Australia: New South Wales Mandates Use Of Renewable Energy

Last Updated: 18 September 2007
Article by Paul Wentworth

New South Wales has recently introduced legislation, to establish a mandatory Renewal Energy Target (NRET) scheme that ensures the state produces 15 per cent energy from renewable sources by 2020.

In November 2006, the NSW Government announced its intention in response to the Commonwealth Government's refusal to extend the Commonwealth's MRET scheme. The Renewable Energy (NSW) Bill 2007 (Bill) was introduced on 27 June 2007.

However, will this new scheme survive under a future national emissions trading scheme?

The Commonwealth Government's climate change policy includes a stated intention to seek agreement of all state, territory and local governments to prevent the introduction of new, technology specific mandatory schemes, before a national emissions trading regime has been established. Such a move will also avoid inconsistencies and duplication from the operation of multiple schemes. If the Commonwealth Government's trading scheme is introduced, the NRET scheme would be inconsistent with that policy.

It is noteworthy that the proposal by the National Emissions Trading Taskforce (comprised of the state and territory governments), considers that schemes such as NRET could operate in parallel with its proposed emissions trading scheme model.

Background to the NRET scheme

The NSW Government announced its plan to establish a mandatory renewable energy targets in response to the Commonwealth Government's refusal to extend its MRET scheme. The Renewable Energy (NSW) Bill 2007 (Bill) was introduced on 27 June 2007.

The NSW Government has sought to align the NRET scheme with the Victorian Government's VRET scheme, providing a coordinated and coherent state-based approach to setting renewable energy targets. NSW has set its mandatory renewable energy target at 10 per cent by 2010 and 15 per cent by 2020 of energy consumption. This corresponds to requiring 1,317 GWh of additional renewal energy by 2010 and 7,250 GWh of additional renewal energy by 2020.

The Bill follows the form and structure of the VRET scheme under the Victorian Renewable Energy Act 2006 and is similar, in principle, to the Commonwealth's MRET model.

NRET objectives

The Bill's stated objectives are to:

  • establish a mandatory renewable energy target for all electricity consumed in NSW;
  • increase the consumption of renewable energy in the state;
  • reduce the GHG emissions associated with producing and using electricity;and
  • encourage improvement in the renewable energy industry's capacity to provide renewable energy at a more competitive price.
Outline of the NRET scheme

The key features include:

  • an accreditation mechanism for power stations generating electricity from renewable energy sources including hydro, wave, wind, solar (other than solar hot water services), geothermal energy, biomass and wastes, landfill gas and other prescribed energy sources;
  • the creation and sale of tradeable renewable energy certificates (NRECs) by those, who generate electricity from accredited power stations – they will be entitled to create 1 NREC for each MWh of electricity generated;
  • ensuring that there is no double-dipping. Given the multiplicity of schemes, the Bill specifically provides that if a MWh of electricity has been ascribed to the creation of a renewable energy certificate under the MRET or VRET schemes, it cannot be used to create an NREC. In addition, the Bill prevents a double dip for generation that creates an abatement certificate under the NSW Greenhouse Gas Abatement Scheme;
  • the establishment of annual renewable energy targets for NSW, from 2008 through to 2030 (outlined in schedule 1 of the Bill). The initial target is 439 GWh, rising to 1,317 GWh in 2010 and linearly to 7,250 GWh in 2020, where it remains 'flat' through to the conclusion of the scheme at the end of 2030,
  • a requirement that entities, who acquire electricity from the national electricity market for use in NSW – referred to as 'relevant entities' (predominantly electricity retailers and large energy users) – must take a percentage of that electricity from renewable energy sources each year;
  • to comply with renewable energy targets, relevant entities must acquire and surrender sufficient NRECs to the scheme to satisfy the relevant targets. This is calculated using a 'renewable power percentage'. The renewable power percentage for 2008 is under half a per cent and will be fixed in each subsequent year by the Governor on the recommendation of the Minister;
  • entities that fail to surrender sufficient renewable energy certificates in a given year, must pay a shortfall penalty of $43 per MWh. This amount will vary annually due to CPI increases, and will use the Melbourne CPI to retain consistency with the shortfall penalty rate imposed under the Victorian REC scheme legislation;
  • the NRET scheme will continue until 2031 (commensurate with the VRET scheme).

Under current legislation, the MRET scheme ceases in 2021. Effectively, NRET mandates the acquisition and surrender of NRECs simultaneously, with the operation of the Commonwealth's MRET scheme. In addition, a party that is also an electricity retailer in both NSW and Victoria will be required to comply with the schemes in those jurisdictions as well as with the MRET scheme.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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