Australia: Doing Business in Australia - Energy Industry

Last Updated: 1 May 2012
Article by Tony Holland

Restructured dramatically since the early 1990s, Australia's energy industry is no longer dominated by state-owned authorities. In most jurisdictions, many electricity and gas utilities have been privatised. However, in New South Wales, Tasmania and Western Australia, electricity is predominately in state control. It has since been estimated that there is a AU$94 billion capital requirement estimated for the Australian energy sector in the short-to-mid term. Equity investment by foreign institutional investors is significant - representing 40% of the Australian Securities Exchange and 20% in each of Australia's largest listed energy companies.

Ownership of gas and electricity utilities is restricted by licence requirements and cross-ownership provisions, which differ in each state and territory. Additionally, competition law is particularly important to these industries because of the significant competition issues associated with their regulation. The Australian Competition and Consumer Commission (ACCC) is responsible for the investigation and prosecution of the Competition and Consumer Laws. These laws apply to all transactions - including the energy industry.



The National Electricity Market (NEM) is the largest interconnected electricity network in the world. It pools output from all significant generators into a single wholesale spot market. This spot market allows generators and large customers to trade across the Australian Capital Territory, New South Wales, South Australia, Victoria, Queensland and Tasmania. Independent of the spot market, generators and their customers can enter into agreements to secure future capacity and price. The output pool operates on a break-even basis, with funds derived from fees levied from registered NEM participants.

Western Australia and the Northern Territory do not participate in the NEM. Western Australia has two major networks: the South West Interconnected System and the North West Interconnected System. Four state-owned corporations service these networks. The Northern Territory has a single network administered solely by the Power and Water Corporation.

The non-profit Australian Energy Market Operator (AEMO) creates a single operator that can oversee and integrate convergent infrastructure planning and trading activities across the different type of transmission systems in both the electricity and gas markets. The AEMO has the responsibility of managing the NEM, managing the retail and wholesale gas markets of eastern and southern Australia and overseeing system security of the NEM electricity grid.

The National Electricity Law (NEL) and National Electricity Rules (Rules) govern the operation of the NEM. As stated in the NEL, the National Electricity Objective is to promote efficient investment in, and efficient operation and use of, electricity services for the long-term interests of consumers of electricity with respect to:

  • Price, quality, safety, reliability, and security of supply of electricity
  • The reliability, safety and security of the national electricity system.

The Rules made by the Australian Energy Market Commission (AEMC), a national statutory body, set out detailed market rules that have the force of law under the NEL. As well as rule-making, AEMC provides policy advice regarding the NEM.

The Australian Energy Regulator (AER), a division of the ACCC, is responsible for the economic regulation of the electricity transmission and distribution networks in the NEM. The AER is also responsible for enforcing the NEL and the Rules. In Western Australia and the Northern Territory, the Economic Regulation Authority and the Utilities Commission respectively enforce energy regulation.

Electricity generators must comply with the Rules and with connection agreements entered into with Transmission Network Service Providers (TNSPs). Depending upon the jurisdiction, TNSPs may also be required to hold a state licence or hold an authority to engage in the operation of a transmission network. TNSPs typically receive regulated revenue and are regulated by the AER, but there are unregulated interconnectors such as Basslink.

Distribution Network Service Providers – companies that distribute electricity less than 66kV – also operate under statebased licences and receive regulated revenue. The AER has assumed the role of national regulator of electricity distribution networks of the participating states and territories.


Currently, retailers operate under state-based licences and maintain the relationship with electricity consumers. Full retail competition – all consumers have the option of choosing their power retailers and negotiating individual supply contracts – has been introduced successfully in all states around Australia, except for Western Australia and the Northern Territory. In Western Australia, the retail market is dominated by the government-owned retailer, Synergy. In the Northern Territory, the government-owned Power and Water Corporation dominates the retail market. Retail and distribution businesses are primarily regulated by independent state-based bodies. State legislation and regulations establish a licensing system for all industry participants.

However, the National Energy Retail Laws and National Energy Retail Rules are planned to commence on 1 July 2012. These reforms aim to ensure a uniform framework of regulation for the retail energy sector where the NEM applies.


The National Gas Law (NGL) was developed and implemented by the various state and territory governments around Australia in response to calls for reform of the Gas Pipelines Access (South Australia) Act 1997 (SA), commonly known as the Gas Code, which was failing to adequately regulate the provision of access to gas pipeline services. The NGL has been adopted by all states and territories in Australia (other than Western Australia), which has agreed to legislate only the provisions of the NGL dealing with access to natural gas transmission and distribution infrastructure. The NGL in a modified form applies in Western Australia. Before the inception of the NGL, the Australian system for the regulation of gas was governed by the Gas Pipelines Access Law, which incorporated the Gas Code, outlining specific operational and regulatory requirements.

