In May of this year the Australian Bureau of Agricultural and Resource Economics (ABARE) released its report into major electricity generation projects afoot in Australia. The report lists 142 current projects (up 19from last year), of which 15 are at an advanced stage, being either under construction or otherwise committed to. Of those 15 advanced projects 9 were renewable and all of these were wind projects. It is also worth noting that most of these new wind projects are of a significant size, including the Collgar Wind Farm which has an expected capacity of 206 megawatts (MW) making it the largest wind farm in Australia – although with others such as the Darlington Wind Farm at 300/375 MW and the Macarthur Wind Farm at 365 MW also moving into the pipeline, this title may be short lived.

Despite the trend of the previous twelve months off the back of the global financial crisis and notwithstanding a difficult regulatory environment (including until recently a falling Renewable Energy Certificates (REC) price), it seems likely that 2010 will see growth in the wind industry.

However, the current environment for renewables generally is still somewhat unstable and this instability has thrown up particular legal risks for the wind industry across a number of areas of the development cycle. We have set out a summary of some of these risks which require careful consideration by those intending to be involved in wind projects.

Construction and operation risks

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Unlike many projects in Europe which separate the supply and installation, most major wind farm projects in Australia are delivered using a turnkey Engineering, Procurement and Construction (EPC) model.

Like all major infrastructure projects, the key to preparing appropriate project documentation for wind farms is to agree an EPC contract that reflects a sensible allocation of risk, on the basis of the party best placed to manage the risk (and if this is the contractor then on a value for money basis). Given that higher contracting risks will in most cases be simply priced in, and particularly in an industry that is competing with cheaper fossil fuel alternatives, ensuring that ill-considered risk transfer does not artificially increase the cost of wind projects is essential. Of course there is a difficult balancing act to be performed between financier concerns, including ensuring appropriate control and guarantees and appropriate cost-effective risk allocation.

Elisa De Wit, Environment and Planning, Norton Rose

Elisa heads the Australian climate change practice of the Norton Rose Group. She attended the climate change talks in Copenhagen with other members of the Norton Rose global climate change and carbon finance group.

Elisa has a detailed understanding of the proposed Emissions Trading Scheme for Australia, the Carbon Pollution Reduction Scheme, and has provided advice to the waste industry, local government, state government authorities and other industry sectors on the operation and implications of the CPRS and National Greenhouse and Energy Reporting System. James Morgan-Payler, Partner, Construction and Engineering, Norton Rose

James Morgan-Payler specialises in construction and engineering law, particularly in the areas of major infrastructure and power generation projects. He brings significant experience in commercial drafting, negotiation and advice on major power projects. His experience in this area has included working on hydro, wind, wave and solar projects (both in Australia and Asia).

Having been a key member of Norton Rose’s construction and engineering procurement team since 2001, James has been involved in preparing and negotiating documentation relating to numerous major construction projects using a variety of delivery methods (including PPP/BOOT structures, straight EPC/D&C and O&M contracts, as well as alliance/relationship based models).