CONSTRUCTION Alert: The wind of change

10 August 2017

Publications

In June 2017, AGL Energy Limited (AGL) announced that it had received the development permit from the Queensland Government for AGL’s proposed $500 million Coopers Gap wind farm. The proposed windfarm, once constructed, will be the largest in Queensland.  With 115 turbines it will be capable of generating up to 460MW of electricity and potentially supplying power to 240,000 homes.  This announcement follows a recent spike in investment and interest in windfarm technology in Queensland, and on the eastern seaboard generally.  In July this year, Elon Musk’s Tesla, with France’s Neoen, won the contract with the South Australian Government to build the world’s largest lithium ion battery in South Australia’s mid-north.  The battery will store energy generated by the Hornsdale Wind Farm.  Earlier, in February this year, construction began on the $360 million Mt Emerald Windfarm development in the Atherton Tablelands.  Upon completion in late 2018 this project will supply Far North Queensland with a third of its electricity requirements.

Whilst these projects are still at a proposal or early construction phase, we expect that the market’s interest in developing large-scale wind projects will increase over the medium and long term. Queensland in particular has favourable geography, technology and receptive regulatory conditions for renewable energy development.  The Queensland Government has emphasised that it sees the harnessing of wind as an important pathway to meeting its renewable energy target of 50% by 2030.

Stakeholders
Despite the current Queensland Government’s receptiveness to wind technology, the windfarm industry is still in its infancy in Queensland.  Nationwide, there is inherent regulatory uncertainty relating to federal and state energy policy. Recent national media attention surrounding the state of South Australia’s renewable energy sector is an example.  This uncertainty creates risk in any dealings or contractual relationships entered into for the purpose of developing and operating commercial windfarms in Queensland.  Parties affected may include:

  • developers / project owners / principals;
  • contractors and subcontractors (both at construction and operation and maintenance stages);
  • financiers;
  • network distributors;
  • offtakers;
  • landholders;
  • community groups;
  • Government bodies; and
  • local and international investors.

We foresee key risks arising in relation to the following areas.

Planning and environmental approvals
Navigating the federal and state planning and environmental approval process will be a significant issue for stakeholders.  Although wind farms are comparatively (with other means of energy production) simple from a construction perspective, their large volumetric building envelope means that environmental considerations such as possible impacts on wildlife, interference with flight paths, noise and aesthetics will be relevant.

Although there is presently no evidence to suggest that wind farms are the cause of health issues for humans, a major focus will be on resolving community concerns regarding the proximity of wind turbines to homes and Australian landmarks given their noise and size.  Presently, there is limited case law on this point, although in 2013 the Victorian Civil and Administrative Tribunal indicated that concerns of adverse health effects will be inadequate to prevent approvals.[1]

Site access
It is not uncommon that wind farms are constructed on private property (think cattle stations) given the large geographical envelope required for substantial numbers of turbines.

It is standard practice for an access agreement or other deed of licence to be made allowing access to the development land for construction and maintenance.  The main issues that arise relate to defining the specific obligations of each party for the duration of a turbine’s life. This is important because that may involve enforcing arrangements against subsequent landholders, accounting for inflation in lease payments, protection of the turbines from the existing use of the land, maintenance of access roads and even pest control.

Construction contracts
The form of contract will vary from project to project relative to the complexity of the project itself as well as the complexity of the relationship between the key proponents of the project.  As set out above, the number of stakeholders is likely to mean that contractual relationships dealing with the contract as well as operation and maintenance will be intricate and involve issues not normally contemplated by standard construction contracts.

Separable portions and related consequences
It is common for wind farm construction to involve separable portions that are tied to the completion of each turbine.  This has obvious implications for the multitude of contractual mechanisms that relate to practical completion of a separable portion including:

  • the availability of reference dates under security of payment legislation (which are often limited after the date of practical completion);
  • the potential for extension of time claims for a delay in issuing a certificate of practical completion;
  • exposure to liquidated damages;
  • the date upon which risk in and control over the separable portion is returned to the project owner;
  • the dates that the defects liability period commences and finishes; and
  • the dates for release of the tranches of security provided by the contractor.

Summary
The market’s interest in large-scale wind farms and other renewable energy is an exciting prospect, however the industry’s relative immaturity means navigating contractual, legal and other compliance issues is a difficult and laborious task.  Over time, more development of renewable energy projects will mean increased certainty.

Thomson Geer is well positioned to advise new and existing participants in this niche market.  We recently were engaged to advise in a historic renewable energy transaction in South Australia and are also currently advising a major European engineering company on its first Australian renewable energy investment which is one of the largest integrated off-grid renewable power systems in the world.

 

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[1] Cherry Tree Wind Farm Pty Ltd v Mitchell Shire Council [2013] VCAT 521.

 

Written by:

Andrew Kelly | Partner | +61 7 3338 7550 | akelly@tglaw.com.au

Tom McKillop | Senior Associate | +61 7 3338 7530 | tmckillop@tglaw.com.au