbirds, migratory birds, marine invertebrates and fish. Authors: Matt Baumgurtel, Amelia Prokuda, William Ryan and David Wan New Energy Quarterly Distributed Energy Resources 49 Return to contents page 50 The Ramsar Convention is incorporated into Australian law under sections 16 to 17B of the EPBC Act. In making her assessment, Minister Plibersek identified that the government should not approve the application because of the significant impact it would have on the ecological character of this Ramsar wetland. It is not the first time a development at the Western Port Bay has been rejected on account of the Ramsar Convention. In 2021, the Victorian Government rejected a proposed 300 metre long floating gas terminal because of unacceptable environmental impacts. Next steps and alternative terminals Although there is no appeal right (subject to an error of law), the Victorian government may submit an application for a revised or alternative project for assessment. Meanwhile, the Star of the South is assessing Geelong (Victoria) and Bell Bay (Tasmania) as alternative construction ports. Tasmanian Energy Minister Nick Duigan has pitched Bell Bay as an ‘outstanding location for this type of infrastructure’, particularly to service construction and maintenance of Strait offshore wind farms in the Bass Straight, describing it. However, these ports are further away from the Gippsland declared offshore wind area and will increase the financial burden for a sector already facing significant cost pressures. Alternatively, South Gippsland National Party MP Danny O’Brien has supported the use of the existing Barry’s Beach Marine Terminal for an offshore wind sector base. Barry’s Beach was established for the construction and maintenance of Bass Strait’s offshore gas platforms. However, using the Barry Beach terminals would require a massive investment in infrastructure, and Charles Rattray, CEO of Star of the South, stated that using this site was unlikely. Furthermore, Barry Beach terminal also sits in a Ramsar area – the Corner InletNooramunga wetlands. It may face similar difficulties in obtaining environmental approval. Four lessons from The Port of Hastings rejection 1. The Port of Hastings rejection is a microcosm of broader tensions in renewable energy development – balancing environmental preservation with the urgent need for renewable energy infrastructure. 2. This decision exemplifies that projects will not pass environment and planning laws simply because of the ‘renewable energy’ banner. 3. The clash between environmental values and the urgency of renewable energy development will become increasingly prevalent in Australia’s burgeoning offshore wind sector and a balance will not be achieved without cooperation between all levels of Australian government. 4. Offshore wind proponents must thoroughly understand the regulatory regime and strategically plan their projects. Source: Financial Review Financial Review, Victoria suggests wind power before wetlands The Sydney Morning Herald, Victoria’s energy transition in strife as ‘essential’ offshore wind hub refused. Financial Review, ‘We wouldn’t do it for a coal mine’: Libs back Plibersek in wind fight Department of Climate Change, Energy, the Environment and Water, ‘Statement of Reasons for a Decision that the Action is Clearly Unacceptable under the Environment Protection and Biodiversity Conservation Act 1999’ Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 William Ryan Senior Associate +61 2 8072 8271 Amelia Prokuda Partner +61 410 032 358 Hamilton Locke is dedicated to helping clients navigate these complex challenges adeptly. With extensive experience in the new energy sector, we advise across the energy project life cycle – from project development, grid connection, financing, construction, including the buying and selling of development and operating projects. Our previous articles discussed the offshore wind regulatory regime (including the Offshore Electricity Infrastructure Act 2021 (Cth) (OEI Act) and the EPBC Act), the relevance of native title, and other offshore wind farm site considerations. Our latest New Energy Quarterly – the Way of Water features extensive analysis on the development of Australia’s offshore wind sector. To stay informed on the evolving challenges and opportunities in the renewable energy sector, please reach out to our experts Matt Baumgurtel or Amelia Prokuda New Energy Quarterly Distributed Energy Resources 51 Return to contents page 52 5 Key Proposals Under the Proposed Offshore Electricity Infrastructure Amendment Regulations 2024 The proposed Offshore Electricity Infrastructure Amendment Regulations 2024 (proposed Regulations) is currently open for public consultation. It marks a further step in establishing a comprehensive regulatory framework for the offshore wind industry in Australia. The proposed Regulations will be the second set of regulations made under the Offshore Electricity Infrastructure Act 2021 (OEI Act). The first set of regulations, the Offshore Electricity Infrastructure Regulations 2022 (Cth), and the OEI Act established the foundation of the regulatory framework, including introducing the four types of licenses for offshore activities. Please see our previous article for my information regarding the initial regulations under the OEI Act. The new Regulations go further, prescribing the obligations of the licence holders. Five key proposals in respect of the Regulations are set out below: 1. Management plans The OEI Act mandates a licence holder to have an approved management plan in place. The management plans must address consultation requirements, ongoing stakeholder engagement throughout the life of a project, content requirements and approval procedures. In particular, the proposed Regulations prescribe additional consultation obligations beyond what currently exists at law, seeking to enhance stakeholder engagement on top of the existing consultation mechanisms in the OEI Act and the Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) This includes licence holder’s