By Maddocks Sustainability and Climate Change Team

The national Mandatory Renewable Energy Target (MRET) scheme is an element of the Federal Government's response to the effects of climate change and the need to reduce greenhouse gas emissions. It aims to encourage investment in renewable energy for Australia's electricity supply, which results in fewer emissions than electricity sourced from generators fired by non-renewable fossil fuels.

Architecture of MRET

The MRE T scheme was first introduced in Australia in 2001. It imposes legal liability to support electricity generated from renewable sources on retailers and large wholesale purchasers of electricity. These 'liable parties' are required to meet a share of the renewable energy target in proportion to their share of the national wholesale electricity market. Liable parties must prove that they have purchased the relevant proportion of renewable energy by surrendering renewable energy certificates (RECs) or paying the shortfall charge, which is a penalty for non-compliance.

RECs represent 1 megawatt-hour (MWh) of electricity generated from eligible renewable energy sources. They can be acquired from power stations that are generating eligible renewable energy. Installations of solar water heaters and small generation units (including rooftop solar photovoltaic systems, small wind turbines and micro-hydro systems) are also able to create and sell RECs.

In 2007, the Government committed to expand the scope of the MRE T scheme by ensuring that 20 per cent of Australia's electricity supply comes from renewable energy sources by 2020. This translates to an increase of MRET by more than 4 times from 9,500 gigawatt-hour (GWh) to 45,000 GWh in 2020. The expanded MRET scheme brings existing and proposed State and Territory renewable energy targets into a single national scheme.

Proposed changes to MRET

The inclusion of domestic and small-scale renewable energy systems within MRE T, coupled with the application of a REC multiplier for these systems, was said to have increased the number of RE Cs available in the spot market. In turn, this was said to have resulted in an oversupply of RE Cs resulting in a significant drop in the spot market price, affecting the viability of major renewable energy projects.

On 26 February 2010, the Government announced changes to be made to the MRET scheme to address this issue. Under these changes, effective from January 2011, the MRET will include two parts:

  • Large-scale Renewable Energy Target (LRET
  • Small-scale Renewable Energy Scheme (SRES)

The Government has indicated that 41,000 GWh will be delivered under the LRET Scheme, leaving the remaining 4,000GWh to be delivered by the SRES , although a specific target for smallscale technologies under the SRES has not been set. In combination, the new LRET and SRES are expected to deliver more renewable energy than the existing 45,000 gigawatt-hour target in 2020. In other words, the federal government anticipates that, under these changes, by 2020, the 20% renewable energy target will be exceeded.

Large-scale Renewable Energy Target

The LRET will cover large-scale renewable energy projects like wind farms, commercial solar and geothermal. A separate market in which RE Cs for these types of large projects can be traded will be established. This will effectively de-couple demand for small-scale renewable technologies from the market for large scale renewable energy projects.

Small-scale Renewable Energy Scheme

The SRES will cover small-scale renewable energy technologies, such as solar panels and solar hot water systems. RECs generated from these small-scale systems will have a fixed price of $40 per megawatt hour of electricity produced, which will provide direct support to those that decide to adopt these systems.

Implications for renewable energy investment

The changes to MRET are predicted to result in a significant increase to the spot price for RE Cs, which has already recovered following the Government's announcement. This is a positive development for investors in largescale renewable energy facilities. Increased investment in such facilities will necessarily imply augmentation of electricity network infrastructure, particularly in cases where the renewable energy facilities are remotely located.

On 26 March 2010, the Government released an industry consultation paper on the new MRE T arrangements. The paper indicates that an independent review of SRES will be commissioned in 2012, which will provide recommendations on possible mechanisms for setting the fixed price for SRE Cs from 2014 onwards. Comments on the paper are due by 14 April. The Government intends to legislate the changes to MRET in the winter sittings of Parliament.

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