The long awaited Offshore Renewable Energy Bill ("ORE Bill") was introduced to Parliament last week following public consultation on the proposed regime undertaken in 2022 and 2023. Yesterday (17 December 2024), the ORE Bill passed its first reading with support across the House and was referred to the Transport and Infrastructure Committee for public consultation. Public submissions on the ORE Bill are open and will close on 6 February 2025. You can make your submission on the Parliament website here.
The ORE Bill introduces a bespoke legislative regime for offshore wind and other renewable energy ("ORE") developments in New Zealand, that aims to:
- provide greater certainty for developers to invest in New Zealand ORE projects;
- enable the selection of ORE developments that best meet New Zealand's interests; and
- ensure that risks to the Crown and New Zealand from ORE projects are managed.
The ORE Bill provides no great surprises and largely reflects policy decisions previously announced by the Government, including in the Government's Offshore Renewable Energy Regulatory Regime: Policy Decisions Cabinet Paper released in August. See our previous Energy Blog articles here, and here for further discussion on the policy development process.
We have summarised the key areas of the ORE Bill below – including the permitting regime, permit round processes, (absence of) price support mechanisms, safety zones and decommissioning obligations. We have also noted some key considerations on the design of the regime, including comparisons with the Australian regime and opportunities for developers.
Summary of the key elements of the proposed regime
Two ORE permits alongside existing environmental consents
The ORE Bill provides for two classes of permits for ORE developments, which will operate alongside the existing environmental consenting regime:
Feasibility permits
- Feasibility permits will provide the holder with exclusive rights over an area to conduct feasibility studies for seven years (or longer if the Minister for Energy ("Minister") grants an extension), with a right to apply for a commercial permit and resource or marine consents for ORE generation activities in that area.
- The feasibility permit eligibility process will consider whether a project will deliver benefits to New Zealand and whether an applicant has the technical and financial capability to install, operate, maintain and decommission the proposed infrastructure.
- Feasibility permits will be subject to 'use it or lose it' requirements, including requirements that feasibility activities commence within 12 months of the permit commencing.
- If the milestones set in the project's development plan (submitted in the application for a feasibility permit) are not met, or if the permit holder fails to comply with, or no longer meets, requirements of permit holders prescribed by the ORE Act (if passed), then the feasibility permit can be revoked. Non-compliance with development plan milestones may be permissible if compliance should be reasonably excused. The Minister must also take into account various factors when deciding whether to revoke a permit, including the surrounding circumstances, mitigating actions by the permit holder, and the impact of revocation on the permit holder and New Zealand's energy system.
- Permit holders will be required to disclose the data from their ORE feasibility activities to the chief executive of the Ministry by the end date of their feasibility permit and provide reports or any information requested by the Minister, chief executive of the Ministry, or an enforcement officer.
Commercial permits
- Commercial permits will allow the holder to give effect to resource or marine consents for ORE generation infrastructure activities and begin construction within the area covered by the feasibility permit. The commercial permit assessment is intended to provide a 'final check' regarding the applicant's technical and financial capability and whether there have been any changes to the proposed development that are material to the benefits assessed at the feasibility permit stage.
- Commercial permits have a 40-year duration, but can be revoked if the permit holder has failed to begin ORE generation infrastructure activities within a "reasonable time" following the permit start date (however, the Minister must, before making a decision on revocation, take into account the same factors as would be taken into account on a revocation of a feasibility permit, including if compliance should reasonably be excused).
The ORE Bill does not prevent other non-ORE-related authorised activities from being undertaken within the permit area, such as mining, aquaculture and fisheries (discussed further in our observations below).
Resource or marine consents related to ORE generation infrastructure activities will be automatically cancelled if, and when, the commercial permit either expires, is revoked or surrendered.
Eligibility requirements for permit rounds
The Government continues to target the first feasibility permit round commencing by late 2025.[1] The ORE Bill provides that feasibility permit applications rounds will be launched by the responsible Minister, who will give public notice specifying:
- the geographic area(s) available for application, which may be in any area within the territorial sea and the exclusive economic zone around the whole of New Zealand;
- any limitations the applications are subject to, such as technology type and generation capacity; and
- any other terms for the application round, including consultation processes.
