Victoria is about to host Australia's first offshore wind auction. But what is it?

Victoria is set to host Australia's first offshore wind auction, marking a significant milestone in the country's renewable energy sector. This auction will determine the future of the first two gigawatts (GW) of offshore wind power to be generated in Victoria, enough to power approximately 1.5 million homes annually. Energy Minister Jaclyn Symes opened the Request for Proposal process, aiming to attract billions in investment, create thousands of jobs, and provide reliable power as coal-fired plants are retired.

The auction operates similarly to property bidding, with energy proponents competing for government support to develop their projects. Successful bidders will enter into long-term contracts through the Energy Services Entry Mechanism (ESEM), a recommendation by the federal Energy Department to encourage investment in the energy sector. The ESEM bridges the gap between the lengthy lifespan of renewable projects and the shorter investment horizons of energy buyers by providing long-term contracts.

Gippsland, off the coast of Victoria, was designated as Australia's first offshore wind zone in 2022 due to its strong winds, shallow waters, and proximity to existing power grid infrastructure. Nine proponents hold feasibility licences for wind farms in this area, with only a few likely to participate in the first auction. Once the auction closes in August 2027, successful projects will move toward investment, construction, and operation. The auction is scheduled to conclude in 2028, with contracts awarded in 2028.

The closure of coal-fired power plants in Victoria and other states creates the need to replace this energy with renewables. Victoria aims to generate at least 2GW of offshore wind by 2032, increasing to 4GW by 2035 and 9GW in 2040. However, the Victorian auditor-general expressed doubts about meeting this target due to sector establishment delays.

The auction announcement provides crucial certainty for the sector, with environmentalists and industry leaders welcoming the news. While some may question the cost, energy experts argue that the broader societal benefits justify the investment, similar to the support provided for other critical industries.