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Subsea cable interconnector projects: an introduction to risks and opportunities – Renewables



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As governments work towards their climate goals and
traditional sources of energy are replaced by renewable ones,
energy infrastructure is increasingly moving offshore. Offshore
solar and wind projects provide examples of a growing trend, with
other nascent ocean energy technologies quickly emerging. Alongside
power generation, appropriate deepwater transmission infrastructure
will be required to export clean energy across long distances
between countries and continents.

Offshore power generation and transmission will require
long-term, capital-intensive investments in state-of-the-art
infrastructure. This can only be efficiently delivered if there is
both trust and transparency in how projects are regulated and risks
shared – particularly when it comes to the development of
infrastructure beyond areas of national jurisdiction.

Submarine power transmission systems (also referred to as
‘interconnectors’) consist of high-voltage direct current
(HVDC) submarine cables, which are today a mature
technology with an approximate 10,0000 km of cables cumulatively in
service worldwide.1 In Australia, the
Basslink interconnector has been in service since 2006, linking the
Tasmanian and Victorian grids. Presently, the longest
interconnectors globally are in the construction phase, including
the EuroAsia Interconnector (a 3,200 km HVDC cable connecting the
grids of Israel, Cyprus and Greece) and the North Sea Link (a 720
km subsea HVDC cable connecting the UK and Norway grids).

Below, we explore some of the key issues the proponents of
submarine interconnector projects should bear in mind,
including:

  • the recently introduced legislative framework governing
    offshore energy transmission infrastructure in Australian
    Commonwealth waters and the regulatory framework governing power
    transmission beyond areas of national jurisdiction;

  • the main technical and legal risks involved in creating and
    operating transnational interconnectors; and

  • strategies for effective risk allocation and management.

Regulatory frameworks governing offshore energy
transmission

Submarine cables within Australian waters are governed by a
combination of Commonwealth and state and territory legislation. In
June 2022, the Offshore Energy Infrastructure Act
2021 (Cth) (OEI Act) came into force,
introducing a new licensing regime applicable to fixed and floating
offshore renewable energy generation and transmission
infrastructure located within Commonwealth waters. That regime
applies alongside others, including those under the Environment
Protection and Biodiversity Conservation Act 1999
(Cth)
(EPBC Act), and state or territory frameworks in
circumstances where the transmission infrastructure traverses
coastal waters (the first three nautical miles from the
coastline).

Pursuant to the OEI Act, the installation and operation of
submarine cables in Commonwealth waters now requires a transmission
and infrastructure licence to be granted by the Federal Minister
for Climate Change and Energy. A licence is subject to compliance
with regulatory requirements, conditions and a management plan,
which must be developed and periodically updated by the licensee.
The management plan details how the project will operate to ensure,
among other things, that environmental and marine users’
interests are protected.

Regulations made under the OEI Act, which are presently
available in draft form, will provide details on a number of key
issues, including the criteria for granting a license under the
Act. The OEI Act and draft regulations contemplate a number of
merits criteria applicants will need to meet, including:

  • a demonstration of adequate technical and financial
    capability;

  • a project’s commercial viability (including project costs
    and returns, and key upstream and downstream supply chain
    participants); and

  • an applicant’s suitability (including the applicant’s
    corporate governance and compliance history).

Further, according to the draft regulations, the impacts of the
proposed project are also to be assessed, including impacts on
Australia’s national interest, on security and on existing
users of the licence area.

In the circumstances where the project will impact on matters of
national environmental significance within the Commonwealth seabed
area (3 to 200 nautical miles off the coastline of Australia)
– for example, Commonwealth-listed threatened marine species
– then the proponent must refer the action to the
Commonwealth Department of Climate Change, Energy, the Environment
and Water (DCCEEW) for assessment as to whether
the action is a ‘controlled action’ requiring approval
under the EPBC Act. The Offshore Renewables Environmental Approvals
guidance note recommends obtaining the EPBC Act approval prior to
applying for the transmission and infrastructure licence.

The conditions of both the EPBC Act approval and transmission
and infrastructure licence will support the preparation of any
management plan that will be approved by the Regulator of the OEI
Act.

