Market Analysis: Australia’s Renewable Energy Sector

Synopsis

In the face of climate change, escalating energy prices and concerns over the sustainability of non-renewable energy sources, countries around the world are shifting to “Clean Energy” as the obvious answer.

Australia is uniquely positioned for this shift. With an abundance of sun, wind and uninhabited land, Australia is capable of generating terawatts of cheap renewable energy for domestic use and for international export – and significant steps are already being taken to do so, with the Federal Government committing over $40 billion in the most recent Federal Budget to further transition the country’s source of power to renewable energy.

This commitment to shift Australia’s power source has seen a dramatic increase in the number of renewable energy projects across the country, with various Solar Farms, Wind Farms and Hydrogen Plants popping up in each state and territory. It has also created an industry paradigm shift with various large mining and resource companies, predominately focused on fossil fuels such as coal, pivoting to renewable energy. One particular example is BHP, one of the world’s largest coal mining companies, which has recently entered various renewable energy related agreements and publicly declared that its “future” is focused on a “sustainable, decarbonised and clean energy”.  Such company juggernauts are now also committing to only use (or predominantly use) renewable energy as their source of power, further increasing renewable energy demand.

With such commitments, and the associated government funding, comes new and amended regulatory and legal framework, tighter scrutiny on compliance and a squeeze on profit with increased competition.

This article provides an analysis of the current market and our view on the associated legal issues and risks – the objective being to assist our clients and industry participants to understand the legal framework and risks, in order to help them capitalise on the opportunities the renewable energy sector presents.

Market Growth, Analysis and Challenges

Investment commitment and market optimism for renewable energy is at an all-time high, largely due to increased expectations for governments and companies to be socially and environmentally responsible. Countries around the globe, including more than 70% of Australia’s two-way trade partners, are shifting to renewable energy to meet their net zero emissions targets in the next 25-30 years.

Despite COVID-19 lockdowns and the other global economic challenges over the last 2 years, global investment in renewable energy skyrocketed to $358 billion in the first six months of 2023.[1] This represents a 14% increase from the first six months of 2022, further confirming the acceleration of the global energy transition.

In Australia, Corporate Renewable Power Purchase Agreements – where large electricity buyers agree to buy power from renewable energy projects – have been a large driving force to the increases in demand for renewable energy. Some of the noteworthy buyers that have entered into Renewable Power Purchase Agreements include Woolworths, Aldi Stores, Brisbane Airport Corporation, the City of Adelaide, ISPT and Transurban.

In the past year alone, 26 Power Purchase Agreements were entered for renewable energy and as of July 2023, the volume of energy contracted for annual delivery through Renewable Power Purchase Agreements is estimated at 14.6 terawatt-hours – i.e., 14,600,000 megawatt-hours (MWh) or 14,600,000,000 kilowatt-hours (kWh).

With such a growing market, there has recently been a number of significant financial commitments and new grants for Solar, Wind and Hydrogen projects announced. Key State and Federal Government investments, include:

1. 1. $4 billion under the 2023-24 Federal Government Budget, bringing total investment to more than $40 billion, including $4.2 million for the Hydrogen Headstart initiative.^[2]
   2. A total $19 billion capital investment by the Queensland Government over four years for solar, wind, storage and transmission projects under the 2023-24 Queensland Budget.^[3]
   3. An initial $1 billion investment in the Victorian State Electricity Commission to help deliver 4.5 GW of power through renewable energy projects.^[4]
   4. A $1.2 billion net investment under the New South Wales 2022-23 Budget for new transmission projects required for Renewable Energy Zones across regional New South Wales.^[5]
   5. A $2.8 billion investment by the Western Australia Government in its 2023-24 Budget to decarbonise and progress towards net zero emissions.^[6]

With the Government virtually throwing money at renewable energy projects, Australia is experiencing a boom in the number of large-scale projects across the country. Most noteworthy, include:

