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Focus: Changes to Renewable Energy Target scheme passed

6 July 2010

In brief: The loss of momentum post-Copenhagen does not necessarily mean all carbon pollution reduction activity has stalled. Partner Anna Collyer (view CV) and Law Graduate Natasha McNamara report on legislation that splits Australia's Renewable Energy Target scheme into separate large and small-scale schemes.

How does it affect you?

  • Liable entities will have an obligation to surrender certificates under both the Large-scale Renewable Energy Target (LRET) and the Small-scale Renewable Energy Scheme (SRES).
  • The separation of the Renewable Energy Target (RET) into two parts is intended to provide large-scale renewable energy generators with the certainty that is necessary for investment, while supporting electricity generation from small-scale technologies.
  • Government amendments to the Bill, designed to ensure that the two schemes operate effectively, make possible a temporary increase in the LRET in 2012 and 2013, a review of the fixed price for small-scale certificates and a review of the Solar Credits multiplier. An Opposition amendment means that no part of the assistance to emissions-intensive trade-exposed (EITE) industries is dependent on the passage of the Carbon Pollution Reduction Scheme.

Legislation passed

In our Client Update: Changes to Renewable Energy Target scheme announced – March 2010, we reported the Federal Government's announcement that from 1 January 2011 the RET will have two parts, the LRET and the SRES. On 23 June the Senate passed legislation introducing these changes. The House of Representatives has approved the Senate's amendments.

Large-scale Renewable Energy Target

The LRET has been separated from the SRES in response to concern that the ready availability of Renewable Energy Certificates (RECs) generated from small-scale installations was depressing the REC price and increasing uncertainty for large-scale generators. Large-scale generators of electricity from wind farms, solar arrays, hydroelectricity and geothermal projects will receive one Large-scale Generation Certificate (also known as LREC) per MWh generated. The LRET has been decreased from 45,500 GWh to 41,000 GWh in 2020 to account for the electricity that will be generated under the SRES.

Small-scale Renewable Energy Scheme

Wholesale purchasers of electricity will now also be obliged to surrender Small-scale Technology Certificates (STCs). One STC is created for each MWh of electricity generated by small-scale technologies such as solar water heaters, household photovoltaic systems and small-scale wind and hydro power systems. The existing Solar Credits multiplier, which provides multiple credits per MWh of electricity produced by small units, will continue. STCs can be traded through a clearing house at a fixed price of $40 (plus GST), or on private markets. The SRES is uncapped. Liable entities are required to purchase and surrender all STCs created each year. In order to provide liable entities with some certainty in relation to their STC obligation, the Office of Renewable Energy Regulation (ORER) will provide a forecast of the number of STCs that will be created in the year to come. A liable entity's SRES liability is based on this estimate and the entity's electricity acquisition in the previous year, and is adjusted in the fourth quarter when the entity's electricity acquisition for the current year is known.

Key Senate amendments

Three Government amendments to the Bill were accepted by the Senate:

  • If the number of RECs banked at the end of 2010 substantially exceeds expectation, the renewable energy target for 2012 and 2013 can be increased temporarily (and then smoothed out between 2016 and 2019) to provide investment certainty. This may address concerns that the REC price may remain at low levels in the short term due to the current bank of RECs significantly exceeding demand.
  • The Minister may review the fixed clearing house price for STCs to ensure that the price remains appropriate.
  • The ORER may adjust the Solar Credits multiplier (which affects the number of STCs to which the owner of a small solar generation unit is entitled) to reflect the cost of solar panels.

Assistance to EITE industries will continue. The exemption for EITE industries in relation to the original Mandatory Renewable Energy Target of 9500 GWh that applies if the REC price exceeds $40 is no longer dependent on the passage of the CPRS, thanks to an Opposition amendment to the Bill supported by Senator Nick Xenaphon.

A Greens amendment to extend the life of RECs for geothermal projects to 2040 to provide the industry with greater certainty failed. The Government view is that budgetary support for the geothermal industry is preferable to a legislative market-based mechanism. The Government has committed over $200 million to the development of geothermal technology. The Government also announced its commitment of $652.5 million over four years to the Renewable Energy Future Fund in the May Budget. Support for development and deployment of geothermal energy is one of the intended uses of this fund.

What now?

While the CPRS appears destined to remain on the back burner for some time to come, the passage of these changes to improve the RET will provide support for renewable energy sources in the immediate future.

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