Article

Power Principles: International Rules Governing Australia-Singapore Cross-Border Electricity Trade18 July 2024

Introduction

"International cooperation, alongside providing clear and consistent regulatory frameworks, will be key to ensuring the success of Australian investment in CBET into ASEAN."

Cross-border electricity trading (“CBET”) in South-East Asia has a long history, including bilateral arrangements and regional initiatives through the Association of South-East Asian Nations (“ASEAN”) and other regional bodies. Expanding these arrangements and working towards an ASEAN Power Grid could play an important role in increasing the resilience and efficiency of energy supply chains in the region and help governments achieve their carbon emission reduction goals. Australia has also identified a potential opportunity in supporting ASEAN’s energy transition through CBET. The ambitious Australia-Asia Power Link project by SunCable (an Australia renewable energy company) aims to export solar power from Australia to Singapore through subsea cable connections via Indonesian waters.

International cooperation, alongside providing clear and consistent regulatory frameworks, will be key to ensuring the success of Australian investment in CBET into ASEAN. Recognising this, in early 2024, the Australian and Singaporean governments announced their “Ten Principles to Guide the Development of Cross-Border Electricity Trade” (the “Ten Principles”) under the auspices of the Australia-Singapore Green Economy Agreement (the “GEA”). The Ten Principles set out how Australia and Singapore aim to promote the trading of electricity from Australia into Singapore.

This article sets out some of the key aspect of the Ten Principles, as well as trade, investment and law of the sea obligations that are relevant to CBET.

The Ten Principles

The GEA is a unique agreement signed on 18 October 2022. It aims to enable increased collaboration between Australia and Singapore on issues relating to trade, industry and the environment. The GEA sets out a range of areas in which Australia and Singapore intend to undertake cooperation projects to promote sustainable trade and economic growth. Highlights from the implementation of the GEA to-date include:

cooperation towards the establishment of a Green and Digital Shipping Corridor to decarbonise and digitise shipping between Australia and Singapore;
supporting green innovation programmes and cross-border collaboration through grants to support small and medium-sized enterprises working on green products, services and technology;
cooperation on skills, training and employment policies and programmes through Green Skills Roundtables;
research partnership on advancing green economy sectors; and
work on CBET including a joint working group and the adoption of the Ten Principles to guide the development of CBET architecture.

"The GEA sets out a range of areas in which Australia and Singapore intend to undertake cooperation projects to promote sustainable trade and economic growth."

The Ten Principles were announced on 5 March 2024 at the 9^th Australia-Singapore Annual Leaders’ Meeting. They are designed to support the development of CBET architecture to “facilitate trade and investment, provide clarity and predictability for businesses, investors and other actors looking to participate in regional energy connectivity”.

In the Ten Principles, the Australian and Singaporean governments have laid out a clear vision for what they wish to achieve in terms of legal and institutional architecture to support CBET, including that such architecture should:

facilitate participation in regional CBET in addition to delivering benefits specific to Australia and Singapore (Principle 1) and lead to new partnerships to enhance CBET (Principle 10);
support the building of diverse, resilient and secure energy supply chains, and include frameworks to safeguard CBET infrastructure (including in transit countries) (Principles 2 and 3);
support the development of schemes for the certification of renewable energy and cooperation on carbon accounting (Principle 4);
uphold and respect Australia and Singapore’s commitments under their bilateral and multilateral agreements, including their free trade agreement, the WTO Agreements, and in regard to the law of the sea (Principle 5);
support the development and harmonisation of policies and regulations in relation to CBET (including permits, environmental approvals, liability provisions and safety) (Principle 6);
facilitate interoperable systems and consistent and compatible technical standards in regard to the development, operation and maintenance of CBET and related infrastructure (Principle 7);
include governance arrangements with oversight, transparency and accountability, including dispute resolution mechanisms (Principle 8); and
support knowledge and expertise sharing to increase cross-border understanding of each country’s priorities (Principle 9).

These principles will provide important guidance to Australia and Singapore (and also industry) in the development of the arrangements and agreements that will underpin the development of CBET between the two countries. Their focus on providing certainty, clarity and predictability, in particular, will be particularly important to reassure investors and business considering investment in this sector.

