Acknowledgments
MINTER ELLISON – ENERGY IN AUSTRALIA AND NEW ZEALAND 2009
Acknowledgments Minter Ellison would like to acknowledge the following people who played a role in preparing this publication:
Brisbane
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Mark Carkeet, Partner and Editor Nick Sayeg, Associate and assistant Editor Leanne Bowie, Head - Environment and Project Approvals, Brisbane Bruce Cowley, Partner Justin Oliver, Special Counsel Kathryn Finlayson, Associate Naomi Creighton, Lawyer Ryan Gawyrch, Lawyer Glenn Lennon, Lawyer Adam McWilliams, Lawyer Tamlyn Mills, Lawyer Irina Stepanova, Lawyer Sarah Wheatley, Lawyer Jason Steinberg, National Business Development Manager, Energy and Resources
Sydney
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Paul Wentworth, Partner Duncan McGregor, Partner Penny Murray, Partner Samantha Daly, Senior Associate Kate Addinall, Lawyer Benjamin Malone, Lawyer
Melbourne
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Mitzi Gilligan, Partner Peter Hordern, Partner Peter George, Partner Carolyn Vigar, Special Counsel Eliza Bartlett, Lawyer Andrew Brookes, Lawyer Nicole Reid, Lawyer
Adelaide
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Clay Wohling, Partner Judith Bradsen, Partner Kathryn Nicolai, Senior Associate Maggie Wong, Solicitor Eliza Northrop, Solicitor
Perth
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Andrew Thompson, Partner Glen McLeod, Partner Cheryl Edwardes, Special Counsel Hayden McWilliams, Lawyer Lindsey Pheloung-Beck, Lawyer Shirley Watson, Lawyer
Darwin
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Cris Cureton, Partner Lachlan Drew, Partner
New Zealand
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Paul Foley, Partner Carolyn van Leuven, Partner Catherine Ross, Senior Associate
The information provided in this publication is intended as a guide only and is accurate as at August 2009. Professional advice should be sought before applying any of the information in this publication to particular circumstances. While every reasonable care has been taken in the preparation of this publication, Minter Ellison does not accept liability for any errors it may contain. © MINTER ELLISON 2009
ENERGY IN AUSTRALIA AND NEW ZEALAND 2009 – MINTER ELLISON
Contents Australia 1 Introduction to the Australian energy sector
4
2 The Australian political and regulatory system
8
3 The market for electricity
10
4 Market for natural gas
20
5 Climate change
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6 Transmission regulation in the NEM
54
7 State by state overview of the electricity sector
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8 Environmental regulation
82
Appendix A Australia’s Foreign investment guidelines
92
Appendix B Acquisitions of companies and businesses in Australia
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Appendix C Australian taxation issues
97
Appendix D Australian anti-trust laws
101
New Zealand 1 Introduction to the New Zealand energy sector
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2 The New Zealand political and regulatory system
106
3 Policy and legislative framework
108
4 Market for electricity
116
5 Entry into the energy market
126
About Minter Ellison
130
Minter Ellison contacts
135
Abbreviations
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MINTER ELLISON – ENERGY IN AUSTRALIA AND NEW ZEALAND 2009
1 Introduction to the Australian energy sector 1.1 Background The energy sector (electricity, gas and coal) is a major component of the Australian economy, providing employment, investment opportunities and export earnings. The most recent aggregated figures available from the Australian Bureau of Agricultural and Resource Economics (ABARE) (2006-2007) show that energy consumption in Australia is high and continuing to increase – with primary energy consumption estimated to have risen by 2.3%. Australia’s energy intensity, on the other hand, has gradually declined and is now at a rate almost half that experienced during the 1970s. Electricity generation remains the largest consumer of total energy supply, followed by the transport sector and manufacturing industries. Together, these sectors consume almost 75% of Australia’s total energy supply. The residential, commercial and mining sectors largely account for the remainder of energy consumed in Australia. The most significant growth in energy consumption has come from Western Australia (13%) and Northern Territory (17%), reflecting strong population and economic growth in those regions. New South Wales and Tasmania also grew (2% and 5% respectively), but in Queensland any increase was negated by a decrease in net energy use in the oil and gas refining sector.
