In response to Victoria's state target of generating at least 2 GW of offshore wind power by 2032, 4 GW by 2035 and 9 GW by 2040, the Victorian Government recently released the Offshore Wind Energy Implementation Statement 2 (Implementation Statement). It follows the release of the Offshore Wind Energy Implementation Statement 1 in October 2022, which we wrote about in a previous article.
The Implementation Statement forms part of a series of Offshore Wind Energy Implementation Statements, which are designed to support and guide industry and the Victorian community on the development of the Victorian offshore wind sector.
This latest Implementation Statement outlines the approach the state will take in leveraging industry-led investment for the first tranche of offshore wind projects (which will deliver at least 2 GW by 2032).
The Implementation Statement contains the following updates:
- procurement: the Government is seeking to develop and refine an optimal procurement process and support package for the first tranche of offshore wind projects by 2025 (this may include a Contract for Difference (CfD) and complementary contributions for capital and financing).
- transmission: the Government will deliver a coordinated transmission connection point for offshore wind projects near the Gippsland Coast (east of Wilsons Promontory) and Portland (at or near the existing Portland terminal station). Community consultation in relation to the location of the transmission connection points will occur in the first quarter of 2023, with the specific transmission connection point locations and high-level route corridors expected to be announced in late 2023. The Government will then begin a competitive procurement process for infrastructure providers in early 2024. The Implementation Statement acknowledges the importance of working with Traditional Owners in this regard and notes that VicGrid is working with Offshore Wind Energy Victoria (OWEV) to partner with Traditional Owners as part of its community consultation.
The statement also confirms:
- that coordinated transmission connection point(s) will be developed by VicGrid for offshore wind projects near the Gippsland Coast (east of Wilsons Promontory) and Portland (at or near the existing Portland terminal station); and
- that developers will need to connect via underground networks to these connection points as a condition of the Victorian Government’s offshore wind generation procurement process, unless the developer can demonstrate a transmission solution that has significantly greater net benefits, including for local communities and the environment, and is cost-effective.
While the coordination is welcomed, it is noted that developers who are currently preparing applications for Feasibility Licences in Declared Areas pursuant to the Offshore Electricity Infrastructure Act 2021 (Cth)) are required as part of that process to demonstrate their investigations for connection to market, including proposed onshore routes. It is important, therefore, that the work by VicGrid is coordinated with the Commonwealth. In this regard, the Implementation Statement notes that the OWEV is working with these developers to ensure they learn from their findings and avoid duplicating engagement activities where they can. It notes that OWEV also wishes to minimise the risk of engagement fatigue as much as possible.
- ports: the Government will establish the Victorian Renewable Energy Terminal at the Port of Hastings. The terminal will support wind construction delivery of up to 1 GW per year, process turbines up to 18 megawatts and concurrently service multiple offshore wind developments. However, development of the facility will be subject to an independent Environmental Effects Statement (EES) and comprehensive stakeholder and community consultation process. The EES referral will be lodged shortly and will be available for the public to view.
- Victorian Renewable Energy Supply Chain Hub: OWEV will begin consultation with stakeholders and participants in the offshore wind energy supply chain to evaluate the potential for establishing a Renewable Energy Supply Chain Hub in Victoria’s regions. The Hub will support the manufacturing of offshore wind components, providing significant job opportunities and the emergence of new industries in Victoria. To assist in this process, the Government will set local content requirements to ensure Victorian businesses can contribute to the renewable energy supply chain as soon as possible. The Government expects to release guidance on local contents requirements by the end of 2023.
- policy and regulatory reform: the Government will introduce legislation into Parliament this year to give investors the confidence to proceed with their investments. Anticipated reforms include:
- amendments to current land legislation, which will enable developers to obtain tenure over Crown Land; and
- amendments to current electricity safety legislation to permit the installation of energy infrastructure on public land in offshore and onshore areas.
- changes to the environmental impact assessment system, stating that a regime that is ‘fit-for-purpose and complementary to existing Commonwealth regulatory frameworks’ will be developed to facilitate the establishment of the offshore wind industry. However, no details have been provided and industry is continuing to work within the current EES and Commonwealth frameworks until such reforms occur, leading to potential wasted resources and duplicated efforts.
Opportunities for industry
The Implementation Statement details Victoria’s approach to leveraging industry-led investment in its offshore wind sector, providing an exciting insight into what businesses seeking to participate in the sector can expect in the coming months.
In accordance with the Implementation Statement, businesses that are seeking to invest in Victoria’s offshore wind sector should:
- note that the Government is likely to adopt financial support packages which include a CfD and complementary contributions for capital and financing. A CfD is a financial instrument in which the parties agree to pay each other depending on whether a floating price (the wholesale electricity spot price) is above (ie the developer makes a payment) or below (ie the Government makes a payment) an agreed strike price. As future electricity market prices are influenced by a range of factors, CfDs will give businesses and financiers greater revenue certainty when deciding to invest in Victoria’s offshore wind projects. However, businesses should begin considering whether this model is appropriate for their operations, as CfDs can be highly risky.
- note that the Government expects to begin a competitive procurement process for infrastructure providers in early 2024 and prepare accordingly.
- note that the EES for the Victorian Renewable Energy Terminal will be publicly exhibited shortly. Businesses should consider making submissions on how projects can proceed with environmentally acceptable consequences and to ensure the Terminal will be designed to meet the needs of the industry.
- engage with the Government when it begins consultation on the Victorian Renewable Energy Supply Chain Hub. Businesses should assist the Government to understand capability and capacity of Victorian businesses to participate in the offshore wind supply chain.
A third Offshore Wind Energy Implementation Statement is expected to be published in late 2023, which will provide businesses with greater clarity in relation to the procurement process, the design of the support package, and local content targets for developers.
It will be important that the reforms to the EES process and collaboration with the Commonwealth in this regard be released as soon as possible to avoid ongoing uncertainty and potential duplication of efforts by proponents, particularly in relation to the onshore connection routes and the connection to transmission network.
Similarly, it is important that the work by VicGrid to confirm onshore connection points and requirements for connection by developers is coordinated with the Commonwealth and with developers to avoid duplicated efforts and investigations that are currently required as part of the Feasibility Licence application process and to minimise ‘engagement fatigue’ in affected communities.