Trade and Investment Law Protections

In addition to the architecture envisaged by the Ten Principles, trade and investment law also provides protections to enterprises looking to engage in CBET.

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"For investors, regional trade and investment agreements can also provide options to resolve disputes regarding CBET projects in the form of investor-state dispute settlement provisions."

For example, free trade agreements in the region (including between Australia and Singapore) can include:

commitments on cross-border trade in services, including in relation to the sale of electricity across borders. This includes limitations on the imposition of market access barriers and discriminatory regulations; and
investment commitments, including non-discrimination requirements, protections against expropriation, prohibitions on the use of certain performance requirements (such as minimum exports or use of domestic content), and guarantees of fair and equitable treatment.

Trade agreements may also provide useful foundations for implementing the Ten Principles and dealing with other issues associated with CBET. For example, for CBET through submarine cables, trade agreements already often contain rules on international submarine cables for telecommunications, including on access, repair and maintenance. There may similarly be scope for governments to consider negotiating bespoke provisions for submarine power transmission cables under the auspices of their trade agreements or in separate instruments.

For investors, regional trade and investment agreements can also provide options to resolve disputes regarding CBET projects in the form of investor-state dispute settlement provisions. These enable investors to directly enforce rights provided under the relevant treaties against host States, enhancing the stability and certainty of the regulatory environment.

The Law of the Sea

Finally, the law of the sea – in particular, the United Nations Convention on the Law of the Sea (“UNCLOS”) – contains a range of provisions that specify the rights and obligations of States in relation to submarine cables, including those used for power transmission, across the various maritime zones recognised under international law.

These provisions cover matters such as:

"Governments, businesses working on CBET, and investors should be mindful of these international law rules and frameworks, the way they may interact and the potential benefits their legal rights might offer."

the sovereignty of coastal States over their territorial sea and powers to adopt laws and regulations in respect of the protection of cables in the context of innocent passage through their territorial seas (Article 21(1)(c));
archipelagic States respecting existing submarine cables in their archipelagic waters and permitting their maintenance and replacement (Article 51(2));
the right of all States to lay submarine cables in Exclusive Economic Zones (“EEZ”) (Article 58(1)), on the continental shelf (Article 79), and on the bed of the high seas beyond the continental shelf (Articles 87(1)(c) and 112), subject to compliance with the relevant requirements of UNCLOS; and
the requirement on States to adopt laws and regulations:
- making the wilful or culpably negligent breaking or damaging of submarine cables beneath the high seas or EEZ by ships flying their flag or persons subject to their jurisdiction an offence (Articles 58(2) and 113);
- requiring owners of submarine cables beneath the high seas or EEZ that cause a break or damage to another cable while laying or repairing their own cable to bear the cost of any repairs (Articles 58(2) and 114); and
- ensuring that owners of a cable indemnify owners of ships that can prove they sacrificed an anchor, net or other fishing gear to avoid injuring the cable (provided the ship owner has taken all reasonable precautionary measures) (Article 115).

By setting out the relevant rights and duties of States, these provisions can be important tools to inform negotiations with and between governments on the laying of submarine power cables and also their maintenance and repair.

Conclusion

The energy transition has forced many governments to closely consider their energy needs and new measures to secure clean, reliable sources of electricity. CBET can play an important role in those considerations and support the achievement of net zero targets. The Ten Principles announced by Australia and Singapore demonstrate the commitment of those governments to supporting the development of architecture to help connect Australia to this opportunity and support CBET in the region more generally. The region’s network of trade and investment treaties provides both existing protections and a solid base for the implementation of new rules specific to CBET. Similarly, where CBET makes use of submarine cables, the law of the sea and UNCLOS provides a clear foundation for establishing the rights and obligations of the governments involved. Governments, businesses working on CBET, and investors should be mindful of these international law rules and frameworks, the way they may interact and the potential benefits their legal rights might offer. This includes, for governments, when designing new regulatory frameworks for CBET; and, for industry, when establishing new CBET projects.