Offshore wind developers warn of urgent need for clarity as Victoria struggles to convince Canberra to underwrite auction

Victoria is struggling to secure the federal support that it needs to proceed with a critical auction. The state has asked the Albanese government to cover as much as 50 per cent of the financial risk, a proposal viewed in Canberra as excessive.

Chris Bowen, Minister for Climate Change and Energy. Artwork by Frank Ling.

Offshore wind developers are urging Victoria’s Allan government to deliver long-promised details on how the state’s flagship offshore wind auction will be underwritten.

They say that prolonged uncertainty risks derailing early momentum in the nascent renewables sector.

But a rift between Victoria and federal Labor over who will foot the bill for the multibillion-dollar scheme has left investment plans in limbo, some developers say.

Victoria earlier this year delayed plans for a landmark contract-for-difference auction that was meant to set the revenue terms for the first generation of offshore wind projects. The move, first revealed by The Australian and denied at the time by the state government, has since been confirmed.

State Energy Minister Lily D’Ambrosio pledged to provide an update by the end of the year, but with only weeks remaining, developers say they remain “in the dark”.

“The sense of optimism around the industry has faded, but there are still several developers pushing ahead,” one industry executive said, speaking on the condition of anonymity. “What we need more than anything is clarity on how the auction will work.”

At the heart of the dispute is money. Victoria, grappling with its hefty budget deficit, wants Canberra to contribute to the cost of underwriting the auction, which would guarantee minimum prices for the successful developers.

The state has asked the Albanese government to cover as much as 50 per cent of the financial risk — a proposal viewed in Canberra as excessive, according to sources familiar with the talks.

The standoff underscores the political tension between Victoria’s ambition to become a global leader in offshore wind and the federal government’s intent on meeting its 2030 emissions target. Offshore wind does not play a leading role in the ALP target, as offshore wind projects are unlikely to begin producing power before 2032, putting them beyond the current policy horizon in Canberra.

Ms D’Ambrosio has taken increasingly pointed swipes at the federal government in recent weeks, insisting the government offered support to other states which Victoria could now benefit from.

Without a deal, developers warn that more projects could collapse. Two major players — RWE and BlueFloat Energy — have already pulled back.

Federal Energy Minister Chris Bowen earlier this year sought to ease pressure on developers by scrapping annual fees for holding offshore wind exploration licences, a move worth about $1m per project. But industry figures say the gesture did little to resolve the fundamental problem: a lack of policy and revenue certainty which threatens to erode confidence in Victoria’s ability to decarbonise Australia’s most fossil fuel-dependent state.

“The policy ambition is there, but the economics don’t stack up without underwriting,” one developer said. “No one can commit to hundreds of millions in early-stage spending without knowing what the price floor looks like.”

For now, only a handful of developers are pressing ahead with geotechnical and environmental surveys to prepare for a future auction, while others have paused altogether. The result is an industry moving, in the words of the executive, “at a glacial pace.”

With Victoria’s 2032 offshore wind target fast approaching, developers warn that the state’s vision of a large-scale offshore wind industry could fade before it begins unless the dispute with Canberra is resolved and financial clarity is restored.

Victoria set a target of two gigawatts of offshore wind capacity by 2032 and nine gigawatts by 2040. The announcement in 2022 triggered a rush of global developers into the state, with the federal government granting 12 feasibility licences a year ago to consortia backed by major players including Macquarie, Iberdrola, and Japanese conglomerates. Brown coal still supplies around 60 per cent of Victoria’s electricity.