Joint ventures (JVs) are common in the offshore wind industry due to the scale, complexity, and capital required for such projects. This is because JVs enable players to pool their resources, share risks and leverage complementary expertise to enter this high barrier market.1
There has been a whirlwind of activity in Australia following the incumbent Government’s policy commitment to net zero targets2 and the Minister for Climate Change and Energy’s announcement of six offshore wind priority areas in August 2022.3 The Gippsland (VIC) and Hunter (NSW) regions have already been declared offshore wind areas while the Southern Ocean (VIC & SA), Illawara (NSW) and Bass Strait (Tas) regions are at various stages of public consultation.4
Strategic JVs are especially important in the Australian context, as the offshore wind industry is in its infancy. There are currently no operational offshore windfarms in Australia despite Australia
having abundant offshore wind resources.
As expected, many of the feasibility licence applications currently under assessment for the Gippsland declared area (covering 15,000 square kilometres) have been received from JVs.5 Feasibility licences allow the licence holder to assess the feasibility of an offshore infrastructure project and in the future apply for a commercial licence “to construct, install, commission, operate, maintain and decommission offshore renewable energy infrastructure in the licence area”.6
JV Examples
Examples of recent JVs include:
- Ocean Winds, a 50-50 JV between Engie (French energy giant) and EDP (Spanish renewables company)7 with projects located in 7 countries; and
- Poseidon a JV between SSE (UK energy giant) and Equis Developments (Singapore based, Australian managed). Notably, SSE is already engaged to build one of the world’s largest offshore wind farms in England (3.6GW Dogger Bank). ‘Poseidon’ has been reported as applying for a feasibility licence to build a wind project in Victoria’s Gippsland region.8
Why use a JV?
JVs typically take the form of a special purpose vehicle, known as a project company. This entity is formed with the specific purpose of entering the main contracts for the project and retaining ownership of the JV’s assets. Companies often seek JV opportunities to gain a competitive advantage by capitalising on the value that comes from leveraging complementary capabilities to enter new markets.
In addition to intensive capital financing, the offshore wind industry requires expertise in renewables technologies, local regulatory requirements, offshore deep-water operations, and floating structures. Collaboration with partners are therefore more appealing than embarking on solo ventures.
While the initial high costs may deter new entrants, the current market demand for offshore wind projects underscores the potential for substantial returns on investment. Oil and gas companies (especially those with offshore operations) are uniquely positioned to collaborate with partners to provide specialised expertise and financial support, all the while protecting their market share in the energy sector.
Phases of a JV
The composition of a JV will largely depend on the project’s maturity and scale. Typically, one party bears the responsibility for the operations, allowing financial investors or new entrants to participate without needing the full skillset and resources for the wind farm’s development, commissioning, and maintenance.
The success of the JV will depend on the participating companies’ ability to address weaknesses, capability gaps, strategy and financials during the different phases of the JV.
In the initial phases of the project, the involved parties may consist of a developer scouting potential sites, accompanied by either a financial investor or a larger developer seeking to broaden its renewable energy portfolio.
As projects grow in scale and complexity, multinational utilities are integrated to combine financial and operational resources and jointly manage substantial project risks. The financials of the participants will become pivotal in securing project finance upon reaching financial close.
In some jurisdictions, subsidy regimes may require local participation in the JV, while in regions with less advanced renewable technology, partnering with experienced developers can accelerate technology adoption and advancement.
Key considerations in JVs
While JVs are a useful vehicle for realising new market opportunities, there is a tendency for JVs to fail where there is a strategic misalignment between parties, as parties also need to cater to their own goals, market pressures and shareholders.
To ensure the success of a JV it is critical for companies to be strategically and financially aligned and establish clear protocols for decision making and conflict resolution at the outset.
Key considerations include:
- Composition – carefully selecting the JV participants to ensure the correct mix of complementary capabilities are obtained;
- Control – establishing clear control provisions for the day-to-day management of the project and giving the JV decision making authority to meet objectives;
- Organisation – creating a strong value proposition to retain key employees and manage cross-cultural differences in crossborder projects;
- Economics – specifying the services the JV will provide and establish clear and fair transfer-pricing schemes whilst establishing good risk and performance management systems;
- Selling interest – addressing transfer rights and minimum financial criteria for new JV members and contemplating extenuating circumstances where the project requires additional funding;
- Timeframe – negotiating the commitment period for finance given the discord with financial entities preferences for short term investment and the long operational life of offshore wind projects;
- Exit Provisions – contemplating exit provisions for both investors and minority owners due to potential issues with retaining specialised knowledge brought by the departing party; and
- Jurisdiction – carefully determining the most suitable jurisdiction for the JV as local laws and regulations and tax considerations can make certain jurisdictions more attractive.
Offshore wind is an established industry in many regions around the world and is rapidly gaining momentum due to advancements in technology, favourable regulatory frameworks and the increasing role of renewable energy in addressing climate change.
Australia needs to urgently attract global energy giants and renewable companies to develop its offshore wind resources, and JVs (especially those involving Australian based companies) are the perfect vehicle to ensure the transfer of specialised skills and knowledge to help build Australia’s future renewable workforce and fulfill its commitment to net zero targets.
1Reed Smith, ‘The answer is investing in wind – Joint Ventures in offshore wind’, Lexology (Webpage, May 2023) https://www.lexology.com/library/ detail.aspx?g=9ba7e7dc-41d1-4521-8852-2ff6d432fde1
2Paris Agreement, opened for signature 22 April 2016, 1155 UNTS 146 (entered into force 4 November 2016).
3‘Australia’s offshore wind areas’, Department of Climate Change, Energy, the Environment and Water (Webpage) https://www.dcceew.gov.au/ energy/renewable/offshore-wind/areas
4Ibid.
5 ‘Gippsland, Victoria declared offshore wind area’, Department of Climate Change, Energy, the Environment and Water (Webpage) https://www. dcceew.gov.au/energy/renewable/offshore-wind/areas/gippsland
6Guideline: Offshore Electricity Infrastructure Licence Administration – Feasibility Licences, Department of Climate Change, Energy, the Environment and Water (Webpage) https://www.dcceew.gov.au/sites/ default/files/documents/Guideline_OEI_Licence_Administration_ Feasibility_Licences_Dec_2022.pdf
7Alex Donaldson, ‘Ocean Winds joint venture to develop offshore wind projects in Australia’, Power Technology,(Webpage, July 2023) https://www.power-technology.com/news/ocean-winds-joint-venture-todevelop-offshore-wind-projects-in-australia/
8Giles Parkinson, ‘Powerful new consortium joins rush for offshore wind with massive project in Victoria’, Renew Economy (Webpage, April 2023) https://reneweconomy.com.au/powerful-new-consortium-joins-rush-foroffshore-wind-with-massive-project-in-victoria/
