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Client Update: Northern Territory's bold renewable energy target

11 December 2017

In brief: Recently, the Northern Territory Government released the Roadmap to Renewables report. The report considers how the Government could successfully implement a policy to achieve half of the Territory's energy requirements from renewable sources by 2030. The report indicates that considerable amounts of new, privately funded, renewable energy generation will be required to meet the target. Partner Jodi Reinmuth (view CV) and Lawyer Alexander Ninkov consider the report's recommendations and the Northern Territory Government's response.

Background

Currently, only 4 per cent of the Northern Territory's energy mix comprises renewable energy (this is compared to 16 per cent in Victoria and 13 per cent in Western Australia).1 In July 2016, the NT Government committed to pursuing the target of 50 per cent renewable energy by 2030 (the Target). In seeking a path forward, the NT Government commissioned an Expert Advisory Panel (the Panel) (chaired by Mr. Alan Langworthy) to provide it with a report setting out the options available to achieve the Target. The Terms of Reference were broad, as the NT Government asked the Panel to advise on the technical, financial, operational and economic feasibility of options in the NT context. Additionally, the Panel's advice was to be underpinned by the objective of a secure, reliable and least-cost electricity service for all Territorians.

Roadmap to Renewables

On 27 November 2017, the NT Government released the Roadmap to Renewables report (the Report) prepared by the Panel. The Report contains 11 recommendations, which the Panel view as providing the 'essential foundation' needed to achieve the Target (the Recommendations). Specifically, the Report states that to meet the Target, an additional 450MW of installed renewable energy capacity would be required for the regulated networks, covering 700 hectares of land. The Report notes that this amount of installed capacity can only be efficiently achieved through a combination of public and private investment.

The Report also suggests that renewable energy has the potential to be a key element in the NT's economic development. To this end, the Panel recommended the inclusion of renewable energy as a central pillar of economic policy, which would facilitate maximum economic benefits being returned to the Territory, founded on competitively priced and environmentally responsible electricity generation. The Panel also suggested that an Independent implementation agency be established to coordinate the action required to achieve the Target. 

The Report noted that the NT Government is in a 'unique position' to influence the uptake of renewable energy given it currently procures energy equating to approximately 25 per cent of total energy consumption in the NT. Additionally, the NT is not part of the National Electricity Market and will not be subject to the National Energy Guarantee. Therefore, at a practical level, the Report recommended that the NT Government take the following action.

  • The NT Government currently pays (via the renewable energy 'Feed In Tariff' (Tariff)) eligible households for excess electricity generated from small-scale photovoltaics (PV), wind turbines or hydro systems. The Tariff is paid at a flat rate of 25.67 cents per kWh for domestic and 29.87 cents per kWh for commercial consumers. The Report recommends the structure of the Tariff be changed so that it reflects electricity demands at different times of the day. This will mean the flat fee is replaced with a cost reflective tariff. It is hoped that this change will encourage the uptake of PV and behind the meter energy storage (eg batteries), and in doing so comprise private investment which counts toward the Target. Currently, only 14 per cent of NT houses have solar panels, which is compared to 34 per cent in Queensland and 27 per cent in Western Australia.
  • Currently, Jacana Energy (a wholly-owned NT Government entity), is required under the Commonwealth's Renewable Energy Target (RET) legislation to source RET Certificates equivalent to its liability for the national 33,000GWh requirement in 2020. To meet this obligation, the Report recommends the NT Government purchase the required electricity from renewable energy supplies based in the NT and install roof-top PV systems to NT Government housing.
  • The three Government-owned corporations – Power and Water Corporation (system control and networks), Territory Generation (generation) and Jacana Energy (retail) operate the NT electricity system. Therefore, the Report recommended that the NT Government, through these corporations, facilitate an open and fair investment environment. The Report also recommended the replacement of aging base load generation facilities with renewable energy plants funded by private investment.
  • The NT Government, in order to both encourage investment and give investor certainty, should enter into long-term off take agreements (Power Purchase Agreements) for renewable energy. Under this proposal, it is envisaged that the NT Government would stipulate that certain amounts of renewable energy are required to be generated, and private investors would tender to provide that generation capacity for a specified price and term (Reverse Auction). By entering into these types of arrangements, the NT Government is able to give renewable energy investors long-term price certainty.

Government's response to supporting recommendations

Upon release of the Report, Chief Minister Michael Gunner gave his Government's complete or 'in-principle' support to each of the Recommendations. Additionally, he announced an additional $4.5 million to fund co-contribution grants of up to $1000 for households to increase their use of renewable energy. This is in line with the Report's recommendation of securing an increase in the deployment of roof-top PV in the NT. It was also announced that the NT Government would provide $750,000 to the Power and Water Corporation to create a new system model for the NT.

Commercial implications

The commercial implications are significant. Substantial private investment is likely to be necessary if the NT Government is to achieve its own mandated 46 per cent increase in solar generation over the next 13 years. Additionally, following successful Reverse Auctions for renewable energy generation in the ACT, the possibility of similar arrangements being implemented in the NT presents a unique opportunity for the development of large-scale renewable energy projects, while providing private investors with lucrative long-term price certainty from a creditworthy counterparty.

Footnotes
  1. Clean Energy Council, Clean Energy Australia – Report 2016.

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