This year sees a watershed moment with Australia’s first offshore wind offtake auction from the Victoria Government.

Much of the detail is still to be published but we do have clues from the state government’s offshore wind implementation plan, published in December 2023.

According to the plan, the key feature of Victoria’s offshore auction will be the inclusion of both price and non-price factors. This is a perfectly logical approach. It is common for governments to try to achieve wider public policy goals through offshore wind auction. It is also common for these non-price factors to focus on economic benefits through supply chain and workforce developments. The Victoria government is not the first to emphasise the benefits to disadvantaged communities.

While logical, the approach creates challenges for the government and developers. For the government, there is the challenge of the optimal weighting of price and non-price factors in the auction. If the non-price element is weighted too highly then auction prices will rise. Too low and it won’t create sufficient incentive. Getting it right depends on the variation in the inherent cost of energy that developers calculate and the additional costs that developers may incur by scoring highly for non-price factors.

A further challenge for governments is how to score the non-price factors. A score based on the amount of committed local expenditure is a simple task. In practice governments tend to also use softer criteria that are more complicated to score. For example, how many cents off the bid price is equivalent to the creation of an apprenticeship? It is revealing that the UK government’s move to non-price factors for Allocation Round 7 gradually morphed into a two-stage process: the first involves the submission of Clean Industry Bonus proposals to secure additional CfD revenue by investing in local supply chain; the second is a price-based auction.

For developers, the biggest challenge can be a steep learning curve on the local supply chain and infrastructure and politics – and a concern that more local competitors have a better understanding of what the government really cares about. Global developers with relatively small project teams will feel they have a lot of catching up to do. Many will understand the importance of the traditional rights of First Nations people but be less clear on how to engage these people and how to ensure that they capture the benefits during the lifetime of the project.

Both governments and developers have the headache of tracking and verifying commitments. Even for a simple measure such as local expenditure, data will be needed from suppliers as well as developers’ internal expenditure. Many of these suppliers will be at tier 2 or below in the supply chain. If a measure has had a material impact on the bid price or the auction, the government has to be sure that the data is verified and potentially auditable.

Alun Roberts and Ian Marshall

BVG Associates and Collective Blue Consultants are working together providing guidance from both an international and local perspective to help interested developers succeed in the Victoria CfD auction.