requirement to consult with stakeholders when preparing a management plan and licence holder’s obligation to describe a ‘stakeholder engagement strategy’ in their management plans. With open and timely consultation and improved stakeholder engagement, the proposed procedures should help build social licences for the offshore wind industry. Authors: Matt Baumgurtel, William Ryan and David Wan 2. Financial securities The OEI Act requires licence holders to provide financial security to the Commonwealth, which will secure the decommissioning of infrastructure, removal of property and remediation of the licence area. The proposed Regulations prescribe the operational details of the financial securities, such as the amount, form (e.g. bank guarantee or an insurance policy) and timing for providing the financial security. Notably, neither parent company guarantees nor self-insurance are permitted forms of security. The proposed Regulations would also set out (and streamline) the circumstances for the Commonwealth to recover a debt, cost, expense or liability from the financial security. 3. Work health and safety (WHS) The OEI Act and regulations already prescribe that offshore projects work, health and safety considerations are primarily governed by the Commonwealth Work Health and Safety Act 2011 and Work Health and Safety Regulations 2011. The proposed Regulations further apply and modify the WHS requirements for offshore projects. Specifically, in the context of offshore infrastructure, the Regulations remove the longstanding requirement that the principal contractor has ‘management and control’ of the site. This ensures that the licence holder can retain the principal contractor role (including coordination of concurrent activities), while delegating the responsibility for managing and controlling specific worksites to contractors. Furthermore, the proposed Regulations address the particular risks associated with deep sea diving during offshore construction and maintenance, including imposing additional obligations on relevant persons conducting a business or undertaking, diving safety management system and diving supervisors. 4. Design notification The proposed Regulations introduce a new design notification scheme, which ensures the Offshore Infrastructure Regulator (Regulator) is involved early in the design phase of offshore projects. The design notification scheme establishes a process for design engagement in relation to WHS, infrastructure integrity and environmental risks. This new scheme would allow the Regulator to provide feedback on project design before the licence holder submits a management plan application. 5. Safety and protection zones The OEI Act provides for safety zones and protection zones to be established around the infrastructure of the offshore projects. They are specified areas around eligible infrastructure in which access or certain activities may be restricted or prohibited. These zones are designed for the safety of workers and other marine users, as well as to protect the offshore projects from damage by other marine activities. The proposed Regulations would prescribe mechanisms and procedures to allow persons to request the Regulator to make, vary or revoke a safety or protection zone. Regulation Safety Zone Protection Zone Maximum size (around eligible infrastructure) 500 metres 1,852 metres (equivalent to 1 nautical mile) Activities permitted within the zone Certain vessels may be restricted from entering without the written consent of the Regulator Certain activities may be restricted or prohibited. (e.g. prohibiting anchoring around offshore electricity cables) Whether the zones are fixed throughout the project lifecycle Access may vary during the different phases of construction, operation, maintenance and decommissioning Protection zone will last for the life of the offshore wind farm Key Takeaways 1. The proposed Offshore Electricity Infrastructure Amendment Regulations 2024 (proposed Regulations) is open for public consultation. It provides greater clarity as to the obligations of the licence holders under the Offshore Electricity Infrastructure Act 2021 (the Act). 2. (Management Plans): The Act prescribes the requirements of management plans which must be submitted to the Regulator for approval in respect of any construction, installation, commissioning, operation, maintenance or decommissioning activities. Relevantly, stakeholder engagement is mandated through consultation requirements and social licence considerations. 3. (Financial security): The proposed Regulations prescribe the operational details of the financial securities, such as the amount, form and timing of the financial security. Notably, parent company guarantees will not be permitted. 4. (Work health and safety): The proposed Regulations apply (and modify) the WHS requirements in the offshore context, including regarding the role of the Principal Contractor and WHS risks specifically associated with diving work. 5. (Design notification scheme): A new design notification scheme is introduced to allow early engagement with the Offshore Infrastructure Regulator (Regulator) in the design stage of the project lifecycle. 6. (Safety zones and protection zones): The proposed Regulations prescribe the maximum size and permissible activities in ‘safety zones’ and ‘protection zones’ established under the Act. Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel. William Ryan Senior Associate +61 2 8072 8271 New Energy Quarterly Distributed Energy Resources 53 Return to contents page 54 In this New Energy Experts Insights, we sit down for an interview with Myles Carrucan to discuss Distributed Energy Resources (DER). When we last spoke in December 2021, we discussed how businesses were often slow to adopt complex, innovative DER solutions. Has the DER market changed since then? Customer sophistication has rocketed in the last 12 months. The big end of town has woken up and we are seeing understanding of the problem and acceptance of the potential solution as companies try to address the “E” in ESG. That seems to be lending to the power purchase agreement (PPA) model, as sophisticated clients are bringing in companies like GPE to manage their risk. The industry has been going from strength to strength, with the average transaction size substantially increasing and the market trending in the right direction. Are you experiencing environmental considerations as the main driver for your clients? When we first started the motivator for DER was cost saving, but not anymore. We have many clients who will happily do a deal, provided that it does not cost them more. Clients are increasingly motivated by ESG objectives set by their boards. Substantial moves in grid electricity prices continue to motivate clients to look for alternative solutions. ESG is a wonderful, all-encompassing term, but there are questions surrounding what it really means. What are you seeing from companies when they speak about ESG goals? Clients are placing a lot of value on renewable energy certificates for renewable energy generated on site. Typically, we hand over all certificates generated by our systems, for larger customers. Clients are also serious about modern slavery and health and safety considerations in their supply chains. New Energy Experts Insights Distributed Energy Resources with Myles Carrucan – Green Peak Energy Authors: Veno Panicker and Gareth Howard Do you have views on the low quality of installations that are often found on rooftops? There’s a large spectrum of quality in terms of solar installations. You can easily get a system that is dangerous or underperforms if you don’t do your due diligence at the front end. We have kicked the tyres on a number of existing small portfolios, and by and large almost all such installations are of a low quality meaning that it is difficult to go in and fix the system, and often better to build a new one. Structural considerations are central to GPE’s philosophy and we do structural reviews on every installation. Many roofs are just not constructed in contemplation of carrying substantial loads. This is something that we need to get right every time because if anything goes wrong, it could have serious implications. As repeatability is important for our model to work, we have a high focus on quality. Some people in the industry think that we have onerous requirements, we think they are just appropriate. If the product is not working, we don’t make money. We have an approved products list which is kept very tight. If something breaks and we’re relying on warranties, we need to know that we can call on equipment suppliers to remedy issues. We don’t work with any installer and have a rigorous onboarding process with high expectations on site and regarding quality and reporting. As DER is contributing to energy security, does this lend itself to a need for greater regulation? As DER becomes more important to security of supply, there should be an increased focus on quality performance and control of these disaggregated systems. This probably leads towards consolidation of some form or potentially market structure changes. Approvals may be easier to achieve for DER than in utility scale due to size. There are however rumblings of this changing. What would you like to see regulators do to ease uptake on DER-scale PPAs? DER connection is easier than with utility scale, but it is still challenging in our space, particularly if there’s going to be substantial export volumes. The regulatory key to fully unlocking DER lies in facilitating energy sharing across distribution sites. At the moment, if you have large load (such as a manufacturer) across the road from a big supply (such as a warehouse with a large rooftop installation), it can be difficult if not illegal to connect the two sites. We had to abandon a recent transaction where this situation arose because we could not put a cable across a title boundary. It was obvious that the transaction should happen, but it wasn’t permitted to. The rules were not drafted with DER penetration in mind, so we need to evolve and keep up. We are seeing support from the top to adapt the rules to facilitate this, but it needs to go through the process. Scale unlocks capital, and so anything that can facilitate scale will unlock investors and accelerate the energy transition. Do you see aggregation and orchestration of separate sites developing as a potential solution to this issue? Retailers are the glue that can make that happen. Retail needs to be the interface between multiple sites and make it a simple customer proposition so that customers are getting one bill. That is why GPE partners with the incumbent retailers to deliver seamless commercial solutions. What do you see as the next horizon for DER projects? Currently, behind the meter storage is almost nonexistent as the economics are not compelling. There is a long way to go, but it will make the Australian energy grid more secure and resilient if everything can be more islanded at the local level. There are a lot of stakeholders such as consumers, retailers and regulators and we need to find a commercial model in the middle where there is something in it for everybody to really unlock the market. To really unlock DER, what would be on your wish-list? A storage target would be good, but there seems to be little support for it at the moment. While ARENA is completing the community battery project, it does not solve the underlying economic challenges on a continuing basis. Support is therefore likely required for a period of time in order to kickstart onsite energy storage in earnest. Finally, what excites you about this industry? The thing that excites me most is the end game having massively positive implications for energy security across Australia. People are increasingly becoming aware of the risk that the lights can go out for extended periods, be that due to extreme weather events and/or equipment failures. Having a more distributed system where generation is closer to load is a smart play in a more uncertain