All figures that appear in this introduction are from the latest aggregated data available from Australian Bureau of Agricultural and Resource Economics (ABARE) and refer to the 2006-07 year.
ENERGY IN AUSTRALIA AND NEW ZEALAND 2009 – MINTER ELLISON
In addition to increasing energy consumption, there is also continued growth in energy production. Australia is the world’s eighth largest energy producer. Australia’s total energy production reached around 17,000 petajoules, which was largely derived from coal, natural gas and uranium. Domestic consumption accounts for less than one-third of this amount and the remaining two-thirds of energy produced is exported. Annual energy export earnings increased by 15% to A$43 billion.
Energy facts (latest figures 2006-07) •
Australia’s electricity supply industry contributed A$13.1 billion or 1.4% to gross domestic product (GDP).
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Electricity transmission and distribution comprises 884,000 circuit kilometres.
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There are 9.68 million electricity connections throughout the country.
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The sector’s total assets amounted to A$109 billion (2004-05).
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Installed capacity comprises 47,400MW in grid-connected capacity and a further 4200MW in embedded and non-grid capacity.
MINTER ELLISON – ENERGY IN AUSTRALIA AND NEW ZEALAND 2009
In terms of electricity production, Australia’s total primary electricity generation exceeded 230 TWh in 2006-07. This was made up of power generated from black coal (56.4 %), brown coal (27.4%), natural gas (11.6%), hydro (2%) and oil and other fuels (2.4%). The overall fuel mix in Australia has remained fairly constant since 2000, with the heavy reliance on fossil fuels still prevalent. This is largely attributable to the abundance of Australia’s high-quality coal reserves – a relatively low cost energy source. Although the production of electricity from renewable energy sources grew by 10% in 2006-07 due to increases in biogas, bioliquid, solar and wind generation, these still remain minor sources of energy in Australia. Similarly, production of natural gas grew by 7% and it is likely that natural gas will play a greater role as a fuel source in the future.
Australian production of primary fuels Year
Black coal
Brown coal
Crude oil and NGL
Natural gas
Hydroelectricity
Solar hotwater
Uranium#
kt
kt
ML
GL
GWh
PJ
t
1976-77
68 417
30 994
24 598
6 398
13 670
0.27
412
1986-87
147 765
41 804
31 504
14 895
14 550
2.40
3 820
1996-97
206 303
58 156
31 049
29 861
16 852
2.57
5 084
2005-06
305 823
67 737
24 315
41 721
16 036
2.43
8 458
# Tonnes of uranium metal equivalent. Source: ABARE, Australia commodity statistics
Australian energy consumption, by fuel – energy units 2000
1975-76 1985-86 1995-96 2005-06
1500
1000
1.0 0.8 0.6 0.4 0.2 0.0
500
Black coal
Brown coal
Source: ABARE, Australia commodity statistics
Refinery input
Petroleum products
Natural gas
Electricity total
Hydro electricity
Solar energy
ENERGY IN AUSTRALIA AND NEW ZEALAND 2009 – MINTER ELLISON
According to research carried out by ABARE: a) primary energy consumption is forecast to grow on average by 2.0% per annum until 2011; b) final energy consumption is predicted to increase on average 2.2% per annum over the next five years with the greatest increase occurring in the mining sector; c) electricity generation is also forecast to grow by approximately 2.2% per annum on average until 2011; d) the use of natural gas is expected to grow strongly but coal and oil will continue to supply most of Australia’s domestic energy needs; e) in the absence of any major new discoveries, Australia will increasingly rely on imported crude oil; f) it is expected that black coal will continue to be the predominant fuel source of Australia’s electricity generation, although the share of total energy produced from coal will decrease (from 41% in 2005 to 36% in 2030); g) the use of renewable fuels (particularly biogas and wind energy) is projected to increase by 85% over the next 25 years, with the strongest growth in the next five years; and h) the state of Queensland is predicted to become Australia’s largest consumer of primary energy by 2018 (currently Queensland ranks third behind New South Wales and Victoria).