The laying of submarine cables within and beyond Commonwealth
waters is also governed by the UN Convention on the Law of the Sea
(UNCLOS). Pursuant to UNCLOS, in maritime areas
outside of coastal states’ territorial seas (extending up to 12
nautical miles from coastline), all states enjoy the freedom to
lay, maintain and repair submarine cables.2
While referred to as a ‘freedom’, the rights are not
absolute – they are limited by the rights exercisable by
coastal states within their declared Exclusive Economic Zone
(EEZ) and continental shelf (such as to exploit
their natural resources), and other uses (or ‘freedoms’) of
the seas exercisable by all other states (such as the freedom of
navigation). To the extent submarine cables traverse a coastal
state’s EEZ or continental shelf, the exercise of the freedom
to lay cables is subject to a number of obligations. These include
obligations to have ‘due regard’ to the rights and duties
of the coastal state and the cables or pipelines already laid in
the area,3 and to comply with the laws and
regulations governing those areas, which the coastal state may
adopt pursuant to UNCLOS. Conversely, coastal states have the right
to take ‘reasonable measures’ to explore and exploit
natural resources within their continental shelf
boundaries,4 although such measures cannot
unreasonably impede the exercise of other states’ freedom to
lay or maintain submarine cables.

In waters regulated by UNCLOS, environmental impact assessments
are required to be prepared. The United Nations Intergovernmental
Conference on Marine Biodiversity of Areas

Beyond National Jurisdiction is finalising an international
legally binding instrument under UNCLOS which will increase
assessment requirements in respect of marine
sustainability.5

Risks associated with offshore energy transmission
infrastructure

Submarine power cable technology has become increasingly more
sophisticated over recent decades, but the risk of cable damage and
interruption in service remains high. Empirical data shows that
most instances of submarine cable damage are caused by external
human events such as the dropping of fishing gears, anchors or
other dropped objects. These risks are higher in shallower waters.
Physical damage can also occur where submarine cables intersect
other submarine infrastructure including power and communications
cable systems and gas pipelines. Other causes of cable damage
include complex submarine conditions and environmental factors,
including ocean currents, heat waves and thermal stress, and events
such as tsunamis, seismic activities and chemical corrosion. Seabed
depth variation and slope gradients present their own set of risks,
such as the risk of sediment movement triggered by earthquakes and
turbidity currents.

These risks underscore the importance of undertaking detailed
geotechnical and seabed surveys during the feasibility stage of a
project to determine the appropriate route of the cable and develop
an understanding of the seabed topography. The charting of the
route amounts to a risk assessment exercise, as it seeks to avoid
hazards to the infrastructure due to the geomorphology of the
seabed, as well as environmentally significant zones.

Submarine power cables are laid offshore by specially designed
‘cable laying vessels’ (or
CLVs‘). CLVs can carry only a certain
length of cable per shift and may require several trips back to the
manufacturing facility to complete cable installation, any of which
may be affected by factors such as weather conditions and
restrictions imposed to protect marine life.

The laying of a cable in deepwater presents additional
challenges. While the risk of cable damage from external human
events is lower (for which reason cables in deep waters are
typically surface-laid and not buried), the operation is
significantly more complex and cables are often damaged during
installation. The repair of cables in deepwater sections is also
more challenging. Repairs are done on vessels offshore and
ultimately result in additional length of cable being installed.
Repairing a section of cable typically requires that a corridor of
a sufficient width be available on either side of the cable route
for the replacement cable to be laid (typically perpendicular to
the initial cable route).6

As with other major projects, environmental approvals are a key
component of an interconnector project and may take significant
time to be prepared, assessed and approved. This is particularly so
given the overlay of UNCLOS, the EPBC Act and state and territory
environmental laws, which will require a significant degree of
coordination. A key focus of the assessment process involves the
risk of cable operations disturbing the marine environment,
including reefs and other fragile ecosystems. Heat loss and
physical disturbances in certain marine areas may also require
closer analysis of the cumulative impacts on the environment and as
a consequence, may attract environmental approval conditions to
mitigate and manage this issue. The State of New York commissioned
an Environmental Sensitivity Analysis for offshore wind projects to
inform a Masterplan. The analyses identified receptors, i.e. fish
and turtles, and the stressors on these receptors during each stage
of the project process, which informed a sensitivity model. These
types of sensitivity analyses could be required in Australia when
seeking an environmental approval for any type of infrastructure
located within the marine environment. Any such analyses would
support transparency around environmental impacts in Australian
waters, particularly if there is a proliferation of these types of
projects.