1. 1. Hydrogen Headstart: a $2 billion initiative to accelerate the development of large-scale green hydrogen projects throughout Australia. It aims to stimulate growth and investment in the hydrogen sector by supporting at least two large-scale projects which may total one gigawatt of electrolyser capacity by 2030.^[7] Consultation closed on 3 August 2023.
   2. Queensland Energy and Jobs Plan: in September 2022, the Queensland Government released its plan to reach targets of 70% renewable energy by 2032 and 80% by 2035 and includes commitments to building the new Queensland SuperGrid.[8]
   3. CopperString 2032: an estimated $5 billion 1,000km transmission line project which will connect northwest Queensland to the national electricity grid. Notably, a $20 million early works contract for this project has been awarded to CIMIC Group companies UGL and CPB Contractors.
   4. Borumba Pumped Hydro Project: subject to environmental approvals, the Queensland Government has invested $6 billion in the 2023-24 Budget for the estimated $14.2 billion hydrogen project.
   5. Queensland Renewable Energy and Hydrogen Jobs Fund: this fund supports investments into and ownership of commercial renewable energy and hydrogen projects by publicly owned energy corporations. An additional $2 billion was invested into the fund by the Queensland Government under the 2023-24 Budget.^[9] Projects include the Wambo Wind Farm and Tarong West Wind Farm, both which have not begun construction yet but have been allocated $192.5 million and $776.1 million, respectively, under this fund.
   6. Australian Renewable Energy Hub: a 6,500 km project under development in Western Australia delivered by a project consortium including the British Petroleum Company as operator, CWP Global, Intercontinental Energy, Macquarie Capital and Macquarie’s Green Investment Group.[10] At full-scale, it aims to produce 26GW total generating capacity from solar and wind and 1.6 million tonnes of green hydrogen per annum.
   7. Synergy projects in Western Australia: $2.3 billion has been granted to Synergy to develop a 500MW Battery Energy Storage System in Collie and a 200MW Battery in Kwinana.^[11] An additional $368 million has been granted to Synergy for a wind farm in King Rocks, WA.

Australia’s commitment to renewable energy, and increased projects, is not just creating opportunities to the companies directly on the tools building the Projects. It is creating work and demand for many other industries. In July 2023, QBE Australia Pacific announced that due to increased demands and in an effort to support such projects, it would provide specialised and specific insurance coverage for renewable energy projects.^[12]

Increased funding by governments and investors has had a clear impact on Australia’s renewable energy generation and production over the last few years. Already, the Australian Energy Statistics provided that renewable energy generation increased 18% in 2020 to 2021, comprising 27% of total energy production.^[13] Flowing from the increased production, renewable fuels made up 32.3% of electricity generation in 2022.^[14]

At the forefront of the Australian renewable energy space is Tasmania and the Australian Capital Territory. Remarkably, the ACT has had 100% of electricity produced and consumed from renewable energy since 2020.^[15] Similarly, Tasmania achieved 100% self-sufficiency in renewable electricity generation in 2020.^[16] Note that these figures are in reference to generation and consumption of electricity – not necessarily energy.

South Australia has also been a pioneer in the transition to renewable energy, with over 70% of its electricity being generated from renewable energy and the state boasting that it has “optimal conditions for renewable energy generation”.^[17] Last year, the state reported an estimated 56 projects in the pipeline comprising $20 billion total investment.^[18]

In Queensland, the transition to renewable energy has been a little slower. The Department of Energy and Public Works recently estimated that 8,400 construction jobs were created over the last 8 years by renewable energy projects.^[19] Approximately $10.8 billion has been invested into these large-scale renewable energy projects and as at the April 2023, renewable energy accounts for approximately 24.9% of electricity consumed in Queensland.^[20]

Whilst the industry is booming, it is not without challenges; Australia is facing significant labour and skilled worker shortage, which continues to mar the industry. As renewable energy projects are typically in remote locations, with mostly a fly-in fly-out workforce, labour shortages are particularly problematic. With numerous large-scale construction and infrastructure projects currently underway in close proximity to capital cities, all paying generous EBA-based wages, the renewable energy sector has found it difficult to attract construction managers, engineers, qualified electricians and supervisors to their projects. The appeal of being paid the extravagant “miner’s money” whist working away on remote projects has depleted.

The solar farm industry is feeling the pinch more than others. Previously relying on a backpacker workforce, the travel restrictions during COVID-19 caused many headaches. To make things worse, the Government’s position has oscillated from what elements of solar module requires, and what doesn’t require, qualified electricians to install. In Queensland, the changes were part of a reform to the Electrical Safety Act 2002, which started in 2020, resulting in many industry complaints and the Queensland Court of Appeal declaring the laws invalid.[21]  This year, the Queensland Government revisited  those licencing changes and issued a discussion paper.[22] If the amendments are ever passed, it will increase solar farm construction costs in Queensland and mean that even more qualified electricians will be required for such projects, further exacerbating the labour challenges.