The objective of the NGL is to promote efficient investment in, and efficient operation and use of, natural gas services for the long-term interests of consumers of natural gas with respect to price, quality, safety, reliability and security of supply of natural gas.

AEMO is the gas market operator for the wholesale and retail gas markets of eastern and southern Australia and oversees system security of the Victorian gas transmission network. In addition, AEMO is responsible for national transmission planning and the establishment of a Short Term Trading Market (STTM) for gas. STTM is a market-based wholesale gas balancing mechanism to be established at defined gas hubs, initially in Sydney and Adelaide. An objective of the STTM is to facilitate the short-term trading of gas between pipelines, participants and production centres. The STTM may be expanded to encompass further hubs later, such as Queensland and the Australian Capital Territory.

AER is the economic regulator for covered natural gas transmission and distribution pipelines in all states and territories, except those in Western Australia, where the Economic Regulation Authority (ERA) of Western Australia is the economic regulator.

The NGL and the modified version of the NGL, which will apply in Western Australia, set out a consistent procedure for AER and the ERA respectively to follow when assessing access arrangements proposed by pipeline operators to sell transmission and distribution services to third parties such as gas producers, retailers and users.

Like the National Electricity Rules, the National Gas Rules (Gas Rules) made by the AEMC under the NGL set out detailed rules governing access to natural gas pipeline services and elements of broader natural gas markets. The Gas Rules have the force of law.

Other than access arrangements for gas pipelines – including, for example, the establishment of state-based wholesale spot markets for natural gas trading – state legislation and regulations cover all aspects of the gas industry. The states have also established a licensing system for transmission, distribution and retail industry participants.


Australia has abundant coal resources - particularly in the states of Queensland and New South Wales. Such diversity and quantity of natural resources has yielded a sophisticated and continually changing legal regulatory regime. Australia is the world's biggest coal exporter. Black coal alone represents more than AU$50 billion and is Australia's largest export. Total coal exports are projected to grow at 5% per annum, with thermal coal exports predicted to grow at a higher rate (6.7% per annum) to that of metallurgical coal (3.5% per annum). Recent incentives such as the Federal Government's Clean Energy Future Plan and the establishment of the privately funded COAL21 Fund provides incentives for the Australian coal industry to continue developing advancements in coal production and technologies.

The mining industry generally is regulated at a state and territory level. States such as New South Wales and Queensland have legislation specific to coal. The regulation of the coal industry in other jurisdictions is through various acts. But for minor exceptions, the ownership of minerals vests in the crown of the relevant jurisdiction. The general legal regime for mining activities does not envisage government partaking in exploration and production activities, but rather the creation of various mining rights to private enterprise and to provide regulation in the exploration and production of natural resources. All states and the Northern Territory have developed statutory licensing schemes in conferring mining rights. Such rights may include licences, permits, leases and other associated rights relating to mining. While each jurisdiction is different in the design of its respective scheme, there are common features with respect to the exploration phase (this includes prospecting rights for small-scale activities); the retention phase (this includes the Crown "retaining title" in the post-discovery of minerals until it becomes commercially viable); and the production phase.

In return for conferring mining rights, private enterprise is typically obliged to pay royalties, duties and taxes. The grant of any freehold land title within Australia is subject to the Crown's ownership interest in the minerals that it may hold. Additionally, the Crown has the constitutional power to compulsorily acquire privately held land for just compensation. Any granting of freehold title or mining rights over any land is subject to the Native Title Act 1993 (Cth) (Native Title Act).

Mining activities have historically been structured as a joint venture (either incorporated or unincorporated). There is no pre-requisite that a local entity must be a party to a mining activity in Australia. Nevertheless, the Foreign Investment Review Board may need to approve the following activities of foreign entities that:

  • Acquire any exploration and production rights in an Australian mines or the shares in an Australian company
  • Acquire an interest in an operational mine equal or more than AU$50 million
  • Are foreign governments and their related entities (regardless of the transactional value).

See also the Mining & Resources chapter.


Oil and petroleum liquids that are commonly produced in Australia include:

  • Crude oil
  • Condensate
  • Liquefied petroleum gas.

Australia's prominent gas producing areas exist in Western Australia, the Northern Territory, Bass Straight, South Australia, Queensland and the Timor Sea.

Australia has a large petroleum trade deficit in the export of petroleum products. Many associations are calling for increased exploration to occur to develop the industry. On 17 January 2011, the Federal Government announced that it had awarded seven Offshore Petroleum Exploration Permits off Western Australia and South Australia.