world. The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel. Recyclability has not yet risen to the top as we are still in the early phases of the life cycle for most projects. We however see recyclability being a hurdle in due course. One advantage to the PPA solution that GPE offers is that we can come in and take care of recyclability risk at end of life. We have found that at the front-end, clients want certainty on what will happen at the back end too, so we are competitive on cost but also take care of a lot of the risk elements that come with these types of transactions. Why would you say that GPE is uniquely positioned to do this efficiently and give best value to clients? The value in our business is the client relationship. We have found that capital costs and internal approval are some of the biggest challenges facing clients. We are here to make transactions happen and satisfy client’s objectives around climate and sustainability as their needs evolve. Over the last six years we have encountered a broad range of commercial scenarios that we have had to develop solutions for. We can now pull these learnings off the shelf and refer back to them to solve future deals. We have been able to do this by building scale. Is the solution largely the same on most sites so that you can rinse and repeat across transactions? While we use standard template agreements to create efficiencies, different structures and solutions are often required for specific situations. This means that it is not as rinse and repeat as we might like, and it probably never will be. The idea is to use the overarching framework and adapt it to suit each client’s needs. Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 New Energy Quarterly Distributed Energy Resources 55 Return to contents page 56 New Energy Experts Insights Investment Outlook for the Renewable Energy Sector - Rodrigo Arias Lopez - Pottinger Authors: Matt Baumgurtel, David O’Carroll, Hannah Jones and Kusum K C Rodrigo has extensive experience in domestic and international corporate finance and capital markets having worked in Europe, the Americas and Australia. He advises both private and public clients across multiple industries on corporate strategy, M&A and capital raising. Before assuming his role as Executive Director at Pottinger, Rodrigo worked for Banorte in Mexico City, Bloomberg in London, U.K. and Citibank in Monterrey, Mexico. Pottinger is an independent advisor to leading companies, state and federal governments, industry associations and growth stage companies on M&A, capital raising, corporate strategy and public policy. What are some of the main challenges and risks currently facing the renewable energy sector? A key new challenge in the renewable energy sector has been ensuring compliance with modern slavery obligations in the supply chain. This is now a threshold matter for developers and investors to engage with at the earliest stage of development. The Modern Slavery Act 2018 (Cth) imposes reporting obligations on certain entities to disclose their efforts to address modern slavery risks in their operations and supply chains. For investors, this means conducting thorough due diligence to identify and mitigate modern slavery risks within their portfolio companies and investments. This includes assessing the labour practices of suppliers, ensuring transparency and accountability throughout the supply chain, and implementing measures to address any identified issues. These obligations have the potential to push out the due diligence process and make it more costly. However, it is essential for investors to ensure compliance as failure to comply can lead to reputational damage, legal liability, and financial losses. Similarly, following the theme of corporate social responsibility, community engagement has also taken centre stage for renewable projects. This shift reflects a broader recognition of the need for sustainable and responsible business practices that go beyond purely financial considerations. Community engagement in renewable projects is seen as essential for building positive relationships with local communities, addressing their concerns, and ensuring that projects deliver tangible benefits to those affected. By prioritising community engagement, renewable energy projects can enhance their social license to operate, minimise conflicts, and contribute to sustainable development in the communities where they operate. Finally, skills shortages is also an ongoing risk facing the renewable energy sector. There will be difficulty in scaling up renewable energy deployment if demands for skilled workers (particularly in areas such as engineering, project management, and specialised technical roles specific to renewable energy technologies) cannot be met. This scarcity will inevitably lead to delays and increased costs. Addressing the skills shortage in the renewable energy sector will require both government and industry support. In our recent NEAN fireside chat, you noted an interesting shift in superfunds’ willingness to invest in the distribution network. What is the significance of this and what does it mean for future renewable energy projects? In October last year, Birdwood Energy and Aware Super announced a partnership to establish the Birdwood Distributed Energy platform. Both Pottinger and the legal team at Hamilton Locke advised on this landmark deal, and we’re seeing the impact of this partnership in the market now. This deal is significant as a financing precedent as it unlocked a new financial structure for distributed renewable projects. Historically superfunds have only invested in large-scale renewable energy projects (such as solar and wind farms) as they have been seen as a stable long-term investment. Superfunds have been reluctant to finance smaller scale projects on the distribution network due to the highly regulated and fragmented nature of the distribution network. The Birdwood deal has overcome this issue by leveraging small projects at scale to achieve better returns (economies of scale). This has been possible