Thought leadership from our experts

Bright skies and a favourable tail wind for large scale renewable energy in Australia has construction lawyers excited

For the last decade, the resources boom in Australia had helped keep many construction lawyers here extremely busy documenting (and litigating and arbitrating about!) the vast amount of mine (especially iron ore and coal) and oil and gas infrastructure that was being constructed across the country and off its shores. When that boom came to a rather sudden halt recently, it prompted real fears as to where the work would come from to replace what had been such a healthy and lucrative practice area.

Thankfully, some of the slack created has been filled by those of the state governments, like those of New South Wales and Victoria, which have sold off former government assets like electricity companies and ports to pay down debt and created a war chest for spending on new infrastructure, especially in the roads and public transport sectors. However, other states like Queensland, whose new Labor government road to power on firm commitments not to sell public sector assets, are struggling under mountains of debt and finding it hard to kick start new private sector involvement in projects.

But the really exciting development at the moment has been in the area of renewable energy, quite surprisingly, as until very recently, political uncertainty about Australia's Renewable Energy Target, or RET, had led to the almost complete disappearance of enthusiasm of energy companies to offer power purchase agreements, and of banks to provide loans, for large scale renewable energy projects. Countless numbers of wind and solar projects were mooted over the last 5 years, but never found the finance to proceed.

In contrast, small scale (roof top) solar has succeeded spectacularly in Australia in recent years, giving it one of the highest penetration rates for that technology in the world (it IS sunny down under!)- for example, in 2015 there was total investment in small scale renewable energy in Australia of A$2.17 billion, which was a billion dollars more than the investment in large-scale renewable energy that year! Unfortunately for lawyers, the documentation task for small scale projects is much less complex and therefore lucrative than for large scale!

However, with the setting of a reduced but finally committed RET figure by the Australian Federal Government, and revamped commitments by a number of State and Territory governments to their own quite ambitious targets in the space, suddenly large-scale wind and especially solar energy projects have become the projects 'de jour', as governments and the industry rush to construct the large number (between 30 and 50) of new plants required by 2020 to ensure the RET of an additional 33000 gigawatt hours is met.

Investment in the sector is expected to double in 2016 by comparison to 2015. And by 2020 it is expected there will be new investment of around A$10 billion. Of the pipeline of new projects known to our firm, almost half (7205 MW) of an expected 15,242 MW of new wind projects are slated for the state of NSW. In relation to solar projects, the sunny state of Queensland dominates, with 2480MW of projects slated from a national total of 2626MW.

Helping to really kick start the newly revitalised sector are the 12 recently announced projects chosen as part of the Australian Renewable Energy Agency's (ARENA) A$100 million dollar large-scale solar funding round. Six plants in Queensland, five plants in New South Wales and one plant in Western Australia are slated for funding, in a major milestone that's expected to triple Australia's large-scale solar capacity from 240 MW to 720 MW. Our firm has secured roles for the developers of seven of these projects.

They will provide enough energy to power 150,000 average Australian homes and deliver one tenth of the new capacity required to meet Australia's 2020 RET. Regional economies are expected to benefit massively from the growing big solar industry, with 2,300 direct jobs and thousands more indirect jobs expected to be created.

As well, following the lead of the Australian Capital Territory government's recent very successful wind and solar reverse auction processes, the state of Victoria, having recently committed to its own renewable energy targets of 25% by the year 2020 and 40% by 2025, has just announced a series of staged reverse auctions will be held out to 2025 to bid off capacity against these targets. The majority of auctions are proposed to be technology neutral, with wind expected to dominate, but some will be reserved for large-scale solar. Developers will bid for long term power purchase agreements, proposed to be contracts for difference, fixing the price for generation for between 10 and 20 years. This coincides with the planned closure of the state's large, cheap but carbon heavy brown coal fired power plants in the Latrobe Valley.

In Queensland, the government has announced its 'Solar120' program, with an auction of 120MW worth of solar projects to be conducted aimed at driving significant growth in renewable energy investment in that state.

The renaissance of the sector in Australia is seeing many new overseas players- both developers and suppliers- especially from Asia and Europe, but also from North America, enter (or re-enter) the Australian market, providing a rich new seam of clients for local lawyers, and other advisers.

Whilst documenting this new tidal wave of projects will keep plenty of finance and specialist energy lawyers busy, there will be much for construction lawyers to do too, as the detailed terms of engineering, procurement and construction (EPC) contracts, supply contracts for the wind farm's rotors, solar array components and other equipment required, grid connection agreements and operation and maintenance contracts are nutted out. Real estate lawyers too benefit from the new wave of projects, as licence, lease and access arrangements between land owners and project developers require careful negotiation and documentation.

All in all, there is great excitement in the renewables industry and among the lawyers who service it about the frantic levels of activity now expected over at least the next 5 years!