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‘Australia’s energy sector is undergoing momentous legal change’: Part 1

The energy sector is reportedly set to be one of the biggest areas of growth in 2023. Here, four energy lawyers discuss what’s in store for the legal profession as the space continues to boom within the Australian economy.

user iconLauren Croft 19 January 2023 Big Law
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The energy sector is reportedly set to be one of the biggest areas of growth in 2023. Here, four energy lawyers discuss what’s in store for the legal profession as the space continues to boom within the Australian economy.

As businesses continue to place greater importance on environmental, social, and governance (ESG) considerations amid the climate crisis — and especially with new regulations passing Parliament in September last year — 2023 is set to be a massive year for the energy industry as organisations drive decarbonisation through implementing strategies to help reduce emissions.

These new developments, outlined by Gilbert + Tobin partners Adela Smith and Geoff Petersen, resulted in a big 2022 for the energy market, particularly within the renewable energy space.

 
 

“With the targets set by the Albanese government of cutting Australia’s greenhouse gas emissions by 43 per cent below 2005 levels by 2030 and sourcing 82 per cent of the country’s energy supply from renewable sources, both domestic and offshore developers, investors and financiers have put energy at the forefront of their books, and we anticipate that in 2023 we will continue to see certain trends continue,” the pair said.  

“In particular, we think that the industry will continue to consolidate through M&A activity with more large players entering the market, and that we will continue to see offshore funds taking a greater interest in Australia as projects ramp up and portfolios are consolidated. We also think that 2023 will see a re-focus on greenfield developments and many emerging technologies, such as offshore wind and hydrogen, continuing to develop and the storage market becoming more mainstream.”

Whilst the federal election result has meant that Australia’s energy transition will have more momentum moving forward, more bankable wind and solar projects, as well as green hydrogen, will aid in reducing organisations’ carbon footprint, Thomson Geer renewable energy and banking specialist Jae Lemin told Lawyers Weekly in October last year.

This year, offshore wind will be a key trend to look out for within the energy space, according to Thomson Geer partner Nicholas Antonas — who said that despite a potential global economic downturn, “energy and ESG are real bright spots of activity”.

“Despite its abundant offshore wind resources, to date, Australia has not had an offshore wind industry. The licensing round for Australia’s first declared area for offshore wind, off the coast of Gippsland, Victoria, kicks off in January 2023, ending late April 2023,” he explained.

“This has generated a lot of excitement and has seen the arrival to Australia of a number of pioneering developers and should be hotly contested and closely watched. The government has announced five other regions around the country that are to shortly follow.”

Herbert Smith Freehills partner and Australia head of energy Nick Baker echoed a similar sentiment and noted that the firm was seeing three main trends.

“First, private capital will continue to flood into the sector. For example, the Brookfield/Origin transaction where HSF is acting for Origin. As well as headline deals, private capital clients are accumulating pipelines of renewable projects via joint ventures and ‘platform’ deals. Second, more traditional energy clients will continue their transition journeys following a few years of consolidation (e.g., BHP/Woodside and Santos/Oil Search, each of which HSF acted on),” he said.

“We see these clients turning their extensive operational and engineering expertise to solving some of the trickier issues in the transition (e.g., hydrogen, remote power and low-carbon LNG). Finally, regulatory settings will continue to evolve. NSW, Victoria, Queensland and WA all announced major energy policies in 2022, and we expect to see these being operationalised over 2023 and beyond.”

The HSF Sydney office also made the switch to 100 per cent renewable energy in August last year, a move in line with the type of legal work the firm is increasingly doing.

“Multiple global issues are affecting the Australian energy sector and generating legal work. First, the transition of Australia’s energy systems continues to pick up pace and is driving M&A, project development, property, environment and planning, regulatory and project finance work.

“Second, the energy security issues experienced by Europe as a consequence of the Ukraine war underline the importance of resilience and are creating extra demand for Australian LNG exports.”

And this isn’t a trend that’s likely to slow down within the Australian legal profession, especially as new regulatory frameworks are introduced and experienced lawyers are increasingly needed to help clients navigate the growing energy sphere.  

“As the energy sector takes centre stage in the Australian economy, both in terms of project development activity and M&A, there will be an increasing demand for legal and commercial expertise in all aspects of energy — project development, regulation, financing and corporate activity and investment, as well as ESG. We have seen a rising demand for high-quality lawyers with relevant experience, particularly in emerging technologies in this country, such as offshore wind, hydrogen and storage, and only see this as growing,” Ms Smith and Mr Petersen added.

The emergence of these new technologies brings with it challenges and exciting opportunities for creative lawyers to structure transactions in new and unique ways to address the specific needs of these projects. There will continue to be a focus on building out transmission capability to allow renewables to come online efficiently without output constraints, and the development of the renewable energy zones (REZs) is a big part of that.

“To support procurement of renewable capacity and transmission upgrades, we expect to see additional major changes to energy regulatory frameworks. Our existing regulatory frameworks were largely designed for incremental augmentations to a largely stable system, rather than significant industry transformation. We have seen numerous regulatory changes and policy initiatives over the past year aimed at supporting more timely large-scale investment, and we expect this trend to continue.”

And moreover, Australia “will play a critical role in the worldwide energy transition”, emphasised Mr Antonas.

“After a long period of hesitancy, Australia is emerging as one of two or three key regions contributing to global decarbonisation. Consequently, Australia’s energy sector is undergoing momentous legal change. 

“[More] key recent developments include the introduction of a brand-new legal regime for offshore wind; reforms to the safeguard mechanism setting emissions baselines that reduce over time for over 200 facilities around the country, which can be offset by trading between facilities or acquiring carbon credits; and the introduction of trailing liability for offshore oil and gas decommissioning.

“The war in Ukraine has also made energy security a hot-button issue, resulting in the introduction of temporary caps on domestic gas and coal prices and the introduction of a long-term economic regulation of domestic gas prices. With all these changes, clients will be relying on energy lawyers to understand the impact on their business and the opportunities they might create.”

More to come.

Lauren Croft

Lauren Croft

Lauren is a journalist at Lawyers Weekly and graduated with a Bachelor of Journalism from Macleay College. Prior to joining Lawyers Weekly, she worked as a trade journalist for media and travel industry publications and Travel Weekly. Originally born in England, Lauren enjoys trying new bars and restaurants, attending music festivals and travelling. She is also a keen snowboarder and pre-pandemic, spent a season living in a French ski resort.