Relevantly, assessment and reporting on cumulative environmental
impacts are key recommendations of the Final Report of the
Independent Review of the EPBC Act (released October 2020)
(Samuel Review) with the new Federal Labor
Government refocusing its attention on the recommendations as part
of a wider federal environmental reform agenda.

Another aspect of offshore development that requires a
significant degree of trust and transparency is the co-existence of
marine infrastructure with native title rights and the rights of
First Nations people. There is likely to be an increased focus on
upfront engagement with First Nations people when developing major
infrastructure projects in the future, and an emphasis on obtaining
free, prior and informed consent (or FPIC).

The foregoing risks and challenges are exacerbated in the case
of transnational interconnectors due to the fact that cable repair
activities must be undertaken in areas under the jurisdiction of a
foreign state. Particular problems can arise where the cable passes
through areas designated for the development of hydrocarbons, as
oil and gas exploitation is prioritised by coastal states over
cable infrastructure. In some instances, cable owners have had to
compensate a hydrocarbon concessionaire in order to be able to
transit the area covered by the
concession.7

Further risks involve a possible withdrawal of necessary permits
or licenses due to non-compliance with regulatory requirements or
marine damage, a failure by the coastal state to use statutory
means to protect the cable route or the coastal state’s failure
to exercise due diligence to prevent cable damage by third parties.
Politically-inspired events and governmental actions adopted by the
coastal state may also have a material adverse effect on the
operation of an interconnector, interfere with cable repair
operations, or otherwise hamper the continued operation of the
cable.

Risk management and sharing

How are the risks associated with offshore energy transmission
infrastructure to be shared and managed? Proponents of submarine
interconnector projects should bear in mind the following key
issues:

  1. Projects of this nature require a satisfactory revenue
    stream.
    Accordingly, the power purchase agreement
    (PPA) is of fundamental economic importance. From
    the purchaser’s point of view, the reliable delivery of power
    is also essential. The risk of outages (both planned and unplanned)
    needs to be dealt with comprehensively in the PPA. Consideration
    should be given to whether the project owner must have at all
    relevant times ships and other equipment necessary on standby to
    rectify any damage to the cable as quickly as possible (and in
    locations proximate to the interconnector route). It is common for
    the PPA agreement to deal with this expressly. The intention is to
    minimise disruption to both the purchaser of the power and to the
    revenue of the project owner. Consideration also needs to be given
    to the extent of force majeure relief in circumstances additional
    to the environmental and other usual force majeure events discussed
    below.

  2. Cable protection typically requires the balancing of
    various interests and risks.
    To protect against physical
    damage, submarine cables are typically buried under the seabed
    (typically 1.6 – 1.5m deep) in shallower waters, which
    requires specific equipment. Cable protection at the point of cable
    or pipeline crossing requires additional protective measures which
    may be provided by installing protective structures such as rock or
    concrete mattresses.8 Deep cable burial,
    while potentially being more secure, can also harm the cable by
    reason of temperature rise and corrosion from the
    seabed.9

  3. Crossing agreements may need to be entered
    into.
    Where submarine cables cross other submarine
    infrastructure, it is common for the operators to enter into
    crossing agreements which define mutually capped indemnities
    against damage caused by the other party’s operations. Thus,
    for example, if pollution is caused due to a power cable damaging a
    pipeline, liability as between the pipeline and cable owners will
    typically be determined under the crossing agreements between
    them.

  4. The specific risks in play require a careful
    negotiation of the contractual risk allocation, as well as
    appropriate insurances.
    Consideration should be given to
    contractual risk sharing or transfer to the party best placed to
    manage the risk, in particular in respect of environmental and
    third party events that may impact the cable. There will usually be
    relief or force majeure events negotiated into the contractual
    arrangement which provide for risk sharing in the event that the
    cable cannot operate for a period due to environmental events
    external to the project. As noted, responsibility for damage caused
    by competing uses of the sea floor may be dealt with in the
    crossing agreements between submarine infrastructure owners.

