The Road to Success Paved with Approvals

Blog by earthtrade Director Thomas Key

EPC (Engineering, Procurement and Construction) companies need to restructure their budgets to avoid the pain of failing to be able to properly navigate the approvals process in developing renewables projects.

The fact is that pre-approval commercial aspects of environmental approvals are often ignored by new players.

There’s plenty of ecological, environmental and biodiversity advice out there but little in the way of commercial and governance advice and poor decisions in these areas can lead to significant bills (both today and in the future) and the creation of long-term project risks.

Biodiversity Offsets can cost anywhere from a few million dollars up to tens of millions depending on the scale of the development and where it is located. Keeping in mind also that a biodiversity offset is at least a 20-year commitment to expenditure for the project and is an ongoing condition and requirement of the project’s approvals.

In South East Queensland, land costs can be upwards of $60,000 a hectare. Even a few hundred hectares (of offset, not impact) and suddenly, you’re in the millions of dollars of additional development costs not withstanding implementation, monitoring and compliance costs into the future.

Central Queensland on the other hand can be much, much cheaper. It can be anywhere from a thousand dollars to two and a half, three, $4,000 a hectare. However, projects in this region are often of a scale with impacts in the thousands of hectares and offsets many times that.

Got a budget for this? In many cases the answer is, ‘no’.

The typical scenario is that there’s no money allocated to a project for biodiversity offsets before the Final Investment Decision (FID). There’s no FID without the development approvals and there are no development approvals without all the governance checks in place to ensure that the project can secure the required biodiversity offsets.

Furthermore, timelines often do not allow for engagement with the regulator who can, and does, issue Requests for Information (RFI) or terms of reference on any and all parts of the project often in stages as they process information and not all at once. These RFIs can include requirements for Offset Proposals, Offset Management Plans, and evidence of commercial security of offsets – all prior to project approval.

Caught short the EPC then engages in furious activity working backwards. They need someone who can source and negotiate offsets, (and) they need a landholder/s to supply the offsets. The client suddenly finds themselves in a weakened negotiating position with both offset suppliers and regulators.

They now need to do all the things that they have zero budget for and zero timeline for. They also then need to allow for any internal political and cultural requirements as well – Traditional Owner engagement, community support, how far afield can the offset be placed, Nature Positive requirements etc all resulting in a chicken and egg scenario – no funding until approval, no approval until offsets, no offsets until funding.

EPCs, particularly newer clients, need to explore all these avenues, before they start, to really understand that they are going to have to do something, somewhere and what that looks like.

They need to understand that this is not something that you can just wait for until you have final investment decision, and you have billions of dollars in the bank account to fund it.

It’s the matter of unpacking the way they structure the approvals process. That is, the final investment decision is based on the client getting all their regulatory approvals. The regulatory approvals, at least in the context of offsets, is contingent on them having identified and commercially secured the offset. This is to ensure that there is the minimum time lag between project commencement and the offset commencing.

The lesson is to get commercial and governance advice, get it early and make sure there is budget for the end result.