The ownership rights of oil and petroleum (and any rights to royalties) are determined by the location of the resource, being either onshore or offshore.

Petroleum beyond a three nautical mile limit to the outer margin of Australia's maritime jurisdiction is classified as offshore petroleum and is the property of the Commonwealth. Commonwealth petroleum areas are subject to the Offshore Petroleum and Greenhouse Gas Storage Act 2006 (Cth) (OPGGSA) and the United Convention of the Law of the Sea, along with other relevant laws.

Any petroleum within the territorial sea baseline seaward to three nautical miles is onshore petroleum and is property of the relevant state or territory. Onshore petroleum is regulated by the laws of the relevant state or territory and other relevant laws (for example, the Native Title Act).

In response to the Federal Government's 2009 Productivity Commission research report (Review of Regulatory Burden on the Upstream Petroleum (Oil and Gas) Sector Productivity Commission Report) and the Montara Commission of Inquiry, the Federal Government proposed modifications to the current offshore regime.

On 25 May 2011, a number of Bills were introduced to Federal Parliament, which will modify the OPGGSA and some related laws. In summary, this modification seeks to create a single Commonwealth system of regulation to replace the joint state/ Commonwealth regulation system.

The Bills to amend OPGGSA broadly seek to modify the current regime by:

  • Excluding the operation of the personal properties securities legislation
  • Imposing certain levies and costs and changing certain structures relating to royalties
  • Establishing two new regulatory bodies to administer and regulate operations under the OPGGSA.

These amendments have been incorporated into the OPGGSA.


Australia has numerous renewable energy sources, but has traditionally heavily relied upon fossil fuels for its base load energy requirements. As such, it has only been in recent years that Australia has begun to see the potential of this energy source. Some of the renewable energy sources currently encouraged by the Clean Energy Council (CEC) are:

  • Hydroelectricity: Hydroelectricity delivers the majority of Australia's renewable energy and also represents 5.5% of the nation's total electricity output. There are more than 100 hydroelectricity stations. The CEC believe that there are still opportunities that exist in Australia for small hydroelectricity facilities.
  • Wind power: Australia has abundant resources of wind. This has resulted in wind power being the most cost-efficient renewable energy resource in Australia.
  • Marine energy: This refers to harnessing the ocean's tides, current or waves to produce electricity. The CEC claims that Australia has excellent marine energy resources.
  • Energy crops: This refers to crops grown for energy production. In Australia, ethanol fuel produced from sugar cane is common. Current legislation imposes a 10% cap on the concentration of fuel ethanol blends.
  • Geothermal energy: The CEC refers to Australia's geothermal resources as being "plentiful". Geothermal energy falls into the category of either hydrothermal or hot fractured rock. There is only one geothermal power station currently in operation. Despite this, the CEC believes that geothermal energy will produce 2,200 megawatts by 2020.
  • Solar energy: Australia has the highest average solar radiation of any continent in the world. Despite this, Australia does not have numerous solar thermal power stations. Recent announced investments have started to break this trend.

Policies and legislation furthering the commercial viability of renewable energy sources are conducted on a state and Commonwealth level. Recent Commonwealth reforms in this sector have been:

  • Renewable Energy (Electricity) Act 2000 (Cth) (REEA):The REEA attempts to influence the development of renewable energy by (amongst other things) establishing the Renewable Energy Target, which aims for renewable energy to be 20% of Australia's total electricity supply by 2020; establishing the market for the trading of certificates that provides incentives in renewable energy in both large- and small-scale renewable energy systems; and establishing the Renewable Energy Regulator and the Office of Renewable Energy Regulator.
  • Clean Energy Act 2011 (Cth) (CEA): Australia has also recently introduced a price on carbon that 500 companies will bear directly with the enactment of the CEA and other associated legislative materials, commencing 1 July 2012. Its impact will filter throughout the Australian economy as the costs borne by business are passed on and flow through, such as increases in electricity prices and other inputs. Sectors covered by the carbon price mechanism include coal mining and natural gas extraction. By 1 July 2015, it is intended that Australia will transition to a full carbon trading scheme.
  • Clean Energy Future Plan: This Federal Government policy budgets for AU$13 billion to provide investment incentives in renewable energy. Additionally, it establishes the Energy Finance Corporation to assist private enterprise's access to finance for renewable energy projects. See also the Environment & Climate Change chapter.

© DLA Piper

This publication is intended as a general overview and discussion of the subjects dealt with. It is not intended to be, and should not used as, a substitute for taking legal advice in any specific situation. DLA Piper Australia will accept no responsibility for any actions taken or not taken on the basis of this publication.

DLA Piper Australia is part of DLA Piper, a global law firm, operating through various separate and distinct legal entities. For further information, please refer to

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