1.2 Opportunities for investors Significant reform has occurred in Australian energy markets in recent years. As a result, there has been a growing interest from both Australian and international companies in investment opportunities in the Australian energy sector. Competitive markets for the supply of electricity exist in virtually all Australian states and territories. The states of Queensland, New South Wales, Victoria, Tasmania and South Australia have combined with the Australian Capital Territory to form a single interconnected gross pool national electricity market. Western Australia has introduced its own net pool market. Private sector investment in generation capacity is welcome in all states and territories, and Victoria has fully privatised its electricity sector. Similarly, Queensland has privatised its electricity retailers while in New South Wales the lease-based privatisation of generation and sale of electricity retailers is being considered. Opportunities exist for investors in generation capacity, for new entrants to (and consolidation of) the retail sector, for increased interconnection, and in the privatisation and asset sales that are taking place. Developments in the gas sector have been dominated by a substantial expansion in recoverable coal seam methane resources, and increased interconnection between transmission networks. These deeper upstream and midstream markets have led to an increase in gas-fired generation capacity and development of LNG projects, providing further opportunities for those seeking to invest in Australia’s energy industries.
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MINTER ELLISON – ENERGY IN AUSTRALIA AND NEW ZEALAND 2009
Supplement – Energy in New Zealand
1 Introduction to the New Zealand energy sector 1.1 Background A secure energy supply is at the heart of the New Zealand economy and way of life. Historically, New Zealand’s energy prices have been low by international standards, which has meant there has been relatively little investment in energy efficiency for homes, shops, light industry and transport. Low electricity prices have enabled energy intensive industries to locate in New Zealand. The Tiwai Point aluminium smelter for example uses approximately 15% of New Zealand’s electricity or ~610MW.
ENERGY IN AUSTRALIA AND NEW ZEALAND 2009 – MINTER ELLISON
Energy supply Approximately 30% of New Zealand’s primary energy supply consists of renewable sources. Non-renewable sources account for the other 69.6%, made up of 37.7% oil, 22.6% gas, and 9% coal1. In 2005, New Zealand’s total primary energy supply was about 752 petajoules (PJ), of which around two-thirds (517PJ) was used as consumer energy. The remaining onethird was used or lost in transformation and in bringing energy to consumers. In recent years New Zealand has become increasingly reliant on imported oil and oil products to meet growing consumer demand. Given the volatility in international oil markets and the projected increase in demand for oil this raises security of supply issues for New Zealand.
1
Gas has been a major energy source in New Zealand for 30 years and although it will continue to play a role in the energy mix, proven reserves of gas declined sharply in 2001, when the Maui field was found to have considerably less economically recoverable gas than previously thought. The extent of the role of gas going forward will depend on the level of investment in, and the success of, gas exploration. What is certain, however, is that supply for the country’s 165.46 PJ per annum demand for gas will be more complex than it has been in the past, because of the increased number of fields. The regime for management of greenhouse gas emissions will also affect the economics of gas as a fuel.
All references to energy percentages are sourced from the New Zealand Data File, June 2008.
New Zealand’s use of renewable sources for electricity generation is high by international standards. In 2005, renewable sources accounted for about 67% of New Zealand’s electricity generation, with hydro-electricity providing 58.8% of New Zealand’s total electricity generation. There is significant potential for investment in a wide range of renewable technologies, including hydro, geothermal, wind, marine, biofuels, biomass and solar. Similarly, New Zealand has large stocks of coal which could be economically mined. Regulatory frameworks and incentives will to some extent determine which technologies are exploited.
