Australia must address key supply chain constraints to establish a viable offshore wind industry.
In Part One of our series, we discussed five key constraints on offshore wind industry supply chains in Australia, including Euro- and China-centric supply chains and inflated project costs.
In Part Two, we flip the script and explore solutions to these issues, offering insights on how addressing them will strengthen Australia’s offshore wind industry.
Recommendation one: diversifying supply chains
To address the Euro- and China-centric nature of the current supply chains, Australia could prioritise developing local manufacturing capabilities and infrastructure. This would involve investing in local production facilities for wind turbine components and fostering partnerships with international companies to transfer knowledge and technology to build local capability. By creating a robust local supply chain, Australia could reduce its dependency on foreign suppliers and mitigate risks associated with geopolitical tensions.
Alternatively, Australia has established mining capabilities (and some materials manufacturing capabilities) but lacks advanced mineral processing and component manufacturing capabilities. It follows that Australia could optimise local supply chains by investing in technology to process and refine raw materials. Like batteries, Australia has many of the raw materials required for making wind turbines. For example, Australia has the rare earth elements required for the rare earth permanent magnets used in wind turbines.
Recommendation two: incentivising equipment suppliers
While reducing reliance on European and Chinese supply chains is important to achieve supply chain diversification, Australia can still benefit from international collaboration and encouraging international suppliers to domicile operations in Australia. This is a compelling alternative for those who argue that Australia does not have the demand to establish end-to-end local supply chains. Engaging with other countries to share best practices, standards and technologies should be encouraged while Australia establishes the relevant local proficiencies.
To attract international equipment suppliers to domicile operations in the Australian market, the government could offer financial incentives such as tax breaks, grants, and subsidies. We recently wrote on the benefits of production tax incentives, in the form of tax “offsets” provided by the Australian Government for hydrogen and critical minerals. Tax offsets are provided for a variety of reasons, including to incentivise individuals and businesses to engage in activities that boost the economy, to provide financial assistance and to help support emerging industries. A similar type of tax incentive could be employed by the government to encourage offshore wind industry equipment suppliers to establish operations in Australia.
Additionally, establishing a clear and consistent pipeline of projects can provide the volume certainty that suppliers need to invest in local operations. This could involve setting ambitious but achievable targets for offshore wind capacity and ensuring a stable regulatory environment that supports long-term investment. Positively, the Victorian Government has already taken steps in this respect, setting offshore wind generation capacity targets of 2GW by 2032, 4 GW by 2035, and 9 GW by 2040. Similarly, a national wind target could set a policy and regulatory focus that, in combination with the financial incentives discussed above, would attract equipment suppliers to Australia.
Recommendation three: enhancing workforce skills
Addressing the shortage of skilled labour in the Australian offshore wind industry requires a concerted effort to develop local expertise. This could be achieved through targeted education and training programs, apprenticeships, and partnerships with universities and technical institutions. For example, the Australian Government launched the New Energy Apprenticeships program to encourage workers into the New Energy industry by offering financial incentives of up to AUD $10,000 over the course of an apprenticeship.[1] Alternatively, for at least the short term, the government could prioritise skilled migration to attract foreign expertise until our local capabilities are developed.
Recommendation four: streamlining regulatory processes
Simplifying and harmonising the regulatory framework for offshore wind projects could help reduce delays and uncertainties. This involves coordinating between federal and state governments to create a unified set of regulations and to streamline the approval process. It could also involve a cohesive approach to the offshore wind industry at the interstate level. Providing clear guidelines and support for developers can facilitate smoother project execution and attract more investment into the sector.
Coordination of policy and legislation is essential for the offshore wind industry in Australia, as the turbines themselves may be located in Commonwealth waters for power generation, with supporting infrastructure (e.g. cabling and substations) located in State areas. Similarly, the complexity of offshore wind infrastructure will likely demand coordination between various suppliers located in different states. A simplified and harmonised regulatory process is essential to ensure projects get off the ground and operate efficiently.
Recommendation five: securing financial investment
To overcome high capital expenditure (CAPEX) requirements, Australia could explore innovative financing mechanisms such as blue bonds, public-private partnerships, and investment from institutional investors. By securing adequate funding through creating a favourable investment climate, Australia could ensure the timely development and expansion of its offshore wind industry.
Blue bonds are financing instruments that raise and earmark funds for water-related sustainability initiatives, including offshore renewable energy.[2] For example, blue bonds have been used by Danish renewable energy giant Ørsted to achieve net-positive impacts on biodiversity and sustainable shipping.[3] Similar financing mechanisms have the potential to attract investment into the Australian offshore wind sector.
A multifaceted approach
Addressing constraints in offshore wind industry supply chains requires a multifaceted approach. By diversifying supply chains, incentivising equipment suppliers, enhancing workforce skills, simplifying regulatory processes, and securing financial investment, the industry can build more resilient and efficient supply chains.
These strategies not only mitigate current challenges but also pave the way for sustainable growth and innovation in the offshore wind sector. With concerted efforts from all stakeholders, offshore wind generation in Australia can achieve its full potential, contributing significantly to global energy transition goals.
For more information, please contact Matt Baumgurtel.
1Apprenticeship Support Australia, Green Future, Skilled Workforce: New Energy Apprenticeship Program (Web Page) <https://www.apprenticeshipsupport.com.au/New-Energy-Apprenticeships>.
2International Finance Corporation, Blue Finance (Web Page) <https://www.ifc.org/en/what-we-do/sector-expertise/financial-institutions/climate-finance/blue-finance#>.
3Ørsted, Ørsted becomes world’s first energy company to issue blue bonds (8 June 2023, News Release) <https://orsted.com.au/news/2023/06/orsted-becomes-worlds-first-energy-company-to-issue-blue-bonds>.