The ORE Bill requires applicants to submit their application for a proposed feasibility permit area that is a "reasonable size" for their proposed ORE generation infrastructure and be accompanied with a development plan (that meets the requirements to be prescribed in regulations) in support of the application. Feasibility permits can be issued by the Minister if the prescribed eligibility requirements are met. The Minister will undertake a merit-based assessment of the project and applicant, taking into account considerations such as the applicant's compliance record internationally and the applicant's approach to managing existing rights and interests in the proposed permit area.
In respect of competing permit applications for overlapping areas, the Minister may:
- award the permit to the application with the most merit; or
- invite any of the applicants to revise the proposed permit area to resolve the competition for the same permit area.
The eligibility requirements for feasibility permits stipulate that:
- applicants must have consulted with relevant Māori iwi groups prior to applying for a permit;
- applicants must be a single entity that is a body corporate incorporated in New Zealand or an overseas company registered under the Companies Act 1993;
- applicants must not have applied for another permit for the same type of technology in the same region;
- applicants must have (or be likely to have) the technical and financial capability to install, operate, maintain, and decommission the proposed ORE generation infrastructure;
- applicants must be highly likely to comply, on an ongoing basis, with legislative and regulatory requirements (the Minister will take into account their compliance record in New Zealand and internationally);
- the proposed development is likely to deliver benefits for New Zealand;
- no other current feasibility or commercial permit exists in respect of the proposed permit area; and
- the proposed development plan is consistent with the purposes of the proposed permit, the Act (if passed), and good industry practice in respect of the proposed ORE generation activities.
No inclusion of price support in the ORE Bill
As anticipated in our previous article, the ORE Bill does not provide any mechanism for price support. While many offshore wind regimes internationally have provided for price support mechanisms such as contracts for difference, New Zealand's approach is consistent with the lack of price support for onshore renewable energy generation in New Zealand and New Zealand's market-based electricity model more generally. No new information has been provided by the Government with the ORE Bill regarding price support.
Permit holders can apply for Safety Zones
Consistent with the Government's August policy decisions, safety zones can be declared by the Minister under the ORE Bill's process for an area of up to 500 metres (being the maximum allowed under the United Nations Convention on the Law of the Sea) from ORE generation infrastructure or ORE substations. Developers may apply for the declaration of a safety zone concurrently with the commercial permit application. To apply, the applicant must hold any relevant marine consent or resource consent required for the development and have undertaken the required consultation with Maritime New Zealand and persons likely to be affected by the proposed safety zone.
The safety zone will be for a specified area and time period, and may provide for a restriction that includes:
- prohibiting ships (as defined under the Maritime Transport Act 1994) from entering the restricted area during the restricted period; or
- prohibiting or limiting the activities undertaken in the restricted area during the restricted time period.
The Government intends to follow the United Kingdom's use of dynamic safety zones, with the expectation being that safety zones will be variable over the life of a project (for example, being larger zones during construction and smaller during operation), which is reflective of the risks to other marine users during the stages of a project's lifecycle.
To grant a safety zone, the Minister must be satisfied that a safety zone is necessary for the safety of the ORE infrastructure and/or ORE infrastructure activities, any other infrastructure, structure, or installation in the vicinity of the ORE infrastructure, ships, or persons.
Transfers and changes of shareholdings
Any transfer of a permit will require the approval of the Minister. In addition, there is a separate requirement for the Minister to approve a change in significant influence over the permit holder. "Significant influence over a permit holder" includes where one person has the power directly or indirectly to control the composition of more than 25% of the governing body of the permit holder or can exercise or control the exercise of more than 25% of the voting rights in the permit holder.
For the purposes of any decision to approve a permit transfer or a change in significant influence, the Minister will consider whether the permit holder would continue to meet the permit holder suitability requirements, as well as national security and public order considerations and any other considerations prescribed by regulations.