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MINTER ELLISON – ENERGY IN AUSTRALIA AND NEW ZEALAND 2009
About Minter Ellison Minter Ellison has one of the largest and most experienced energy teams in the Asia Pacific (100+ lawyers). We have invested time and effort in understanding the industry and through a mix of forums and think tanks we develop thought leadership initiatives that underpin our advice, always with the goal of anticipating and meeting client needs. We have devised and negotiated ground breaking agreements in the energy sector. That expertise has enabled us to assist clients with project development, joint operations, listed-and non-listed company acquisitions and divestments, share purchases, environmental compliance, land access, native title and employment matters. We also have broad experience advising a range of international clients (more recently Chinese interests).
Minter Ellison’s energy team has worked with clients to play central roles in many of the energy reforms, projects and transactions that have reshaped the industry in Asia Pacific over the past decade. Our firm provides a full range of legal services for the sector and our international team, covering 15 offices, can deliver the advice that you require in a seamless and dedicated fashion. Minter Ellison is focussed along industry lines, such as energy and resources, rather than areas of law. We are constantly monitoring the major issues faced by participants in the energy sector, such as:
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merger and acquisition activity sector and the resulting increase in size, and reduction in the number, of energy utilities
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a trend to move towards vertical integration competition law issues ongoing restructure and re-organisation of the energy regulatory framework scarcity of labour and high construction costs resulting almost certain introduction of emissions constraints on the power generation sector the potential for the price of LNG to increase.
Our clients in the electricity sector include: regulators, independent power producers, state and privately-owned utilities, regulated transmission and distribution operations, turnkey construction contractors and equipment suppliers, retail suppliers, wholesalers and traders, large industrial customers, infrastructure funds, financial institutions and project financiers.
ENERGY IN AUSTRALIA AND NEW ZEALAND 2009 – MINTER ELLISON
Our knowledge of the structure and regulation of electricity generation, transmission, distribution, supply and trading covers not only all Australian and New Zealand jurisdictions, but also other jurisdictions. Internationally, we have worked on electricity projects in Malaysia, India, Thailand, Mongolia, China, Indonesia, the Philippines, Taiwan and the United Kingdom. Minter Ellison has extensive experience working on independent power projects, the drafting and negotiation of power purchase agreements in a variety of regulatory contexts (including electricity hedge agreements, contracts for differences, physical power supply contracts and OTC power contracts) and advising on connection arrangements and regulatory issues under the Australian National Electricity Market.
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Reputation for excellence in energy Our team has been independently recognised for its track record of achievement and service excellence:
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Australia’s Best Lawyers 2009 (Australian Financial Review) ranked Mark Carkeet (Partner, Brisbane) and Clay Wohling (Partner, Adelaide) as amongst the best energy lawyers in Australia. Australasian Legal Business’s Guide to the Energy and Resources sector (2008) ranked Minter Ellison as a leading national firm, with Mitzi Gilligan and Mark Carkeet receiving individual acknowledgement. Euromoney names Mark Carkeet, Mark Green and Sam MacGibbon as expert lawyers in Energy and Natural Resources. Denis Gately and Sam Farrands are named among the world’s leading lawyers by the International Who’s Who of Oil and Gas Lawyers Denis Gately, Andrew Thompson, Mark Carkeet, Mitzi Gilligan, Allison Warburton and Paul Foley are identified as leaders in the energy field by Chambers Global. Denis Gately and Andrew Thompson are both ranked as leading energy lawyers by The Asia Pacific Legal 500. Denis Gately is ranked one of the most highly regarded lawyers – globally – practicing in the area of oil & gas by the International Who’s Who of Business Lawyers Minter Ellison is recommended for Energy and Resources by PLC Which Lawyer Finalist for Corporate Social Responsibility Law Firm of the Year (2008) for our work in climate change and sustainability law
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