Victoria delays Australia’s first offshore wind tender due to funding, infrastructure uncertainty

The nascent offshore wind industry in Australia has suffered another setback, with the state of Victoria announcing it is delaying its landmark first tender for the technology.

The delay was announced on Tuesday morning at an industry forum in Melbourne, with state energy minister Lily D’Ambrosio putting the blame partly on the federal government for not fully committing to the industry.

Victoria had hoped to have all of the infrastructure and funding pieces in place by September when the first tender was due to be unveiled, D’Ambrosio said, but she promised to have an update on a new timeline by the end of the year. 

“I am disappointed to announce that Victoria will be delaying the formal procurement process for our first offshore wind auction,” D’Ambrosio told an industry forum in Melbourne today. 

“For some context for the delay, we lost about 12 months from our original timelines because of delays that are outside our control as a state, including in issuing feasibility licenses and finalising regulations, and as a result of the original rejection of the Port of Hastings EPBC referral. 

“In addition to that, we are very conscious of changes in the international market and supply chains that need to be factored into our planning.” 

The state and federal governments have also not been able to agree on how to share funding for the upcoming auction.

D’Ambrosio told Renew Economy that joint funding for the auction of a contract-for-difference (CfD) and an availability payment had been the state’s public preference for 18 months. 

“We believe that offshore wind needs to have both levels of government involved in the funding,” she said.  

“When you look globally at every offshore wind energy project, every offshore wind energy project has had a national government funding arrangement in the auctions. 

“These are very complex projects to get up and we continue to have our discussions with the Commonwealth.”

But adding funding and infrastructure uncertainty was a step too far for nervous developers, which are looking at costs rising around the world.

The cost of building Australia’s first offshore wind projects is big: The latest CSIRO GenCost report put it at nearly twice the cost of onshore wind, at around $4,600/kW for a fixed-bottom project. 

Similar auctions around the world are failing over due to the ever rising cost of construction, with the Netherlands and Germany now on a grim list of auction failures that began with the UK and Denmark.

D’Ambrosio told Renew Economy that the delays to the state’s preferred port were a problem for developers. 

The Port of Hastings’ first proposal was rejected by the federal environment minister last year, but substantially modified plans were approved this year. 

D’Ambrosio says developers wanted certainty on which port they should factor into their costs for the upcoming auction, as well as it’s makeup. 

“There are a number of options for ports, and that is important to those proponents to develop up their costings, arrangements, travel times between where the port might be to collect material, to receive materials, but also where the lay down areas are, construction, assembly,” she said.

“More information around that would allow them to refine the bids.”

Commonwealth must step up

D’Ambrosio was adamant the delay should not reflect on the state’s commitment to its offshore wind strategy, which through legislated targets is anticipated to make up as much as half of the state’s energy needs in future. 

But she did put more pressure on the federal government to come to the party, listing the big funding packages already given to other states for other energy technologies.

She highlighted the $1 billion for the Solar Sunshot program, $4 billion for the Hydrogen Headstart scheme “that mainly benefited Queensland” which the LNP government has largely walked away from, and $2.4 billion to bail out the Whyalla Steel works in South Australia. 

“I continue to be optimistic about the possibilities of a national partnership… achieving a joint funding agreement is the central dilemma for the government,” she told the industry forum.

“The Commonwealth has a critical and large role to play, and it needs to be more than has been delivered to date.”

This is not the first time D’Ambrosio has publicly niggled the federal government for not getting more deeply behind the offshore wind sector.

In June, she called on the Commonwealth to “lean in” and provide real support rather than push paperwork. 

The decision comes as the federal government unveiled expected changes to offshore wind fees to make Australia more attractive as an investment location. 

Application fees for research and demonstration licences will be cut from $300,000 to just $20,000, and application fees for transmission and infrastructure licences will be halved from $300,000 to $150,000.

Red tape will also be reduced with simpler financial and reporting requirements, and lower capital requirements.

The delay has disappointed one developer with Southerly Ten, the company behind the Star of the South project, saying it doesn’t change the fact that offshore wind will be essential. 

“With 90 percent of coal-fired capacity forecast to retire by 2035, offshore wind energy is needed to ensure energy security, price stability and a pathway to net zero,” a statement from the company said. 

“A successful first project in Gippsland won’t just deliver much-needed new capacity, cut emissions and create regional jobs – it will pave the way for a national offshore wind industry.”

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