Govt rules out subsidies for offshore wind

Offshore wind developers are broadly supportive of the Government’s new permitting system for offshore energy, even though it won’t involve any financial support from the Crown.
The system largely resembles what was consulted on by the previous Labour government in August 2023 and will be implemented through legislation due to be introduced by the end of the year. The first round of applications could open as soon as late 2025, with permits distributed in 2026.
“The permitting regime that’s been proposed is pretty similar to what exists in Australia and Scotland, which are models we’re familiar with. They’re models under which we’ve secured feasibility permits for offshore wind projects in the past,” Nathan Turner, the country manager for a joint venture between Spanish developer BlueFloat energy and Kiwi firm Elemental Group.
“The decisions that have been taken so far seem pretty sensible.”
That was a view backed by Giacomo Caleffi, a director at Copenhagen Offshore Partners, which is running a joint venture with the NZ Super Fund.
One of the major decisions was to rule out any form of Crown subsidy or incentive for offshore wind. Overseas, countries have deployed a wide range of financial instruments to support the development of offshore wind farms, but Energy Minister Simeon Brown wrote in a paper to Cabinet in July that New Zealand wouldn’t follow in their tracks.
“Such a mechanism would be a material departure from the market-based electricity model in New Zealand. I intend to signal clearly that the Government expects offshore renewable energy projects to compete on the same commercial basis as other electricity generation. The Government’s focus is on enabling the market to deliver by creating an enabling regulatory environment,” he wrote.
Caleffi said this was “at odds with international best practice” but that private sector funding mechanisms could still make offshore wind commercial.
At issue is the higher cost per megawatt hour of offshore wind, compared with onshore wind and solar power. However, offshore wind farms often have longer lifetimes and struggle less with intermittency than onshore renewables. Costs are also continuing to fall.
“Like any large renewables project, there’s a number of boxes we need to tick, and bankable off-take is one of those in order to raise cost-effective project finance,” Turner said. “We still need a bankable off-take contract, it’s just going to have to come from a corporate consumer, one of the big retailers or one of the new energy intensive businesses looking to enter New Zealand.”
Overseas, there are robust power-purchase agreement (PPA) markets supported by both public and private funding. This was still a nascent instrument in New Zealand, Turner said, and the PPA market wasn’t deep and liquid enough to deliver the 500 megawatts of new renewables needed each year.
Beyond finance, however, the developers are broadly supportive of the decisions. There will be a two-step process to building offshore renewables.
First, developers are to apply in feasibility permitting rounds to build farms in a particular area, making the case for the energy system benefits of the project, their technical and financial capability, the wider economic benefits and other factors.
Once a permit is granted, developers would undertake feasibility studies and then have an exclusive right to apply for a commercial permit within seven years.
The commercial permit would authorise the construction of the project and would be considered concurrent with relevant environmental consent applications to regional councils (if within 12 nautical miles of the shore) or the Environmental Protection Authority (if within the Exclusive Economic Zone).
Environmental consents would not be able to be granted if a developer did not already hold a feasibility permit for the relevant area. Official advice to Brown shows this was an intentional response to the consent application of Wind Quarry Zealandia, a would-be developer run by Gore-based American GP Pat O’Meara, to build an offshore wind farm in South Taranaki.
Taranaki Regional Council has asked Wind Quarry Zealandia to provide a significant amount of environmental information, which means the application is likely to still be pending by the time the legislation and regulations come into effect next year. This would mean Wind Quarry Zealandia will need to go through the permit process as well, Fred McLay, the council’s resource management director, said.
Wind Quarry Zealandia did not respond to a request for comment from Newsroom.
One big unanswered question, Caleffi said, was how the regime would interact with other marine users. Offshore wind developers have previously written to the Government to warn that authorising seabed mining in the South Taranaki Bight would almost certainly prevent the development of wind farms in nearby areas.
“We do need to see some strategic planning for the areas that we know are the few areas suitable for offshore wind in New Zealand. We do expect that to go alongside the development of a permitting regime that otherwise would be a bit skimpy,” he said.
Alongside seabed mining, Caleffi said bottom trawling was also generally not able to coexist with offshore wind farms due to the risk of damaging undersea transmission cables. Other types of fishing were fine, as were aquaculture and oil and gas activities.
There are some more technical details which will still be worked through over the next year, including the specifics of how transmission cables will be built. The Government has indicated developers would plan, build and fund this infrastructure before handing it to Transpower, which operates the national grid, to operate, maintain and eventually decommission.
Developers will also be required to provide financial security equal to the cost of decommissioning their wind farms. This is intended to prevent a repeat of the Tui oil field saga, in which the Government was left to foot the $400 million bill for capping off wells after the operator went bust.
The timeline for the implementation of the new regime suggests permits could be distributed in 2026. Turner said he preferred it to go ahead faster, but acknowledged there was much work for officials to do in standing-up the first regulatory regime of this type.
“I would love to have a permit next year and be off doing site investigations and some of those more material feasibility works, but 2026 isn’t the end of the world,” he said.
Caleffi said obtaining a permit in 2026 was a good timeline, but it would be important for the Government to progress work on the legislation and the new regulations simultaneously, rather than waiting for the law to be passed before working on the details.
It is possible the timelines could slip further. Newsroom reported in May that the regulations had already been significantly delayed from a December 2024 deadline set under Labour and a November 2024 deadline campaigned on by National.