Projections based on the Australian Energy Market Operator’s Roadmap for the National Energy Market (NEM) – the electricity grid across all southern and eastern Australian States – indicate a dramatic and immediate upscale of the workforce will be required in the backend of 2023, throughout 2024 and into 2025.

It has been predicted that an additional 12,000 renewable energy-based construction workers will be required by 2025, and electricity sector jobs will reach 81,000 by 2049.[23] A research report from Construction Skills Queensland confirmed that “the biggest challenge in delivering the boom could be the scale of the construction workforce required.”[24]

Legal Framework and challenges

One of the more significant challenges and developments in the past 3 years for those in the Renewable Energy sector relates to the ever-changing legal and regulatory framework.

The Australian Federal Government and governments of each state and territory have been very busy, proposing and passing new laws, establishing new industry-based agencies and regulators, and implementing various renewable energy schemes. Those changes are mostly directed at facilitating and regulating such projects, managing and encouraging domestic and foreign investment, and regulating renewable energy generation.

The most noteworthy being:

Offshore Electricity Infrastructure Act 2021 (Cth)

The Offshore Electricity Act 2021 (Cth), which commenced on 2 June 2022, is crucial to Australia’s movement towards net zero. It provides a regulatory framework under which offshore renewable energy and electricity transmission infrastructure can be established and maintained. The multi-step licensing regime involves four types of licenses:

1. A “transmission and infrastructure licence” for storage, transmission or conveyance of electricity or renewable energy products.
2. A “research and demonstration licence” for research into or demonstration of electricity transmission or offshore renewable energy infrastructure.
3. A feasibility licence for assessment of feasibility of an offshore infrastructure project. This licence type is a prerequisite to a commercial licence.
4. A commercial licence for carrying out an offshore infrastructure project using renewable energy resources. This will only be granted after a feasibility licence has been granted.

The regulatory process begins once the Minister for Energy, advised by the Department of Climate Change, Energy, the Environment and Water, has declared an offshore area suitable (although this is not a requirement for a transmission and infrastructure licence). After an application for the relevant licence type is made to the Offshore Infrastructure Registrar, an assessment is carried out and the Minister for Energy may grant the licence (excluding commercial licences). The licensee must then comply with requirements for submission of specific documents to the Offshore Infrastructure Regulator, including a design notification scheme, management plan, and financial security agreement. Only once these have been assessed and approved can the Minister for Energy grant a commercial license, and projects are able to commence. With four different regulatory bodies and a multi-stage approval process, it is essential that developers of offshore projects are familiar with the process, are adequately advised and are prepared for what to submit and to whom. This should be considered, understood and confirmed during project feasibility stages.

Energy (Renewable Transformation and Jobs) Bill 2023 and draft Renewable Energy Zone Roadmap (Queensland)

The Queensland Government have announced draft legislation enshrining the Queensland Energy and Jobs Plan into law. The Draft Energy (Renewable Transformation and Jobs) Bill 2023 proposes the Energy (Renewable Transformation and Jobs) Act 2023, to increase renewable energy production and facilitate the augmentation of the transmissions grid to accommodate increasing renewable energy.

It commits to ongoing public ownership of energy assets and will establish three statutory bodies – the Queensland Energy System Advisory Board, the Energy Industry Council, and the Queensland Renewable Energy Jobs Advocate. Public consultation closed on this Bill in June 2023, and it should be introduced to the Queensland Parliament later in 2023.

Under the legislation, a Renewable Energy Zone (REZ) framework would also be established to incentivise investment. Following in the steps of other states – such as the New South Wales Government’s 2020 Electricity Infrastructure Roadmap. Queensland released its proposed framework for public consultation on 10 July 2023 in the Draft 2023 Queensland Renewable Energy Zone Roadmap.[25] 12 potential REZs have been identified throughout the state for development across three phases leading up to 2035, including in North and Far North Queensland, Central Queensland, and Southern Queensland.

The Draft Roadmap involves four stages of development – planning, declaration, construction and operation, and commission once fully operational. Already, $6 million has been allocated to undertake initial strategic assessments of these regions, involving studies into infrastructure and other development opportunities and impacts. Regional Energy Reference Groups will also be created to enable direct community input and feedback throughout the entire development process.

