Despite market concerns about its future, the Renewable
Energy Target is likely to stay in place in one shape or another
for at least the foreseeable future.
The Renewable Energy Target (RET) was
introduced as federal legislation in 2000 in the Renewable Energy
(Electricity) Act. Its intention was that "electricity
retailers and other large electricity buyers will be legally
required to source an additional 2% of their electricity from
renewable or specified waste-product energy sources by
It was revised in 2009 to be split into separate incentives for
large-scale and small-scale generation, and contain escalating
targets for the period 2010-2020. The explanatory memorandum to the
2009 amendment bill says: "The expanded scheme will deliver
the Government's commitment that the equivalent of at least 20
per cent of Australia's electricity comes from renewable
sources by 2020."
How the RET applied in 2013
The structure of the legislation in relation to large-scale
generation includes a table of Gigawatt hour (GWh)
per annum targets of required renewable generation. However, the
actual obligation of acquirers of electric energy (such as
retailers) is set as an annual percentage of total electric energy
The prescribed percentage of renewable energy for a year is
intended to be set by regulation (made by the Governor-General on
recommendation of the Minister for the Environment). The
legislation provides that before the Governor-General makes the
regulation prescribing the renewable power percentage for a year,
the Minister must consider various factors. However, it also says
that a failure by the Minister to take into account those factors
does not affect the validity of the regulation.
If a regulation is not made prescribing the renewable power
percentage for a year, the renewable power percentage for that year
is the percentage for the previous year, adjusted by a factor
derived from the table of required renewable generation.
The prescribed renewable power percentage for 2013 was 30.35%
(comprised of 10.65% for the large-scale component, and 19.7% for
the small-scale component). This was well in excess of the original
Government objective of 20% by 2020, and can be principally
explained by these factors:
the fixed GWh targets of required large-scale generation made
assumptions about future energy consumption, and current actual
consumption is significantly less than originally assumed;
the fixed GWh targets were increased to take account of the
crediting of waste coal mine gas as renewable energy;
there was an excess of generation of renewable energy
certificates in 2012;
there has been more small-scale renewable generation than
forecast, because of reductions in its cost and because of generous
feed-in tariff incentives offered by State Governments; and
there were multiplier credits available for small-scale solar
installation that meant the number of certificates on issue was
greater than the renewable energy actually generated.
2014 RET targets and review of the RET
The renewable power percentage targets for 2014 was prescribed
by regulation on 14 March 2014.
The target for 2014 is 20.35% (comprised of 9.87% for the
large-scale component, and 10.48% for the small-scale component).
As predicted, this is a significant reduction from the 2013
percentage which can be mostly attributed to the excess in
renewable production from previous years. Retailers must either
acquit the relevant certificates or pay a shortfall charge for
liable electric power acquisitions in accordance with this new
In February 2014, the Prime Minister also announced a review
into the RET, to be headed by Mr Dick Warburton. Pending this
review, the Renewable Energy Certificate market may see some
changes ahead. We have already seen a dramatic drop in the spot
price of Renewable Energy Certificates (such as those from wind
farms) in the last few months. The chart below is of large-scale
generation certificate weekly closing prices on the Mercari market
over the past several years.
These figures suggest concerns that the target will be wound
back or dropped altogether. However, while the Government does not
have control of the Senate, it is unlikely to be able to change the
RET legislation. It is possible, however, that the report
recommends a different methodology for calculating the renewable
target percentage in future years. The results of this report are
not expected for another six months or so.
Clayton Utz communications are intended to provide
commentary and general information. They should not be relied upon
as legal advice. Formal legal advice should be sought in particular
transactions or on matters of interest arising from this bulletin.
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