Australia: New legislation to stimulate Victorian renewables sector

Last Updated: 31 August 2017
Article by Elisa de Wit and Jacqueline Plant

The Victorian Government has recently announced the legislating of the Victorian renewable energy target and Australia's largest renewable energy auction scheme to date. These announcements follow other policy reforms initiated by the Victorian Government including the Climate Change Act 2017, Take2 Pledge, and the recently released renewable energy action plan.

Victorian renewable energy target

In June 2016, the Victorian Government announced renewable energy targets for generation of 25 per cent by 2020 and 40 per cent by 2025 of Victoria's electricity requirements (the VRET).

On 23 August 2017, the Renewable Energy (Jobs and Investment) Bill 2017 (Vic) (RE Bill) was introduced into the Victorian Parliament with the aim of giving legislative force to the Government's commitments to the VRET and if passed, will be the first time such targets have been reflected in state legislation in Australia.

Key features of the RE Bill:

  • It will facilitate an increase in the proportion of Victoria's electricity generated by means of large scale facilities (defined to be a facility with a generation capacity of more than 100KW) that utilises renewable energy sources or converts renewable energy sources into electricity.
  • It will support the development of projects to encourage investment, employment and technology development in renewable electricity generation, and promote the transition of Victoria to a clean energy economy as well as contribute to the security of Victoria's electricity supply.
  • It will support schemes to achieve the targets set under the RE Bill, which may include the renewable energy auction scheme.
  • It will enshrine the VRET in law by requiring 25 per cent of electricity generated in Victoria to come from facilities that generate electricity by using or converting renewable energy sources into electricity by 2020 and 40 per cent by 2025.
  • The Minister must issue determinations published in the Government Gazette on the minimum amounts of renewable energy generation capacity to meet to the 2020 and 2025 targets.
  • The minimum generation capacity determinations must be worked out by 31 December 2017 for the 2020 target and the minimum capacity needed to achieve the 2025 target will be required to be determined by 31 December 2019.
  • An accountability mechanism requiring annual progress reports on the 2020 and 2025 targets must be laid before each House of Parliament by the Minister for Energy, Environment and Climate Change by the end of October each year. The reports must disclose progress made towards meeting the VRET and the performance of schemes to achieve the VRET that promote electricity generation by large-scale facilities that use renewable energy sources.
  • The Minister will have the ability to declare renewable energy sources in addition to solar and wind.

Victorian renewable energy auction scheme

The VRET will be supported by the Victorian renewable energy auction scheme (VREAS) which will offer long term contracts to successful renewable energy projects. The VREAS will be technology neutral with an allocation specifically for large scale solar projects to ensure diversity in the renewable energy generation mix.

The first auction to be held in October 2017 will award contracts for up to 650MW of renewable energy capacity, the largest of its kind in Australia to date, following from the successful program run by the ACT Government.

New capacity brought online before 2020 will be complementary to the Federal Government's renewable energy target (RET) and additional after 2020 with the intention that continued uncertainty around the federal RET can be overcome.

Key features of the first auction:

  • The format will be a reverse auction.
  • Bids will open from mid October 2017 and will be submitted via a formal request for proposal (RFP).
  • The RFP will set out the terms of participation, consideration of 'value for money' of proposals and the governance framework.
  • Successful proposals will be awarded a 15 year support agreement with the state of Victoria which will be administered by the Department of Environment, Land, Water and Planning. Key components of the support agreement will include project milestones, the option for a tripartite agreement, termination rights, development of a communications and community engagement plan, safety health and environment plan, protections in case of a change in law and the interaction between VREAS and the federal RET.
  • Payment will be via a hybrid mechanism which is combination of a fixed-price payment (FP payment) and a variable contract-for-difference payment (CfD payment) (the latter of which was utilised in the ACT auction scheme). Under the CfD payment, the state will set the 'strike price' in the form of $/MWh of electricity generated which will be set out in the RFP. The FP payment component will be paid quarterly on the form of $/MW/year.
  • Eligibility criteria for auction participation and entry into a support agreement:
    • Auction proponents must have the ability to commence commercial operations before the last quarter of the 2020 calendar year, to enable the creation of large-scale generation certificates (LGCs) before the end of 2020.
    • Two bids must be placed which include one bid for the bundled transfer of all LGCs from projects to the Victorian Government, which will then be resold and a second bid which includes no transfer of LGCs.
    • Projects will be required to be accredited under the federal RET and any LGCs created will be able to be complementary for the life of the project.
    • Only new projects including those which have not yet reached financial close are entitled to bid, although it is envisaged that some preliminary works may have commenced.
    • Expansions of existing projects and proportions of new projects will also be eligible under the auction.
    • A single contracted entity responsible for the RFP submissions and support agreement must be proposed.
    • Projects may involve generation of electricity from all renewable energy sources including wind and solar but they must be consistent with the RE Bill.
    • All projects must be connected to the national electricity market at a single connection point and must be of a size of no smaller than 10MW.
    • A current planning permit must be obtained for all projects.
    • Other criteria may be set out in the RFP
  • Timing:
    • The formal RFP and VRET support agreement are expected to be released in mid October 2017.
    • After the release of the RFP, potential participants will have three months to complete their proposal and submit it through the tender process. Evaluation of tenders is expected to take two to three months.
    • Support agreements will be entered into with successful proponents following the tender process.

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Elisa de Wit
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