Powerlink will take on the role of the REZ Delivery Body, coordinating developments and engaging with communities and stakeholders to effectively deliver the REZs.

Gas Supply and Other Legislation (Hydrogen Industry Development) Amendment Bill 2023 (Queensland)

The Gas Supply and Other Legislation (Hydrogen Industry Development) Amendment Bill 2023 (Gas Supply Bill) was introduced into Queensland Parliament on 9 May 2023.[26] It provides amendments for existing laws – namely the Gas Supply Act 2003 (Qld) as well as the Petroleum and Gas (Production and Safety) Act 2004 (Qld). Its enactment would be critical for further development in the hydrogen sector by creating a clear regulatory framework and allowing for a refined approvals pathway for hydrogen and other prescribed gas pipelines.

Hydrogen and Renewable Energy Bill 2023 (South Australia)

The South Australian Parliament have also introduced the draft Hydrogen and Renewable Energy Bill 2023, proposing the Hydrogen and Renewable Energy Act 2023 (SA). This legislation aims to establish a ‘one window to government’ process with an efficient and flexible regulatory framework for the entire life cycle – from construction to decommissioning – of renewable energy infrastructure and facilities for commercial hydrogen generation. The streamlined approval process for projects, land use, and licensing will be created to ensure that land is rehabilitated back to its pre-existing condition and takes factors such as Native Title land into consideration.

Green Energy Approvals Initiative (Western Australia)

As part of its initiative to further reduce the “red tape”, Western Australia has announced changes to the approval pathway for new hydrogen and renewable energy projects.^[27] The Western Australian Government has invested $22.5 million to improve the efficiency of this process, including the Green Energy Major Projects Group which will provide a first contact point to assist investors and projects through the government processes. It also involves the Green Energy Expert Panel, which is being established for Government and industry members to provide information to the independent Environmental Protection Authority to streamline the approvals pathway.

National Electricity Law and National Energy Rules

Although introduced prior to Australia’s major shift towards renewable energy, the National Energy Law (NEL)[28] and the National Energy Rules (NER) are critical to renewable energy developments. The NEL and NER govern the framework for connection to the NEM. Under this framework, the NEL and NER regulate operation and participation for both wholesale and retail sectors and include standards for technical and performance aspects as well as data sharing. Western Australia also has its own, but similar, framework for the Wholesale Energy Market – established under the Electricity Industry Act 2004 (WA) and the Electricity Industry (Wholesale Electricity Market) Regulations 2004 (WA). Developers should be aware that non-compliance can lead to increased project costs, delays, or possible denial of connection to either of these markets.

Planning and Environmental Approvals

Approval to use suitable and available land is a key part of the development of any renewable energy project, including environmental approval. Local, State and Federal governments all play a role in the approvals process, to varying degrees. For example, where the proposed renewable project will likely significantly impact a nationally protected or environmentally significant matter, it requires approval under the Environment Protection and Biodiversity Conservation Act 1999 (Cth). This is assessed by the Australian Department of Climate Change, Energy, the Environment and Water. It is estimated that 60 renewable energy projects are expected to submit environmental impact statements in New South Wales over the next 12 to 18 months.^[29] It is important these are done correctly and are carefully considered as they are lengthy and complex.

State-based regulations and requirements

As mentioned above, assessment processes vary between states and between types of infrastructure. For example, in Queensland, solar farms are assessed by local governments and should comply with the Queensland solar farm guidelines, whereas wind farms require a development application to be lodged with the Queensland State Assessment and Referral Agency and comply with separate requirements.^[30]

Takeaway

The renewable energy market and corresponding legal landscape have and will continue to undergo significant changes in the journey to meet the Country’s Net Zero emission target.

Whilst this is an exciting time for all those involved, steps must be taken to learn and understand the relevant legislative and administrative requirements for such Projects, from tender until commissioning, to enable companies to capitalise on the opportunities which the sector presents.

CDI Lawyers is committed to doing its part to help Australia transition its source of power to renewable energy and meet its Net Zero emissions target by 2050. We recognise that with these rapidly expanding industries comes tighter regulatory scrutiny, peculiar risks and challenges associated with frequent changes to the legal landscape. We are committed to assisting our clients navigate through this complex landscape and aim to provide them with trusted legal support and advice, from project inception until completion. Our team of leading specialists regularly assist in front-end contract drafting, project delivery, back-end dispute resolution and regulatory action on a range of renewable energy projects, including solar, wind, hydrogen, battery storage, and carbon capture utilisation and storage.