Decommissioning plan to be required on application for a permit
The ORE Bill also addresses the participants' end-of-life responsibilities for decommissioning ORE generation infrastructure. Commercial permit holders will be required to carry out, and meet the costs of, the decommissioning of all ORE generation infrastructure attributable to the ORE generation activities under the permit. Owners of ORE transmission infrastructure (including the onshore and offshore sections of relevant cables, pipelines, and ORE substations) will also hold similar decommissioning obligations in respect of transmission infrastructure. We also note that an applicant's technical and financial ability to decommission is assessed at the feasibility stage, despite the decommissioning obligation arising only for commercial permit holders.
Applicants must submit a decommissioning proposal with its commercial permit application that covers:
- the proposed decommissioning activities and processes with a schedule for those activities; and
- a cost estimate for decommissioning, which must estimate the cost to the Crown if the Crown carries out all proposed decommissioning activities specified in the decommissioning proposal.
Before the commercial permit is granted, and following consideration of the applicant's decommissioning proposal, the Minister will determine the acceptable financial security arrangements to be put in place and maintained by the permit holders, including in respect of the nature of the security required and when the security must be in place. A similar process to implement acceptable financial security arrangements applies to owners of ORE transmission infrastructure.
For a commercial permit holder that transfers its permit to an approved transferee, the decommissioning obligations will apply to the transferee following completion of a transfer approved by the Minister. The transferor can then apply to the Minister to remove its decommissioning obligations – such removal must be approved if the Minister is satisfied that the transferee has put in place financial security arrangements that has secured at least 100% of the determined decommissioning cost estimate.
The decommissioning obligations continue even after the commercial permit expires, is revoked or surrendered - the obligation to maintain the financial security arrangements continues for the same period.
Key observations for the regime
We share our observations of the proposed regime:
- Permitting regime works alongside existing environmental legislation: The ORE Bill provides a bespoke permitting regime that works alongside existing environmental legislation including the Resource Management Act 1991 ("RMA") and the Exclusive Economic Zone and Continental Shelf (Environmental Effects) Act 2012 ("EEZ Act"). As part of the ongoing RMA reform, there is potential for amendments to the consenting regimes to support and enable ORE projects and provide improved integration of EEZ Act and RMA approvals. Amendments may also be made to the Fast-track Approvals Act 2024 to allow ORE Infrastructure projects to be eligible for fast-track consenting (once this regime for ORE projects passes). Watch this space.
- Similarities to Australia's regime: While still subject to the law reform process, the ORE Bill reflects a proactive approach to enabling and managing ORE development, which is largely comparable to the Australian regime introduced in 2021. Key similarities to the Australian regime include the two-step permitting model, and many of the eligibility requirements for seven‑year feasibility permits and 40-year commercial permits (known as feasibility and commercial licences in Australia). The period for feasibility permits is not too dissimilar to the 10 years available in the United Kingdom. We note below a key difference from the Australian regime.
- A largely developer-led approach within Government-initiated application rounds: New Zealand's approach is largely developer-led with the onus on developers to identify and propose suitable sites for ORE infrastructure. The Regulatory Impact Statement for the ORE Bill ("RIS") discounted a government-led approach, as the Government undertaking a spatial planning exercise (and other early feasibility activities) to identify the development space would delay getting a regime in place to enable timely development. A developer-led approach was preferred in New Zealand since it would allow timely implementation of the ORE regime.[2] For comparison, the Australian Government is responsible for identifying suitable sites and inviting applications for those sites, and in the United Kingdom, the Government proposes broad areas for development, conducts preliminary analysis of specific sites, and grants leases to developers for more fulsome investigations of those sites.
