Victoria to issue first defining offshore wind guidelines

Victoria will soon issue details about how much local materials have to be used in offshore wind projects, which could determine if the state avoids repeating mistakes made overseas.

Victoria will this month issue directions to offshore wind developers about how much local content they must use in projects, rules that industry sources said will go a long way in determining whether Australia will avoid the high-profile failures seen overseas.

Victoria has placed offshore wind at the heart of its plan to rapidly wean its electricity network from coal. It is one of Australia’s most coal dependent states but aims to have renewable energy generate 20 per cent of its power within a decade.

The target then escalates and Victoria hopes to have 4GW of energy generated from offshore wind by 2035, and 9GW by 2040. In all, Victoria sees potential for 13GW of offshore wind by 2050, five times the current renewable generation in the state.

The target, combined with near-perfect conditions for offshore wind, has drawn a plethora of global energy heavyweights such as Orsted, Shell, and RWE, plus local giants such as Macquarie, Origin Energy and AGL Energy to seek licences to develop offshore wind projects.

Attention is now turning to the details of how Victoria will structure the nascent market. later this month it will issue proposed local content requirements, sources have told The Australian.

Developers will be compelled to ensure sufficient quantities of materials produced in Australia are used in their energy projects. But industry executives told The Australian that if Victoria mandates a figure that is too high, then the industry will be curtailed.

“If Victoria mandates too high a local content mandate, it will severely inhibit the development of the industry,” one industry executive said.

“Supply chains are well established as Australia must understand that the industry will not be able to source such things as turbines locally.”

Industry executives highlighted the case of Taiwan, which also mandated local content requirements prohibitively high. As a result, several industry giants declined to temporarily participate in Taiwan’s offshore wind market, while some of those that did were forced to shelve projects after struggling to comply with requirements.

The local content disclosure will be the first in a series of milestone directions issued by Victoria.

Later this year the state will issue further clarity about how developers will receive revenues. Earlier this year it said it would implement a so-called contract of difference model, echoing a similar system used in the UK, in which the government guarantees developers an inflation-linked fixed price for 15 years.

But Australia’s offshore wind industry said Victoria will need to heed the lessons of the UK, which last Friday confirmed that no companies had submitted bids to develop the country’s next offshore wind projects after a spike in manufacturing costs left the offer from London uneconomical.

The lack of interest has stoked warnings that the UK’s aim of reaching 50GW of offshore wind by 2030 could be in jeopardy.

“I’m sure Victorian officials will be playing close attention to the events in the UK, and I hope they heed the lessons,” the industry executive said.

Victoria can ill-afford any false dawns. While it has huge interest, Australia is facing mounting global competition for offshore wind developments.

Australia is also facing a rapid shutdown of its ageing coal infrastructure. The Australian Energy Market Operator expects 60 per cent of the country’s coal power stations to close in the next decade, and offshore wind is widely seen as the only type of generation with the scale to be able to replace the loss of Australia’s traditional source of electricity.