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Renewables are ‘here to stay’ in law

Sustainable energy sources – and renewable energy especially – are a massive area of growth within the legal profession. Not all firms and investors are currently on board, but the sector is only predicted to continue growing. As one partner puts it: “It doesn’t matter whether you embrace it or not. It’s here to stay.”

user iconLauren Croft 26 July 2023 Big Law
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In 2023 – and amid the climate crisis – businesses are continuing to place greater importance on environmental, social and governance (ESG) considerations, paving the way for areas like renewable energy to continue to expand.

With renewable energy and ESG now being issues that sit firmly in boardrooms and C-suites – and climate-conscious lawyering growing in popularity, 2023 is reportedly set to be a massive year for the energy industry as organisations drive decarbonisation through implementing strategies to help reduce emissions.

The Australian government’s goal to generate 50 per cent of electricity from renewable sources by 2030 also provides a stable and supportive regulatory environment for the renewables space, which has expanded rapidly in recent years and will reportedly continue to – which has resulted in domestic and offshore developers, investors and financiers have put energy at the forefront of their books.


A growing sector of law

Increased investment is expected within the renewable energy space within the next two years, as revealed in a recent report from MinterEllison and Mergermarket: Australian Renewables Report 2023.

According to the report, 91 per cent of investors expect investment from the Asia-Pacific region to increase in the next 12 to 24 months, with both domestic and international investors remaining positive about the outlook for renewable energy investment in Australia.

“Australia’s renewable energy sector is attracting substantial interest from a wide variety of interested parties, from strategic investors, ESG-focused funds, OEMs and traditional energy providers looking for transitional assets,” MinterEllison partner Andrea Frank said.

“Competition for assets which have supply arrangements and a grid connection secured have no shortage of interest.”

This emerging area of law is also likely to be here for the long haul, Holding Redlich partner Ron Eames told Lawyers Weekly.

“The renewables space is undeniably an emerging and important area in Australia. While we are still growing our breadth of experience in renewables, lawyers who work in this space have a good understanding of the industry, and there’s not much of a divergence of views about approach (for example, what needs to be accommodated in tenure and related documents and the reasons). What is encouraging is that we (lawyers) can have collaborative conversations because we all appreciate the challenges and opportunities this space presents,” Mr Eames said.

“My involvement in renewables is driven both by necessity and by a sense of responsibility and vision for the future. It’s a new area that will be here for the foreseeable future, and we, as lawyers, have an important role to play. An important element for me personally is problem-solving. It is not always black letter law, which makes it so rewarding.”

The firm’s experience in renewables covers all aspects of the acquisition, development and delivery of renewable projects, including the planning, procurement, financing, construction, supply, offtake, asset acquisition and all commercial and regulatory issues.

Mr Eames’ practice also includes a number of other areas, such as capital transactions and development, with renewables taking up about a third of his team’s time.

“I have seven people in my team, and about 30 per cent of our time is spent on renewables, maybe a little more. And that is from a standing start, maybe four and a half, five years ago. So that’s how quickly the industry has developed, and I can see it continuing to increase over the foreseeable future. In addition to my team, we also have the construction, planning and environment and the corporate and commercial groups within the firm that make up our renewables practice. So from the firm’s perspective, it is a great area to be involved in because it provides interesting work for a broad cross-section of the firm,” he said.

“I have a young team, and it’s admirable because their excitement and dedication to the work they do reflects a growing awareness and commitment to making a positive impact on their future.”

“We also work with other practice groups, and it’s a fairly collegial group of people. We often also find that we have two or three law firms working on the same project for the same proponents. And we seem to get on really well, it’s good for all of us.”

This is something Thomson Geer renewable energy and banking specialist Jae Lemin confirmed late last year – and told Lawyers Weekly that while renewable energy has historically been a space that has attracted collaboration, this will remain important moving forward.

“I think the collaboration aspect attracts a lot of lawyers to renewable and clean energy – it was not that long ago that those working in the sector were considered ‘outliers’,” he said.

“The main challenge is the size of the task ahead and the fact that ESG has become so pervasive in the overall conversation – ESG now really needs to be taken into account in almost any decision that a business makes.”

Key renewables projects being built across the country

Amid the rise of the clean energy space and ESG issues increasingly making their way into boardrooms, an increase in offshore wind projects, along with wind and solar projects and green hydrogen, will reportedly aid in reducing organisations’ carbon footprint.