partly due to the fact it is less complex and easier to connect smaller projects (less than 5 MW) to the grid as there is not the same level of regulations and generation curtailment. Further, given the due diligence required for a small project and a large project are quite similar, there are cost savings in building a series of similar assets under one due diligence framework. This innovative financial structure has sparked the interest of other superfunds in the market and has potentially unlocked a new source of equity in the renewable energy sector. This shift could lead to increased investment in upgrading and expanding the distribution network, which is essential for integrating more renewable energy technology into the grid. It could also lead to new business models and investment opportunities in the distribution network sector, paving the way for future renewable energy projects to be more efficient, reliable, and sustainable. In your experience, what are investors nervous about in the current market? In the current market, investors are nervous about the bankability of Battery Energy Storage Systems (BESS). Large-scale BESS facilities can now store energy for periods ranging up to eight hours. Investors acutely recognise the need to co-locate BESS projects with renewable energy generation technologies such as wind and solar as such projects are currently not realising their full revenue potential. One significant factor for this has been the solar ‘duck curve’, which represents an over supply of electricity during the day when there is high solar irradiance. This has led to revenue challenges for solar projects in the past. The excess generation usually results in either curtailment (wasting excess energy) or negative pricing (where producers have to pay to offload excess electricity). This, coupled with grid constraints, market and regulatory factors, lack of energy storage, transmission limitations, weather variability, and operational challenges, can all contribute to revenue losses in these projects. However, investors have been slow to adopt BESS in their renewable energy portfolios as banks have been unwilling to finance the purchase without Power Purchase Agreements (PPAs) in place. The situation has not been helped by the general downturn in the PPA market due to pricing uncertainty and future market outlook. However, the future is optimistic and changes in pricing are expected soon as the economics of co-locating wind and solar plus BESS become self-evident. Investors are also realising there is clear firstmover advantage in adopting BESS early. What is your market outlook for Australia? There has been a slowdown in closing transactions over the last 18 months due to market uncertainties such as high interest rates, inflation, and global conflicts. Notably, some companies are still expanding. Generally, there have been discrepancies between investors´ and developers´ return expectations, leading to developers holding onto projects for longer periods. The Australian Government’s Future Made in Australia agenda is generating excitement, but its impact on driving demand is yet to be fully realised. The long-term outlook suggests significant changes are needed, especially regarding AEMO’s ISP change plan, which highlights the scale of electrification required in Australia. Despite short-term disruptions, the demand for electricity remains strong and investors are strategically weighing up their shortterm and long-term objectives in their decisionmaking processes. In this edition of New Energy Expert Insights, we sat down with Rodrigo Arias Lopez, Executive Director at Pottinger and an expert in corporate finance and capital markets, to discuss the investment outlook for the renewable energy sector. Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 David O'Carroll Senior Associate +61 421 497 311 New Energy Quarterly Distributed Energy Resources 57 Return to contents page 58 New Energy Experts Insights From Local Jobs to Global Expertise: Developing Australia’s Renewable Energy Workforce with James Simpson – Part I In this two-part series, the New Energy team sits down with James Simpson, Workplace and Employment Partner at Hamilton Locke, to discuss who will build Australia’s renewable energy transition. During our interview, we ask how Australia can attract skilled offshore labour in a competitive, global market, and consider how Australian governments and employers can work in tandem to retain top talent. We continue the conversation with James Simpson to discuss what the newly introduced labour hire provisions in the Fair Work Legislation Amendment (Closing Loopholes) Act 2023 will mean for the New Energy Sector. To read Part II click here. Authors: Matt Baumgurtel, James Simpson, William Ryan and Kusum K C Key Takeaways: 1. Employers need governmental support to attract and retain skilled offshore labour. 2. To compete globally, Australian employers must offer more than just remuneration to attract and retain top talent. 3. While engaging offshore labour might be necessary in the short term due to skills deficits, it should complement a well-developed strategy for training and upskilling the local workforce in the medium to long term. 4. Employers can share project benefits locally by training and upskilling local employees. Given the global scarcity of specialised blue- and white-collar employees in the renewable energy sector, how can Australia compete on an international scale to recruit the best talent? There are two aspects to this question. Firstly, there are policy considerations. Employers need all levels of Australian government to implement and strengthen policies that support renewable energy development. Australia is at risk of being at the back of the queue for technology and skills without a sustained political (including financial) commitment to the renewable energy transition. This includes streamlining immigration processes for offshore skilled employees and investing in training programs to upskill and retrain the local labour force. Secondly, from