Chapter 6: Considerations for a permitting framework

If establishing feasibility permits is the preferred option, there are a number of further considerations in the design of the process and the permit.

Criteria to obtain permits 

Feasibility permits would be granted to the applicant with the strongest qualifications to complete the feasibility assessment. As the feasibility permit-holder would have a right to apply for subsequent permission to construct and operate, the criteria would need to make an initial consideration the developer’s potential capability for these later stages. Further consideration would also be done based on the feasibility information once prepared, in order to seek any consents or other permissions to construct and operate.

Internationally, criteria for assessing the capability of developers to deliver projects on time typically include technical and economic feasibility of proposed project design, technical and management
experience, and capability to provide or raise finance. (World Bank Group, Key Factors for Successful Development of Offshore Wind in Emerging Markets, 2021, p.52.)

We are considering the following criteria:

• technical, financial and commercial capability of the developer, and
• whether the proposed development is not contrary to Aotearoa New Zealand’s national interest.

Technical, financial and commercial capability

Offshore energy generation is technically complex. By requiring evidence of capability to install, operate, maintain, and decommission energy infrastructure, the government would have assurance that applicants had the necessary technical capability.

We propose to assess the following information to determine technical capability:

• a track record of successfully managing similar projects
• clear project plans, including accurate identification of critical planning and obtaining relevant consents in the project schedule
• an assessment of the complexity of the project, and appropriate risk mitigations
• the technical advice that will be available to the applicant, and
• relevant information on the applicants’ ability to comply with relevant legislation (including health and safety).

Offshore energy generation is a high cost and commercially complex operation. By requiring evidence of sufficient financial means, commercial sophistication, and business planning capability, the government would have assurance that applicants had the necessary revenue and commercial expertise.

We propose to use the following criteria in assessing financial and commercial capability:

• evidence of a strong financial position
• satisfactory initial financing arrangements
• an indicative business plan for a subsequent commercial development phase (construction, operation, and decommissioning)
• evidence that key project risks have been identified
• the intended route-to-market for the project, and
• the estimated commercial return to the developer.

National interest considerations

Offshore renewable energy infrastructure could be a significant part of Aotearoa New Zealand’s electricity system. Therefore, we consider that a feasibility permit should be granted only if the
prospective development is not contrary to Aotearoa New Zealand’s national interest.

To ease administrative burden and maintain legislative coherence, we propose to align these criteria with the Overseas Investment Act 2005. Under this Act the bar for requiring mitigation action or
prohibiting a transaction is high and the presumption is that overseas investment is in New Zealand’s national interest. 

Guidance Note: Foreign Investment Policy and National Interest Guidance, June 2021 [PDF 679KB](external link)

Core interests that could be considered include:

• national security, public order, and international relations
• competition, market influence, and the economy
• economic and social impact
• alignment with New Zealand’s values and interests (consideration is given to broader issues – for example, environmental policy, and giving better effect to Te Tiriti o Waitangi), and
• the character of the investors.

Permit holders would need to continue to meet the qualification criteria

Given the potentially long duration of a permit and the scale of investment, ensuring permit holders continue to meet the criteria for obtaining a permit is highly desirable.

Most commonly, ownership structures of permit holders may change over time (eg changes in directorships, acquisitions or mergers). Permit holders may also wish to sell or share their interests (ie a transfer of ownership).

These changes can make a material difference to the suitability of a permit holder to continue feasibility activities and carry out further development activities in the future. To ensure a permit
holder continues to meet the criteria to hold a permit, we propose regulations could:

• empower a regulator to review the suitability of a permit holder when there is a material
  change to ownership, with the ability to revoke permits, and
• require permit holders to seek approval to transfer any interests in a permit.

Having the ability to impose conditions or review permits allows any risks around timely development to be effectively managed. In particular, effective review mechanisms would enable ongoing
consideration of national interests and financial capabilities which are likely to change over time.

Similar mechanisms are included in the Crown Minerals Act 1991 to ensure permit holders continue to meet the legislative requirements for obtaining minerals permits.