  5. Contractual environmental liabilities should be clearly
    identified, including with respect to enforcement action for
    environmental incidents, breach of environmental approvals and
    decommissioning requirements.
    There are a number of
    regulators that may be involved in any such enforcement action
    including National Offshore Petroleum Safety and Environmental
    Management Authority (NOPSEMA), state and
    territory environment protection authorities and, in the future, a
    Federal environmental protection agency (which is yet to be
    established but is one of the proposals under the Federal
    Government’s environmental reform agenda).

  6. The program of works and risk allocation should account
    for the specific risks of delay involved in offshore cable laying
    and operation.
    These risks include potential delays
    resulting from (for example) permit processes, weather conditions,
    the availability and capacity of material and machinery (including
    CLVs), transport, cable damage or unilateral adverse actions of a
    coastal state government.

  7. Where the interconnector traverses the jurisdiction of
    several states, successful and continuous engagement with the
    coastal state with prescriptive and enforcement jurisdiction over
    the relevant maritime areas will be critical to ensure the
    long-term success of the project.
    The cable owner may
    require permits or authorisations from the coastal state for the
    surveying and laying, maintenance and repair of submarine cables.
    The coastal state can alter or implement laws that impact the
    operation and maintenance of the cables, or restrict cable
    maintenance or repair activities. Political risk insurance and
    protections available under investment treaties should be explored
    to ensure that the cable owner is protected against the political
    risks involved when operating in a foreign jurisdiction. Ideally,
    there should be an investment treaty in force between the home
    state of the cable owner and each coastal state along the cable
    route. The treaty should have provisions that allow the cable owner
    to seek compensation from the coastal state before an independent
    panel of arbitrators in the event of any adverse acts or omissions
    by the coastal state that might impede the laying, maintenance or
    repair of the submarine cable. In considering the best available
    treaty protections, consideration must be given to the territorial
    scope of any applicable treaties and, in particular, whether the
    relevant treaty applies to the trajectory of the cable through
    maritime areas under the costal state
    jurisdiction.10

***

The foregoing overview provides but a sample of risks and
challenges project owners will need to account for in developing
contracting strategies and risk mitigation tools to effectively
deliver submarine interconnectors.

The best contracting strategy will ultimately depend on a
combination of factors, including (but not limited to) a
project’s individual characteristics, cable length and the
water depth along the cable route, the relevant coastal
jurisdictions and the political risk of operating within those
jurisdictions. This will require a holistic assessment a
project’s risk profile, and unique and innovative approaches to
project planning, financing and delivery.

Footnotes

1 J Gordonnat and J Hunt, Subsea cable key
challenges of an intercontinental power link: case study of
Australia-Singapore interconnector
, Energy Transitions (2020)
4:169-188, 170.

2 This is also referred to as one of the
defined ‘freedoms of the high seas’. The freedom does not
apply within a coastal state’s territorial sea, internal waters
or archipelagic waters.

3 UNCLOS Articles 58(3) and 79(5).

4 UNCLOS Article 79(2).

5 See generally the work of the
Intergovernmental Conference on an international legally binding
instrument under UNCLOS on the conservation and sustainable use of
marine biological diversity of areas beyond national jurisdiction
(General Assembly resolution 72/239).

6 J Gordonnat and J Hunt, Subsea cable key
challenges of an intercontinental power link: case study of
Australia-Singapore interconnector
, Energy Transitions (2020)
4:169-188, 177.

7 Y van Logchem, Submarine
Telecommunication Cables in Disputed Maritime Areas
(2014) 45
Ocean Development & International Law 107, 109.

8 J Gordonnat and J Hunt, Subsea cable key
challenges of an intercontinental power link: case study of
Australia-Singapore interconnector
, Energy Transitions (2020)
4:169-188, 175.

9 W Wang, X Yan, S Li, L Zhang, J Ouyang and X
Ni, Failure of submarine cables used in high-voltage power
transmission: Characteristics, mechanisms, key issues and prospects
2021
(15) IET Generation, Transmission & Distribution
1387, 1397.

10 For further detail on the territorial scope
of investment treaties see ‘Investment in disputed
territories: lessons for investors’
, published 4 August
2022, available
here
.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.





    Lawyers Weekly
Law firm of the year
2021                  

Employer of Choice for Gender Equality
(WGEA)



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