Key renewables projects in the pipeline across Australia include the Walcha Energy Project in NSW, a one-gigawatt pumped hydro system at Borumba Dam in South-East Queensland, the Liverpool Range Wind Farm in NSW, which is expected to install 260 wind turbines with a power output of 979 megawatts, and upgrading the Tarraleah hydro scheme in Tasmania to support up to 220-megawatt peak capacity and five-gigawatt hours of stored energy, among others. There have also been a number of notable deals related to offshore wind projects and renewable energy this year alone, including the BOWE project, the sale of WIRSOL Energy and the acquisition of Warrego Energy for $440 million.

And in April this year, Herbert Smith Freehills advised lenders on the development and project financing of the 200-megawatt/400-megawatt hour Rangebank battery energy storage systems (BESS) located in Cranbourne West, Melbourne.

This followed similar deals, such as the Waratah Super Battery Project, Vena Energy’s large-scale BESS in Queensland and the development of the largest approved utility-scale grid-forming battery in Australia, among many other movements and developments in the clean energy and battery spaces.

Speaking to Lawyers Weekly following the deal, lead HSF partner on the Rangebank BESS transaction, Elizabeth Charlesworth, said that over the last year, she has seen an increased level of market activity on decarbonisation-driven projects, with an “ever-increasing size and scale of the clean energy and battery projects coming to market”.

“Looking back five years, there hadn’t been any commercially project-financed battery projects in Australia, but there are a number of battery projects [that] we expect will reach financial close in the coming year – hopefully including some of the eight big ‘grid forming’ batteries backed by ARENA (all 200MW or larger),” she explained.

“We are also seeing clients seeking to couple solar farms with batteries, and we expect this to continue as part of the evolution of these technologies.”

Queensland also houses a number of pump hydro projects, some of which the government is “actively developing”, according to Mr Eames.

“The government owns the dams, so it’s logical for them to develop those projects from inception. What would be beneficial to the industry is a greater dialogue between the government (at all levels) and the private sector proponents. It would provide a more structured road map. The state governments, through the establishment of the renewable energy zones, have contributed significantly to this. I would like to see more involvement at a federal level, particularly in relation to foreign investment.

“Whilst we tend to look at the renewables sector in terms of electricity and hydrogen, it is also important not to overlook the mining and resources sector. Australia is a resource-rich nation, and this sector has provided a cushion on a number of occasions to the impact of a global economic downturn. For the renewable sector, it means the availability of minerals like cobalt and lithium for batteries and other components. We also have significant deposits of rare earth minerals that are important for components in the industry,” he explained.

“And for those who are critical of the coal mining sector, I would say that it is and will for some time remain an important component in the energy equation. We still require thermal coal for power generation and will for the medium term, and metallurgical coal has a long-term future for the components in both the solar and wind generation facilities. Australia and Queensland, in particular, have some of the best deposits of both thermal and metallurgical coal globally.”

However, Gilbert + Tobin partner Michael Blakiston – who spoke about decarbonisation and clean energy on The Lawyers Weekly Show in 2021 – said that the rise of these types of projects in Australia comes with their own sets of challenges.

“Decarbonisation and clean energy require the generation of electrons, be they generated from green energy (wind and solar) or blue energy (gas). Those electrons then need to be put through an electrolyser, which effectively breaks the hydrogen away from water. This process is one where there is proven technology, but not of the scale which is now envisaged. Projects are now focusing on multibillion-dollar expenditures, which need to be built in order to generate the amount of hydrogen needed to replace existing energy sources,” he explained.

“In the case of batteries, the issue here is that Australia has large deposits of lithium and, although present, lesser deposits of copper, nickel, zinc, cobalt graphite and vanadium, to name a few. In order to capture the value chain associated with the downstream processing of these minerals into materials which are the components for battery construction. This processing requires a complex chemical plant with all of its inherent complexities.”

There are also a number of regulatory, commercial and technical requirements that underpin renewable projects, including development issues (such as permits, planning and interconnection matters), construction, bankability and financial incentives available to projects.

“In many cases, renewable energy projects are developed in regional areas, and some of the lawyers and other professionals involved for land owners, local authorities and other stakeholders have not had a lot of exposure to the fairly unique legal requirements of these sorts of projects. There should be an alignment of interest, but finding that alignment is not always straightforward. You may have, for example, three or four landowners with different lawyers acting for them. Each landowner may have a financier who, again, will have a different lawyer. The local authority will also have a lawyer. So, finding common ground takes time,” Mr Eames added.

“The income that a landowner might receive from a renewable energy project will often be considerably higher and more stable compared to a farm income because farming involves seasonal risks dependent on weather conditions. Renewable energy projects provide a consistent and reliable income year after year, with minimal risks. Despite this advantage, some landowner financiers will view the property as a rural undertaking. They will look to protect their security interests, as lenders to rural properties, whereas the income from the rural property might be significantly less than the income they will derive from a renewable energy project. Educating stakeholders can be challenging for the proponents and their lawyers.”

