Australia: The Winds Of Change – 20% Renewable Energy Target Now Officially On The Table

A week is a long time in politics. On Monday, it was the Carbon Pollution Reduction Scheme. On Wednesday, it was the proposed expansion of the Mandatory Renewable Energy Target (MRET). It's been quite a lead-up to Christmas for the Rudd Government.

Yesterday, the Federal Government released draft legislation designed to implement its national Renewable Energy Target (RET) scheme, which includes a target of 45,000 GWh in 2020 – resulting in at least 20% of Australia's electricity supply being generated by renewable sources by that time.

The purpose of the proposed RET scheme, which was designed in conjunction with the State and Territories through Council of Australian Governments (COAG), is to bring the existing MRET scheme and existing state based targets (such as the Victorian Renewable Energy Target) into a single national scheme.

This will be achieved through amendments to the Renewable Energy (Electricity) Act 2000 (Cth) (Act), the Renewable Energy (Electricity) Charge Act 2000 (Cth) (Charge Act) and the Renewable Energy (Electricity) Regulations 2001 (Cth) (Regulation).

The Current MRET Scheme

The target of the current MRET scheme is the generation of an additional 9,500 GWh of renewable energy by 2010 at which point this target remains constant until 2020 when the scheme was to be phased out. Interim annual targets are set under the relevant legislation and large wholesale purchasers of electricity are required to meet their share of the interim targets in proportion to their share of the national wholesale electricity market. In order to meet their individual share, liable parties can either pay a shortfall charge for each megawatt of renewable energy for which it is liable or (preferably) purchase and surrender Renewable Energy Certificates (REC).

Each REC is the equivalent of 1 MWh of renewable energy generation. They are registered in the REC Registry and can be traded. RECs can be banked for the life of the scheme but no borrowing is permitted.

RECs can be generated by and acquired from eligible renewable energy power stations, other renewables and REC sellers. Renewable energy power stations are accredited under the Act and the Regulation and can create RECs from power generation using eligible renewable energy sources in excess of the power station's 1997 generation baseline level. Eligible renewable energy sources include hydro, wave, tide, wind, solar, bagasse and geothermal.

RECs can also be created for approved installations of solar water heaters or small generation units (SGU), such as photovoltaic systems, mini electric hydro systems and small wind systems. Owners of these types of systems can create RECs themselves or assign their right to create RECs to an agent.

Proposed RET Scheme – Same, same but different

The basic components of the MRET scheme will remain the same under the RET scheme. It will maintain the same eligibility criteria for renewable energy sources and all existing projects under the MRET Scheme will be eligible to participate in the expanded RET scheme for the life of the scheme.

Liable entities will be still be able to satisfy their share of the relevant annual targets by paying a shortfall penalty (set by the Charge Act) or acquiring and surrendering RECs. However, the proposed shortfall charge has not yet been set. This will be done prior to COAG consideration of the final design of the scheme.

The major changes relate to the target itself and the treatment of RECs for SGUs.

The Target – Ramps Up and Phases Out

The RET scheme proposes to set interim targets which increase gradually between 2009 and 2014 and then at a faster rate to 45,000 GWhs in 2020. This target is maintained for 4 years until 2024 when it phases out and terminates at the end of 2030.

It is intended to independently review the RET scheme in 2015 although no terms of reference have been set for such a review.

SGUs – they are small but they will pack a punch (for a while anyway)

Under the proposed scheme, owners of SGUs will be able to create 5 RECs for every 1 MWh of eligible renewable electricity generated until the mid 2012. After that time, the number will decrease every year and be phased out altogether in mid 2015. This design feature is intended to be an alternative to the Solar Homes and Communities Plan and has been referred to as 'Solar Credits', although it applies generally to all eligible SGUs, such as mini-wind systems.

The multiplier applicable to a SGU will depend on its installation date and would apply only to the first 1.5 KW of rated power output of the SGU. Generation above this amount will still be eligible for the standard 1:1 rate of REC creation. Only the first SGU installed at an address between 1 July 2009 and 30 June 2016 is eligible to create multiple RECs in this way. Each REC will still be the equivalent of 1 MWh, despite the effect of the REC multiplier.

A few missing pieces of the puzzle

The treatment of electricity-intensive, trade exposed industries under the RET scheme is yet to be determined and will be considered in detail in early 2009 by the COAG Working Group following stakeholder consultation.

The Victorian and Commonwealth Governments are also continuing to work on how to transition the VRET Scheme into the expanded RET Scheme. In this context, it will be necessary to ensure existing eligible projects are appropriately recognised under the Federal Scheme.

Further, as stated above, the proposed shortfall charge is yet to be set and will be finalised by COAG when it considers the final design. However, it will be set at a level marginally higher than the projected peak REC price.

More things to look out for...

A discussion paper on the RET affected trade exposed industries will be released before the end of the year and COAG is due to consider the final RET scheme design at its first meeting in 2009.

Public comments on the draft legislation will be accepted before 13 February 2009, with legislation intended to be in place by the middle of 2009 to ensure the increased target takes effect from 2010.

In related news, the Federal Government recently announced that it would bring forward the entire $500 million Renewable Energy Fund to invest in renewable energy projects over the next 18 months.

So it seems like a positive time for the clean energy industry in many ways. The Clean Energy Council has welcomed the expanded target, but expressed some concern about some of the design features, for example, the multiplier for SGUs.

No doubt there will continue to be much debate about the RET Scheme and the proposed Carbon Pollution Reduction Scheme. We will keep you updated on all the latest developments.

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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