Duration of a permit

International experience suggests that the time to complete feasibility activities for an offshore wind farm – the most mature form of offshore renewable energy generation – can take from 3 to 5 years. In Scotland, Option Agreements (an equivalent to permits) are valid for up to 10 years. In Australia, feasibility licences are valid for up to 7 years. The Crown minerals permitting regime in Aotearoa New Zealand awards minerals exploration permits for 10 years.

Since the process for obtaining feasibility rights would be robust, it is likely that only committed developers would obtain them. However, there is still a risk that some developers would seek feasibility permits simply to obtain the option of conducting feasibility activities. This type of ‘land-banking’ activity would stall the industry’s development.

A shorter duration for permits, such as 5 years, and/or ‘use-it or lose-it’ provisions could mitigate this risk, by requiring permit holders to begin feasibility work in earnest within a set time-period. While any time-period will be arbitrary, a 12-month period within which feasibility work must begin appears reasonable. Where feasibility work does not begin within this period, permits could become invalid.

We therefore propose:

• feasibility permits to be awarded for a period of 5 years, with an option to extend durations for up to 2 years for unavoidable delays, and
• a 12-month period in which activities must commence for permits to remain valid.

It could be difficult to identify clear tests for whether a project has commenced, and hence whether ‘use it or lose it’ provisions would be triggered. These tests could be linked the feasibility project’s
planned milestones.

In any case, it could be useful for permit-holders to provide annual reports on the progress of their feasibility activities.

Managing overlapping applications

The offshore areas where energy generation is feasible are finite. It is very likely that developers will seek feasibility rights for overlapping areas. Overlaps could be large or small. 

The government will assess applications for permits based on which developer best meets the criteria. It may however be beneficial to amend the size of the area applied for in cases of overlap, so that 2 developers can assess feasibility side by side. This could be achieved by a mechanism allowing 2 applicants to negotiate or amend their proposals, or for the government to make a decision on an amended application based on who best meets the criteria.

Administrative arrangements for permitting

A single national entity would manage the offer and application process

As the development of offshore renewable energy infrastructure is a nationally significant activity it is desirable to provide a nationally consistent approach to inviting and assessing applications for permits and managing permits. This suggests a single national entity should hold these responsibilities, with opportunities for iwi, hapū, and whānau and the community to inform the allocation of permits, and to participate in the conduct of feasibility activities.

This single national entity could be an independent Crown entity, or an existing government department or ministry. The Ministry of Business, Innovation, and Employment could be a natural choice given its policy responsibilities in the energy portfolio, and existing regulatory role for Crown minerals. The Ministry may require additional resources to develop the necessary capability for this role.

Final decisions on applications could sit with the single national entity, or the Minister of Energy and Resources, acting on advice from officials.

Public submissions could be sought on permit applications

There will be widespread public interest in proposals and preparations to conduct feasibility activities towards establishing offshore energy generation.

Developers have, to date, publicised their intentions, including areas of interest to them. Resource management consent processes may also involve public notification. The process for assessing applications could involve a period of public consultation.

Monitoring compliance through ongoing reporting

Ensuring permit holders continue to comply with any obligations or conditions relating to their permit will require ongoing monitoring and disclosure requirements.

The Government could prescribe standards for reporting which set out the information that needs to be disclosed, the quality of this information, and by when. This could also include public disclosure requirements or notification requirements to ensure Māori and local communities have access to the information. Alternatively, the information provided could be held by government if the information is considered to be commercially sensitive.

Information that we consider should be reported on includes:

• feasibility activities being conducted and next steps (akin to a project update)
• data or other information gathered from feasibility activities
• participation of mana moana
• engagement with local communities
• financial statements, and
• ownership structures of interest holders

While ongoing reporting adds an administrative burden, regular reporting is critical to maintaining productivity (ie permit holders are conducting feasibility activities and progress is being made), compliance with permit criteria, and any conditions that apply to a permit.

Compliance measures could be needed

To facilitate compliance, the government would apply the VADE model. VADE stands for voluntary, assisted, directed and enforced. The VADE model is commonly used by regulatory agencies across the New Zealand government. The government’s first preference will be to ensure compliance through dialogue. Instances of non-compliance could lead to infringement notices, compliance orders, or (as a last resort) the loss of rights to conduct feasibility activities.

New Zealand Petroleum & Minerals(external link)

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