an organisational perspective, employers need to consider how to make their employment opportunities attractive to the best talent. Given the fierce competition and tight labour market, Australian employers must think outside the box and look beyond remuneration to attract and retain employees. Employers may do this by offering flexibility and other short- and long-term incentives that promote work and life balance. For example, employers may grant flexible working requirements during phases of a project which are less labour intensive. Alternatively, employers may share project success with employees through project bonuses, commissions or deferred cash benefits. Is engaging offshore labour a band-aid solution? From a policy perspective, how do you suggest we balance retaining onshore labour and attracting offshore labour for the next 20 years and beyond? Retaining onshore labour and attracting offshore labour are not mutually exclusive from both an industry and policy perspective. Even if there is a targeted focus on local training and upskilling over the next five years, there will still be a skills deficit. In the short term, the skills gap will only be met by recruiting offshore labour. While there is a tendency to view engaging offshore labour as a band-aid solution, the reality is Australia missed the opportunity to invest in and develop these skills over the past decade. Australia is now lagging ten to fifteen years behind the leading countries in the Northern Hemisphere (notably Norway, Scotland and Spain). We must increase investment and attract skilled offshore labour to stay competitive in the global clean energy “arms race”. Hence, attracting skilled offshore employees needs to sit alongside a well-developed, medium to longterm strategy around training and upskilling the local workforce. How can employers leverage the skills of offshore labour to effectively share the wealth and benefits of a project locally? Employers can share the benefits of local energy projects by recruiting and training local employees who are interested in transitioning into the renewables sector. It is important 5. There are transferable skills between traditional energy sectors and renewables, which can facilitate workforce transition and reduce criticisms of job redundancies. 6. Developing accredited training programs can accelerate the training and upskilling of the local workforce, reduce reliance on offshore labour and ensure national standards are upheld. 7. All stakeholders, including government, industry leaders, and unions, need to collaborate to accelerate the renewable energy transition. New Energy Quarterly Distributed Energy Resources 59 Return to contents page 60 The Australian Energy Infrastructure Commissioner, who is responsible for community engagement as it relates to renewable energy projects, has emphasised that projects need to offer training programs so that affected communities receive long term benefits. Upskilling local communities is an effective way of ensuring the economic prosperity of regional communities well beyond project completion. What stakeholders need to work collaboratively to achieve this? We need all stakeholders to work collaboratively to accelerate the renewable energy transition in Australia. To ensure a smooth transition, all levels of government, industry leaders (in both the renewable sector as well as adjacent industries such as the coal and gas sectors) and, crucially, unions must be engaged. For example, one of the barriers we anticipate in developing an accredited training program will be the different licensing requirements across different states. Hence, there is a need for both government and industry support to roll out a uniform program on a national scale. The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel. James Simpson leads Hamilton Locke’s workplace and employment practice. James’ experience spans across advisory and litigation in employment and labour law. This includes complex employment litigation, organisational restructuring, industrial relations management, international workplace law, Equal Employment Opportunity (EOO) and discrimination, work health and safety, and major workplace investigations. to differentiate between the different types of labour (skilled and unskilled) that are required during the different phases of an energy project. Currently, the difficulty in the renewable sector is attracting highly specialised and skilled employees in technical roles (for example, engineers and project managers). However, there is ample opportunity for employers to provide training to semi-skilled and unskilled employees at job sites, especially during the construction phase. This solves two issues. First, it creates local employment opportunities and upskills the national workforce. Secondly (and relatedly), it improves local stakeholder engagement and reduces the reliance on offshore employees in the long term. One of the criticisms of renewable projects is that labour engaged in traditional energy sectors (oil and gas) are made redundant. What is often overlooked is that some of the skills required in both sectors are incredibly transferable. For example, electrical engineers employed at a coal fired power station can easily transition into a renewable energy power plant, and those in offshore gas can transition into offshore wind. Is there scope and value for employers to develop their own accredited training program to upskill the local workforce? Given the current gap in renewable energy training programs, employers should consider whether they can offer a structured training program or apprenticeship to attract employees and accelerate the training and upskilling of employees. This would build Australia’s renewable workforce and reduce our reliance on offshore employees. These types of programs would be mutually beneficial to both employees and employers and the sector broadly. More broadly, there is scope for industry leaders and operators to come together and create an accredited program that is recognised sector wide. Having a national training program will make it easier to hire skilled and semi-skilled labour, and in the future, employers will be able to hire from a pool of employees that have undergone the training program. The accreditation will guarantee the skills of the employee and ensures Australian standards (for example, WHS standards) are upheld. One of the key issues with offshore employees relates to those employees not being licenced (or difficulties associated with verifying licenses). Ideally, Australian governments might incentivise employers via funding or subsidies to develop these training programs and ensure national standards are upheld. Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 James Simpson Partner, Employment +61 407 061 641 William Ryan Senior Associate +61 2 8072 8271 New Energy Quarterly Distributed Energy Resources 61 Return to contents page 62 Key Takeaways: 1. The Closing the Loophole Act aims to address concerns about labour hire arrangements undercutting Fair Work Act regulations. 2. The Act requires regulated hosts to pay labour hire employees the same as direct employees for equivalent work. 3. The legislation is complex, posing compliance risks for regulated hosts engaged in labour hire. 4. The Act exempts businesses with fewer than 15 employees and operates on an opt-in basis, triggered by applications to the Fair Work Commission for a regulated labour hire arrangement order (RLHAO). 5. An amendment excludes service providers from the legislation to prevent unintended consequences for genuine contractors providing specialised services rather than labour. 6. While the legislation may not lead to widespread direct engagement of labour by regulated hosts, it could affect the ability of labour hire companies to win contracts if hosts opt for price certainty by increasing direct employment. 7. There are concerns that the minimum pay threshold could act as a ceiling, limiting labour hire employees' ability to negotiate higher rates. 8. In the short term, the impact on the renewable energy sector may be limited due to high demand for labour. In the long term, labour hire's attractiveness may decrease. New Energy Experts Insights How will the Closing the Loopholes Act Affect the Renewable Energy Industry with James Simpson – Part II What is the impact of the Closing the Loophole Act on Australia’s system of labour hire? Labour hire represents 1.2% of the overall Australian workforce. The term labour hire describes an indirect employment relationship in which a regulated host (essentially an employer) contracts with a labour hire company to provide labour hire employees in return for a fee, rather than employing those labour hire employees directly. Part 6 of Schedule 1 to the Closing the Loophole Act was enacted in response to the growth of labour hire arrangements, as regulators were concerned regulated hosts (particularly in the mining, agriculture and transport sectors) were using labour hire arrangements to undercut bargained rates which must be provided to employees under the Fair Work Act 2009. Put simply, the Closing the Loophole Act requires regulated hosts to pay labour hire employees the same amount they would pay their employees for the same job. To effect this, the Closing the Loophole Act empowers the labour hire employees, regulated hosts (or their employees) and unions to apply to the Fair Work Commission (FWC) for a regulated labour hire arrangement order (RLHAO). A RLHAO will require regulated hosts to pay labour hire employees at least the amount prescribed under a regulated host’s enterprise bargaining agreement (EBA) (or equivalent public sector determination). However, the FWC may only make an order relating to remuneration (the power does not extend to prescribing nonmonetary benefits). The Closing the Loophole Act commenced on 15 December 2023, although certain provisions will not commence until later in 2024. Any RLHAO made by the commission will not come into effect until 1 November 2024. Is the use of labour hire to circumvent minimum pay requirements a prevalent issue in Australia? What practical impact will it have on labour hire companies? I don’t believe the provisions will impact the majority of regulated hosts. However, given the complexity of the legislation, the potential for non-compliance will be an ongoing risk for regulated hosts engaged in labour hire. These changes are going to take time to process, and whether the mischief these provisions seek to cure eventuates remains to be seen. The Law Council in its submission (to the Senate Education and Employment Legislation Committee inquiry into the Fair Work Legislation Amendment Bill 2023) stated that these provisions ‘are highly complex and it is likely that many employers will be unable to implement them without significant administrative assistance’. I think this view is correct, as there are serious questions around whether the legislation will redress major problems. There are significant exemptions in the Closing the Loopholes Act. In particular, the provisions do not apply to businesses that employ fewer than 15 employees (the rationale being to reduce the administrative burden on small businesses). It is also an ‘opt in’ type scenario; the provisions are only triggered when a labour hire employee, regulated host (or its employee) or union applies to the FWC for an RLHAO against the regulated host. Finally, the Fair Work Commission has broad discretion in making RLHAOs, and there are some practical uncertainties regarding the Closing the Loophole Act’s application. The complexity of the changes means there will be ongoing uncertainty. There will be cases brought before the Fair Work Commission that will likely be narrowly interpreted and so offer limited broader guidance. A late-stage amendment to the Closing the Loophole Act also made it clear that the changes would not apply to service providers. What is the purpose of excluding service providers? When the bill (the draft of the Closing the Loophole Act) was presented to parliament, members