Changes to the Renewable Energy Target

Written by: Beth McLachlan, EPA Victoria

This article follows the Introduction to the Renewable Energy Target and How can your business benefit from the Renewable Energy Target articles that were in previous editions of Carbon Matters. Since these articles were written a number of changes have been made to the Australian Renewable Energy Target Scheme. This article will discuss these changes and how they relate to your business.

The original Renewable Energy Target (RET) legislation was passed by the Commonwealth Parliament on 20th August 2009. This legislation followed on from the existing Mandatory Renewable Energy Target (MRET) which existed prior to 2009.  The RET outlined the requirement for electricity suppliers to source at least 45,000GWh (approximately 20%) of Australia’s electricity from renewable sources by 2020.

This legislation established a framework for both the supply and demand of renewable energy in Australia. The RET encourages the development of renewable energy through the creation of tradable certificates (Renewable Energy Certificates, or RECs) sold to the parties liable to purchase them under the legislation, the energy retailers.

Under the initial RET structure, Small Generation Units (SGUs) and large scale projects both contributed to the 20% target. However this approach resulted in lack of certainty for both the SGU and large-scale technology markets.  Under this framework it was difficult to establish whether or not it was financially viable to install SGUs or develop large-scale projects.

The key change outlined in the amendments to the RET, released on 26th of February 2010, is that the target will be split into two components from 1 January 2011; the Large Renewable Energy Target and the Small Renewable Energy Scheme. Together these two programs aim to deliver the original RET commitment of 20% renewable energy by 2020.

Large Renewable Energy Target (LRET)
Under the LRET, large-scale renewable energy projects, including commercial solar, geothermal and wind farms will have significantly more certainty around the demand of their RECs and therefore more certainty around their price.  The LRET will operate in much the same way as the originally proposed RET scheme, and will have a target of 41,000 GWh of electricity from renewable energy sources by 2020.

RECs will be generated for each MWh of renewable electricity produced by a large-scale project, and energy retailers will then be required to purchase RECs to account for a percentage of their electricity sales each year, relative to the RET target for that given year.

Small Renewable Energy Scheme (SRES)
The Small Renewable Energy Scheme (SRES) is designed to cover all smaller generators of renewable energy including solar panels and solar hot water heaters.  The SRES will see these small generators producing SRECs rather than RECs. Each SREC will have a set price of $40. There will be no cap to the number of SRECs that can be generated under the scheme, and energy retailers will be required to purchase a percentage of the total produced annually.

Under the Office of the Renewable Energy Regulator small generation units (SGUs) can create multiple SRECs per MWh produced, in the same way they could under the RET. SGUs are able to create 5-15 years worth of SRECs upfront, depending on the technology type.  For more information on how to calculate the number of SRECs a project can generate visit the Department of Climate Change and Energy Efficiency website.

These changes allow for significantly more certainty for both large generation and small generation projects. Large-scale projects are now certain of the demand of the RECs they will produce due to the removal of SGUs from the same program. SGUs are now provided certainty around price, as the SRECs are set at $40 per MWh, independent of how many are produced.

A discussion paper on these changes was released by the Department of Climate Change and Energy Efficiency on the 26th of March 2010 and the final legislation was introduced into Parliament on the 12th of May 2010.

More detail on both the LRET and the SRES is yet to be released.  For more information visit the Department of Climate Change and Energy Efficiency website.

Would you like to discuss this topic with other members?
If you have some thoughts or a response to this article, please visit the Carbon Innovators Network website and post a new topic, or contribute to one that another member has created at: http://www.carboninnovators.net.au/forum