The ORE Bill does, however, provide that the Government is responsible for initiating feasibility application rounds and setting limits on the round where appropriate (e.g. related to generation capacity, spatial area, or technology type).[3] As currently drafted, developers are only permitted to submit applications during a Government-initiated application round. This aligns New Zealand with Australia and the United Kingdom where application rounds are Government-initiated, but contrasts with jurisdictions with open-door application processes such as Denmark. Therefore, developers' ability to assess and select suitable ORE sites will need to be within Government application round timelines and any set limits. This will require developers to efficiently plan resource and investment decisions in response to these timelines. The Government considered the application round option preferable as it avoids the risk of open-door applications of "poor quality applications and a reactive environment, where competing applicants are ’put on the clock’ to lodge an application".[4]
- Reasonable project size, rather than maximum limit: One key difference from the Australian regime is the maximum size of a project – in Australia, the maximum area for feasibility and commercial licences is 700 km2,[5] but in New Zealand the ORE Bill does not prescribe a maximum area. Rather, it must be "a reasonable size for the proposed ORE generation infrastructure", with the Government proposing that guidance will be released to support the application process that, according to the RIS, will state that "permit applications should be within 250 square kilometre contiguous blocks to accommodate projects between 500MW and 1GW" (to align with the Government's current understanding of New Zealand’s expected electricity system needs). Decision-makers would be able to deviate from this guidance "where there is a clear case to do so".[6] More detail on maximum size of projects may be released in the Government's proposed guidance or be included in the terms of feasibility permit application rounds.
- Issues with competing users: There may be a risk to ORE projects proceeding if competing uses in the permit area are permitted to co-exist. However, since some of these competing uses are or will be regulated by the Crown, the Crown may seek to resolve competing uses through strategic planning in the marine environment. Alternatively, the Crown may leave it to the market to resolve any such issues. Accordingly, it would be important for developers to form a view as to the likelihood of competing uses proceeding within the developer's proposed feasibility permit area and the impact of those on the developer's proposed ORE project. Safety zones (as discussed above) of up to 500 metres from the ORE infrastructure may also provide some protection against other non-ORE related authorised activities – although these will not be available during the feasibility permit period but may be granted alongside a commercial permit.
- Commercial project drivers where no Government support: Unlike Australia, the New Zealand Government is not proposing to offer price support measures such as contracts for difference, feed-in tariffs or floating premiums. Accordingly, the commercialisation of any ORE project will depend on the project securing the offtake arrangements (such as long‑term power purchase agreements with corporate or industrial users of electricity) required by the relevant debt and equity providers of capital to the project.
- Proactive consultation by developers: To best be ready for the first feasibility permit application round in 2025, motivated developers could start taking first steps to meet the eligibility requirements, including by commencing its pre‑application consultation with relevant iwi groups that meets the requirements proposed by the ORE Bill.
- Permit transfer restrictions additional to CMA requirements: The inclusion of national security and public order considerations in the Ministerial approval process for transfers and changes in significant influence in relations to permits introduces an additional internal assessment that does not exist under the Crown Minerals Act 1991 ("CMA") permit transfer regime. This creates potential overlap with the Overseas Investment Office ("OIO") approval process under the Overseas Investment Act 2005, which already assesses national security and public order risks in certain cases (for example where an overseas investor invests in electricity generation) and automatically imposes a condition in this regard that the consent holder must not act with an intention of adversely affecting national security or public order. This duplication of considerations could result in unnecessary regulatory burden and complexity for investors. To address this, the Government could align the two regimes or ensure coordination between the relevant Minsters and the OIO, to streamline the process and avoid redundancy.
- No trailing liability for decommissioning: While the ORE Bill shares similarities with the CMA approach to decommissioning, it does not include trailing liability which is a feature of the CMA approach. The Government's purpose behind this divergence is to incentivise investment in ORE. The absence of trailing liability may provide investors with reassurance that they can achieve a clean break on sale. The Government is otherwise of the view that the approach to decommissioning and financial security in the ORE Bill aligns with approaches taken by international jurisdictions, as well as New Zealand's petroleum sector.
The public submission process offers prospective ORE stakeholders an opportunity to engage with the design of the regime. If you would like to discuss the implications of the ORE Bill or would like assistance with your submission, please get in touch with one of our experts below.