of industry raised concerns that the text could be read, unintendedly, to apply more broadly than just to labour hire arrangements. The key concern was that the provisions would apply to people who are genuine contractors providing specialised services, rather than those engaged to provide labour. This concern arose because there was no clear carve-out for service providers from the proposed laws. Rather, the Fair Work Commission was required to consider, as a factor, whether the arrangement was for the provision of services (as opposed to the provision of labour) when determining whether it was fair and reasonable to make an RLHAO. In this New Energy Experts Insights, we sit down for a second interview with James Simpson to discuss the recently passed Fair Work Legislation Amendment (Closing Loopholes) Act 2023 (Closing the Loophole Act) as it affects labour hire in the renewable industry. Authors: Matt Baumgurtel, James Simpson, William Ryan, Amy Seedsman and Kusum K C New Energy Quarterly Distributed Energy Resources 63 Return to contents page 64 the changes. This may include a restructuring of the market for labour in certain industries. However, there is a great opportunity for labour hire companies to offer results-based pricing instead of contracting on a schedule of rates basis. We might see a business model shift where labour hire companies begin to contract in the same way that subcontractors do – i.e. fixed price contracts. How significantly will the Closing the Loophole Act impact the renewable energy sector? In the short term, I don’t expect there will be a substantial change to labour hire in the renewable energy sector, as there is a huge demand for both skilled and unskilled labour. Due to the current skills shortage, the terms and conditions of labour hire agreements in the renewable energy sector are usually well above awards and enterprise bargaining agreements. The effect of these provisions may mean labour hire eventually becomes less attractive, however, this issue is more likely to arise down the track. The Hamilton Locke team advises across the energy project life cycle – from project development, grid connection, financing, and construction, including the buying and selling of development and operating projects. For more information, please contact Matt Baumgurtel. James Simpson leads Hamilton Locke’s workplace and employment practice. James’ experience spans across advisory and litigation in employment and labour law. This includes complex employment litigation, organisational restructuring, industrial relations management, international workplace law, Equal Employment Opportunity (EOO) and discrimination, work health and safety, and major workplace investigations. In response to complaints by industry, the bill was subsequently amended to make clear that the Fair Work Commission must not make a RLHAO unless it is satisfied that the performance of the work is not or will not be for the provision of a service. This is a mandatory exclusion rather than a decision-making factor. In assessing whether an arrangement is for the provision of labour or services, the Fair Work Commission must consider factors such as the involvement of the regulated host (including the ability to direct, supervise or control), the extent to which the regulated host’s systems must be used, and whether the purported labour hire is subject to industry or professional standards. Do you think this will lead to the regulated hosts engaging labour directly (in place of contracting with labour hire companies)? Is there still a place for labour hire companies? The short answer is yes. However, in respect of labour hire companies, I suspect that it will potentially have a significant impact on their ability to win work if regulated hosts are tempted to defer to price certainty by increasing their employed labour. Of course, the amendments do not encompass non-monetary benefits such as leave entitlements and so labour hire companies will still likely offer a more economical alternative to the regulated hosts than directly engaging labour. As the renewable energy sector is largely project-based, there will also always be a role for labour hire to plug specific gaps, especially during the construction phase. The changes will implement a minimum threshold of pay for labour hire employees. Do you consider that this minimum threshold may also act as a ceiling, and that labour hire employees will have difficulty negotiating higher rates?’ Andrew McKellar, CEO of ACCI, said that ‘This Bill means that labour hire employees won’t receive the pay rates they negotiated, but instead rates negotiated by other employers and employees they have never met. Labour hire employees will become the only employees in the country denied any role in negotiating their wages’. Whether this is true or not remains to be seen. The big issue is that no one really understands how this will play out in practice. There are all different sorts of permutations of outcomes, intended and unintended, that could flow from Matt Baumgurtel Partner, New Energy Lead +61 459 900 080 James Simpson Partner, Employment +61 407 061 641 William Ryan Senior Associate +61 2 8072 8271 NEAN is a network for New Energy industry professionals from graduate to senior associate level, aimed at building connections and sharing industry knowledge among members. NEAN seeks to foster and grow relationships between industry stakeholders at the earlier stages of their careers. New Energy Associates Network – NEAN Recent Events To join NEAN and to stay up to date with upcoming events and industry insights, join the NEAN LinkedIn group here. On 22 February 2024, our Senior Associates and New Energy experts, Hannah Jones and David O'Carroll, sat down for a fireside chat on the future of renewable energy investment with Rodrigo Arias López, Executive Director at Pottinger. With expertise advising in both public and private sectors for renewables, decarbonisation and cleantech, it was invaluable to hear Rodrigo’s takeaways for analysing today’s markets.