It has been a productive year for the Australian Government through its award of multiple feasibility licences under the Offshore Electricity Infrastructure Act 2021 (Cth) and its associated regulatory framework (OEI Framework).
Since issuing the inaugural licences in Gippsland earlier this year, global investors are now circling the highly coveted sites known for their world-class wind speeds, shallow water depths, and relative proximity to Victoria's grid backbone. In response, there has been a strong increase in market activity among investors looking to acquire interests in projects or developers who have secured site exclusivity under the OEI Framework. Equally, licence holders are looking to divest in order to de-risk projects and secure critical funds for the extensive feasibility activities required to move toward commercialisation as well as to lessen the burden of inflating construction costs.
At a glance
A feasibility licence grants the holder exclusive rights to undertake feasibility investigations within a defined site within an offshore area declared by the Minister for Climate Change and Energy (Minister) as being suitable for offshore wind developments. Feasibility licences have an initial term of seven years, with an option to extend for a further seven-year term. The licence permits holders to conduct feasibility activities and some site assessments, which are key steps to securing regulatory approvals pre-construction.
Holding a feasibility licence is the only route to securing a long-term commercial licence, being the primary licence required to construct and operate a project within the defined feasibility licence area.
In May 2024, the Minister awarded feasibility licences to six applicants in the Gippsland declared area with a further six licences subsequently awarded in July 2024. This was followed by a single licence in each of the Hunter declared area off the coast of Newcastle, New South Wales and the Southern Ocean declared area in Western Victoria.
Applications for the Illawarra, New South Wales declared area were required by August and are currently being assessed with applications for Bunbury, Western Australia currently open for submission until December 2024. The final zone in Tasmania is expected to open for applications this year.
Post-award activity
For investors looking to capture a greenfield premium on Australian offshore wind, now is the time to investigate potential opportunities. However, there are several regulatory and practical considerations that will inform any investment and could affect the speed at which a transaction can complete.
We discuss some of these considerations below.
Merit criteria
The OEI Framework is merit-based and provides the Minister with broad discretions. Licence holders must, when applying for feasibility licences and at all times while holding a feasibility licence, satisfy merit in four key areas:
- technical and financial capability;
- suitability to hold a licence;
- viability of the project to progress toward commercialisation; and
- whether the project is in Australia's national interest, encompassing a broad range of considerations.
Licence holders are required to demonstrate satisfaction of the merit criteria annually throughout any licence term. Any change in a licence holder's ownership must not result in the licence holder no longer satisfying this merit criteria – with any failure to satisfy being grounds for cancellation of a feasibility licence.
Change in control regime
Prospective investors should also be aware of the change in control procedures prescribed by the OEI Framework. Any person (whether alone or acting jointly) who seeks to obtain or divest a 20% or greater stake in a licence holder must first obtain Registrar approval. This is a "hair trigger" regime, meaning there are limited exemptions. For example, the regime does not provide an exemption where the ultimate beneficial ownership remains the same (meaning internal reorganisations will also require Registrar approval if the relevant threshold is met). Foreign investors in Australia will be familiar with this, as similar triggers for approval exist under the country's foreign direct investment (FIRB) framework.
Given the nascency of the OEI Framework, this regime is yet to be officially tested.
Crucially, in deciding whether to approve a change in control the Registrar must consider whether the licence holder would continue to meet the merit criteria. This requires a careful assessment of, in particular, the technical and financial capability of the incoming investor and ultimately the newly comprised licence holder, especially where there will be any change to key team members or decision-making structures. Careful analysis must be undertaken to ensure potential joint ventures (or other structures) satisfy the merit criteria so as not to bar any potential investment.
The change in control must take effect within the approval period (generally within nine months of Registrar approval). The Registrar must also be notified of any relevant changes of circumstance (i.e., affecting the licence holder's ability to meet the merit criteria) that occur before or during the approval period. Failure to do so is grounds for licence cancellation and a civil penalty.
Licence holders and incoming investors should remain cognisant of the following additional considerations concerning the change in control regime:
- The Minister has broad powers to vary licence conditions in connection with change in control approvals.
- Suitability disclosures are required to be submitted for entities within a licence holder's corporate group on which it relies on to satisfy any merit criteria. The disclosures carry extensive requirements to report past conduct and compliance on an ongoing basis.
- The current draft regulations covering management plans under the OEI Framework include a management plan revision trigger where a change of control occurs and where that change in control will alter the manner in which licence activities are carried out. The Commonwealth Government has committed to making these regulations later this year.
Appropriate structuring of joint ventures
Investors looking to acquire interests in projects or developers who have secured a feasibility licence may already be coming into established structures and, in Australia, these structures will typically include trusts established to hold the underlying assets and indeed the feasibility licence. Due to the early stage of these greenfield projects, in what is an emerging sector, joint venture and securityholder arrangements are often complex – having to take into account, for example, the project development milestones and decision-making required to meet those milestones, the future potential for capital (and consequences in the event that capital is not obtained or provided by one or more stakeholders), future equity investment, the particular requirements under the OEI Framework to deliver and maintain a certain level of financial security, and the need for parties to divest and/or exit the project at key points in time.
Non-compete and restraint clauses are also common and can be complex due to the feasibility stage of these projects. Often, we are seeing parties negotiate terms that apply prior to final investment decision and the commencement of commercial operation (i.e.. in the feasibility stage), and terms that apply after commercial operations have commenced. This makes negotiating agreements upfront to contemplate the lifecycle of the project both complex and time consuming. This should be a relevant factor in the timetable of any proposed transaction.
Competition considerations
Competition considerations should remain front of mind in the appropriate structuring of joint ventures, where the parties could be considered competitors or potential competitors. Although the licence areas are already allocated and the parties may not be "in competition" for a licence area, they can still be considered competitors for the acquisition or supply of goods or services (for example, State government offtake processes or procurement generally). For this reason, the appropriate structuring of a joint venture to take advantage of exceptions under competition laws is critical. Measures to mitigate of information sharing risks may also be appropriate to guard against the transfer of competitively sensitive information, depending on the operations and structure.
Where the parties are entering into a joint venture or an investor holds a shareholding of 20% or more, it is important to consider the competitive effects, in addition to whether the proposed mandatory merger control regime for Australia is triggered. New legislation is before Parliament to reform merger control in Australia, with a mandatory and suspensory notification regime proposed to come into effect on 1 January 2026. Currently, although not yet legislated, the Australian Competition Regulator is looking closely at acquisitions that result in multiple shareholdings across competitors, so the effect of multiple investments should be considered early.
Foreign Investment Review Board
The land, or more specifically the seabed over which the feasibility licence is granted, is generally categorised as ‘vacant commercial land' for the purposes of the Foreign Acquisitions and Takeovers Act 2015 (Cth), and therefore the feasibility licence is considered an interest in Australian land. As such, ‘foreign persons' (as defined under that legislation) will, subject to undertaking assessment on a case-by-case basis, likely be required to obtain FIRB approval prior to acquiring an interest in a project holding a feasibility licence. While we have seen a reduction in FIRB processing times since the pandemic, appropriate lead-in times should be factored into transaction timelines to allow for FIRB applications to be prepared and assessed.
Wrap up
Competition in the sector, a reduction in the reliance on coal, and supportive government policy is propelling the Australian offshore wind industry forward. While many see now as an opportune time to invest, potential investors should be mindful of the numerous regulatory considerations to be balanced when planning their investments.
Kate Moriarty (Graduate) also assisted in the drafting of this publication.