If you have any questions regarding this article or would like to discuss, please contact Jay Hatten.

 

 

 

 

 

 

 

 

 

 

[1] BloombergNEF, ‘Energy Transition Investment Trends’ (Research Report No 2, BloombergNEF, 23 August 2023.

[2] Commonwealth Government, Budget Measures 2023-24 (Budget Paper No 2, 2023).

[3] Queensland Government, Queensland Budget 2023-24 Budget: Strategy and Outlook: (Budget Paper No 2, 2023).

[4] Victorian Government, Victorian Budget 2023/24: Strategy and Outlook (Budget Paper No 2, 2023).

[5] New South Wales Government, NSW Budget 2022-23: Budget Statement (Budget Paper No 1, 2022).

[6] Western Australia Government, WA Budget Overview 2023-24 (Budget Paper, 2023) 7 (‘WA Budget Overview 2023-24’).

[7] Australian Renewable Energy Agency, Hydrogen Headstart Consultation Paper (July 2023).

[8] Queensland Government, Queensland Energy and Jobs Plan (28 September 2022).

[9] ‘Queensland Renewable Energy and Hydrogen Fund’, Queensland Treasury (Web Page, 12 November 2022) <https://www.treasury.qld.gov.au/programs-and-policies/queensland-renewable-energy-and-hydrogen-jobs-fund/>.

[10] ‘Australian Renewable Energy Hub’, CSIRO, (Web Page, April 2023) < https://research.csiro.au/hyresource/australian-renewable-energy-hub/>.

[11] WA Budget Overview 2023-24 (n 6).

[12] QBE Australia Pacific, ‘QBE launches new renewable energy insurance proposition’ (Press Release, 11 July 2023).

[13] Department of Climate Change, Energy, the Environment and Water (Cth), Australian Energy Update 2022, (Report, September 2022) 3.

[14] Department of Industry, Science, Energy and Resources (Cth), Australian Energy Statistics: Table O.12 (June 2023).

[15] ACT Government, Powering Canberra: Our pathway to electrification (Position Paper, August 2022) 5.

[16] Tasmanian Government, Tasmanian Renewable Energy Action Plan December 2020 (2020).

[17] South Australia Government, South Australia:a global force in renewable and hydrogen energy, (Report, February 2023) 4.

[18] Ibid 2.

[19] Department of Energy and Public Works (Qld), ‘Queensland’s renewable energy target’, Queensland Government (Web Page, 5 May 2023) <https://www.epw.qld.gov.au/about/initiatives/renewable-energy-targets>.

[20] Ibid.

[21] State of Queensland v Maryrorough Solar Pty Ltd [2019] QCA 129

[22] Electrical Safety Act 2002 Review Discussion Paper summary, <https://www.oir.qld.gov.au/sites/default/files/2023/documents/es-actreview-discussion-paper-summary.pdf>.

[23] Construction Skills Queensland, Queensland’s Renewable Future: investment, jobs and skills (Report, August 2022) 5.

[24] Ibid.

[25] Queensland Government, Draft 2023 Renewable Energy Zone Roadmap (10 July 2023).

[26] Gas Supply and Other Legislation (Hydrogen Industry Development) Amendment Bill 2023 (Qld).

[27] Western Australia Government, ‘New green energy approvals pathway open for business’, (Media statement, 3 July 2023).

[28] National Electricity (South Australia) Act 1996 (SA) sch. This legislation has force of law in other states such as Queensland under statutes: Electricity—National Scheme (Queensland) Act 1997 (Qld).

[29] Bella Peacock, ‘60 new renewable energy EISs slated for NSW in next 12 to 18 months’, pv magazine (Web Page, 14 June 2023) <https://www.pv-magazine-australia.com/2023/06/14/60-new-renewable-energy-eiss-slated-for-nsw-in-next-12-to-18-months/>.

[30] Queensland Government, ‘Renewable energy project planning and approvals’, Business Queensland (Web Page, 29 June 2023) <https://www.business.qld.gov.au/industries/mining-energy-water/energy/renewable/project-development/planning-approvals>.