On 26 February 2010, the Rudd Government announced that it would
divide the renewable energy certificates market into two separate
markets - a small scale market and a large scale market.
This article provides a brief explanation of the
Government's rationale behind this decision, and an overview of
the renewable energy certificates market.
Renewable energy targets
The Rudd Government's carbon policy is based on four
The Carbon Pollution Reduction Scheme;
Carbon capture and storage;
Action on energy efficiency; and
Expansion of the Howard Government's renewable energy
The fourth element, the renewable energy target, was created by
the Howard Government through the Renewable Energy
(Electricity) Act 2000 and the Renewable Energy
(Electricity) (Charge) Act 2000. The Howard Government also
created the Office of the Renewable Energy Regulatory, which
oversees the administration of this legislation, the registration
of renewable energy certificates, and the associated certificate
The legislation was introduced to ensure that two percent of all
electricity in Australia would be sourced from renewable energy by
the year 2010, equivalent to approximately 9,500 GWh. The Rudd
Government's expansion of the renewable energy target will
ensure that 20 percent of all of Australia's electricity
produced by the year 2020 will be sourced from renewable energy
producers, equivalent to 45,000 GWh.
The scheme works by creating renewable certificates, which are
traded and surrendered annually. Essentially, for each megawatt
hour (MWh) of renewable energy produced, a certificate is created.
Wholesale purchasers of electricity must ensure that by February of
each year, they hold or have surrendered a certain number of
certificates to comply with the renewable energy target for their
liability for the previous calendar year. Failure to do so will
result in a levy being charged.
The number of certificates to be surrendered can be worked out
using the renewable power percentage, which is calculated as a rate
of liability for the number of MWh of electricity purchased in the
previous year. For example, the 2009 renewable power percentage is
3.64 percent, so if a liable party purchased 100,000 MWh of
electricity in 2009, then 3,640 certificates must be surrendered or
a charge of $65 per MWh will be payable.
As a result, the renewable energy certificates market encourages
investment in new technologies such as wind farms, commercial solar
power, hydroelectricity and geothermal electricity production.
These producers can not only make money from selling the
electricity, but also from producing and selling renewable energy
certificates to liable wholesale purchasers of electricity, who
would normally purchase electricity from non-renewable sources such
as coal fired power stations.
The division of the renewable electricity market
Investment in renewable electricity projects appeared to stall
as the renewable energy certificates market was flooded with
thousands of certificates from small suburban solar hot water and
roof top solar panel installations, which had been subsidised by
governments across Australia.
As with any supply and demand situation, the effect of this was
that the price for certificates fell closer to $30 than the
expected $50 per certificate. Large scale renewable energy projects
became uneconomic, and therefore stalled.
The Government has announced that the division of the renewable
energy certificates market will take effect on 1 January 2011. This
division will provide for a small scale certificate market for
suburban solar panels and suburban hot water, with a guaranteed
small certificate of $40 per MWh. A separate large scale
certificates market will be created for large scale renewable
energy projects such as wind farms, commercial solar, geothermal
and landfill gas.
The announcement has been well received. For example, AGL Energy
said in the Weekend Australian Financial Review (27/28 February)
that the announcement probably "went far enough" to allow
AGL to continue with its $7 billion investment in planned wind
It would seem that the Rudd Government's announcement will
be the kick start that Australia's large scale renewable energy
projects need to get back on track.
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