Investment activity within renewables set to increase

The Holding Redlich team acts both nationally and internationally for principals, developers, contractors, facilities managers, consultants and other industry participants. Understanding clients’ objectives within the broader commercial and political context of their operations is a priority. This insight enables the design and implementation of tailored, practical and cost-effective strategies.

“Many clients investing in this space are from the northern hemisphere and include pension funds and other well-known renewable energy generators. I do find it a bit disappointing that our own superannuation funds, at present, tend not to be significant investors in the renewable space. That’s not to say that they don’t invest, they do, but often when the project is underway and somewhat de-risked,” Mr Eames opined.

“If you’re investing in a project at its inception, the buy-in cost should be significantly less than a buy-in cost for a project that has been de-risked. While I understand that some superannuation funds may have a lower risk appetite, I still believe it would be beneficial to see at least a portion of our superannuation money being invested in the renewable sector.”

Additionally, an increase in offshore wind projects and related legal transactions in recent years means that regulatory concerns and legal work is set to increase, Clifford Chance partner Nadia Kalic, who specialises in projects in the energy and infrastructure sectors, told Lawyers Weekly recently.

This comes with an uptick in investment activity, which Ms Kalic said follows recent regulatory developments in Australia – including Australia’s national regulatory framework for offshore energy coming into effect in June 2022, the Bass Strait off Gippsland in Victoria being declared as Australia’s first offshore wind zone in December 2022, and “invitations for proponents to apply for feasibility licenses in the Gippsland declared area opening on 23 January 2023 and closing on 27 April 2023”.

“The government has earmarked a number of other potential offshore wind zones, including one in the Hunter region near Newcastle in NSW, so we expect this will continue to be an area of focus,” Ms Kalic outlined.

“In addition, we have seen states and territories set ambitious renewable energy targets to facilitate investment, including (relevantly in the context of Gippsland) the Victorian government announcing targets to bring online two gigawatts of offshore wind capacity by 2032, four gigawatts of capacity by 2035 and nine gigawatts of capacity by 2040.”

Recent renewable energy investments in Australia also yielded the intended value from the deal or met the business objectives of 65 per cent of investors, as noted in the MinterEllison Australian Renewables Report 2023. According to the report, almost three-quarters (74 per cent) of global and domestic investors will increase investments in Australian renewables through 2023 – a noticeable uptick from 2021 (65 per cent) and 2019 (68 per cent).

‘Catching up’ with the rest of the world

Australia’s electricity supply chain is currently undergoing a radical shift, as renewable energy sources take up more of the electricity mix. As such, Holding Redlich predicts that in the coming years, the wider electricity supply chain will undergo a massive shift as renewables become more common and investment in solar, wind, hydro and battery storage increases.

“Whatever your view of renewables, the industry is here to stay. Governments at all levels are firmly committed to supporting and promoting renewable energy projects, so it is worth taking the time to educate stakeholders about the unique requirements for each project so that the journey ahead can be easier,” Mr Eames added.

“Over the coming years and beyond, the development phase of renewable projects will undoubtedly forge ahead, leading to a rationalisation phase where the proponents will either sell down or sell out to longer-term investors. These projects are made for superannuation funds and pension funds seeking a long-term investment with steady revenue. Considering the life of one of these projects is 30 years plus, it presents an attractive prospect for a pension or super fund to invest capital on day one and hopefully generate revenue for 30 years or more.”

Australia is also still “catching up” in terms of the renewables space and project development across the country, meaning that the rapid expansion of the renewables space will only continue moving forward.

“As this occurs, more firms will likely begin to appreciate the opportunities. Many regional firms acting for the landowner families will also benefit from this shift. Although the development and financing phases may predominantly attract city firms, there still remains a considerable amount of work for regional firms to engage and thrive,” Mr Eames added.

“We are, however, building momentum, and there is a good level of enthusiasm. The future is looking good.”

This is a sentiment the MinterEllison Australian Renewables Report 2023 echoed, with merger and acquisition predicted to continue to be a key driver of renewables and representative of a strong market.

“The M&A landscape for Australian renewables is strong, buoyed by the announcement of renewable energy targets, the scheduled shutdown of coal-fired generators and a supportive federal government policy environment,” said Andrea Frank, partner, MinterEllison

Further, Mr Eames said he thinks the space will continue to grow and grow as it continues to feed into a vast variety of legal practice areas and is “absolutely” the way forward.

“It’s an absolute growth area for all of us. And if you are not acting for project proponents, you will be acting for landowners, financiers, and etc. It’s like any other area of the law. As a lawyer, we all should look at it as a part of our future,” he concluded.

“It doesn’t matter whether you embrace it or not. It’s here to stay.”

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