Revised Federal Renewable Energy Target

 One of the ‘four elements’ of the Federal Government’s carbon pollution reduction strategy is the expanded Renewable Energy Target (RET).¹ Exposure drafts of the legislative amendments were released on 17 December 2008. The RET expands the existing renewable energy target from two per cent by 2010 to 20 per cent by 2020.

In its White Paper released on 15 December 2008, the Federal Government noted that the stationary energy sector produces about 50 per cent of Australia’s greenhouse gas emissions and therefore presents the ‘greatest potential to deliver reductions’.²

Some proponents suggest that the five per cent carbon reduction proposed in the White Paper³ will be insufficient to drive investment in renewable energy. While the Carbon Pollution Reduction Scheme will facilitate energy efficient technologies, the RET is intended to ‘accelerate their use’.⁴

The current target

The current renewable energy target, known as the Mandatory Renewable Energy Target (MRET), is the sourcing of an additional two per cent of electricity (or 9,500 GWh) from renewable energy sources by 2010.⁵

MRET was established by the Renewable Energy (Electricity) Act 2000 (Cth) (REE Act), which obliges Australian electricity retailers to source increasing amounts of their required electricity from approved renewable sources.⁶ Other legislation underpinning this scheme is the Renewable Energy (Electricity) Charge Act 2000 (Cth), and the Renewable Energy (Electricity) Regulations 2001 (Cth).

MRET is administered by the independent Renewable Energy Regulator.

Renewable Energy Credits

Compliance with MRET is demonstrated by acquiring and surrendering tradeable Renewable Energy Certificates (RECs). Accredited renewable energy generators are granted the ability to create one REC for each MWh of electricity generated.⁷ On 14 February of each year, liable participants must surrender a certain number of RECs in order to demonstrate compliance with the MRET.

Failure to surrender the requisite number of RECs results in a fine, a shortfall charge of $40 per MWh levied under the Renewable Energy (Electricity) Charge Act 2000 (Cth).

Owners of eligible solar water heater installations and eligible micro-generation units (photovoltaic systems, wind systems and small hydroelectric systems) are also eligible for RECs. They may claim the RECs themselves by completing the appropriate forms, or assign their right to claim RECs, for a price, to an agent who is registered with the Renewable Energy Regulator.⁸

Expanded target

In 2007, the Federal Government committed to an expanded target of 20 per cent under a new scheme which would combine the MRET with existing and proposed state and territory schemes. This expanded target is known as the RET, and requires an additional 45,000 GWh from renewable sources per year by 2020. See the table below for the target for each year from 2009 to 2020.

The additional energy, combined with the 15,000 GWh of renewable energy already available, means that Australia will have reached the goal of 20 per cent of its energy coming from renewable sources, being a total of 60,000 GWh.⁹

The administration of the Carbon Pollution Reduction Scheme, the National Greenhouse and Energy Reporting System, and the RET will be combined under a single independent regulator.

Legislative amendments

The RET will be established by amendments to the MRET legislation. Exposure drafts of the Renewable Energy (Electricity) Amendment Bill 2008 (Bill) and the Renewable Energy (Electricity) Amendment Regulations 2009 (Regulations) were released on 17 December 2008.

Solar Credits for micro-generation units

A new feature will be ‘Solar Credits’ for  micro-generation units. Primarily, these will be issued for household solar panels.
Solar Credits work by allowing owners of micro-generation units (solar panels, solar water heaters, and small wind and hydro systems) to earn five RECs for each MWh of generated energy. This represents a multiple of five times the standard rate, and is available for the first 1.5 KW if installed capacity. This multiple will be phased down from 2012.¹⁰

The Solar Credits scheme replaces the current Solar Homes and Communities Plan.

Trade-exposed industries may be assisted

The Federal Government is considering providing assistance to companies that are constrained from passing costs through due to international competition. The COAG Working Group on Climate Change and Water released a discussion paper in December 2008 dealing with this issue.¹¹

Trade-exposed industries are not assisted under the MRET. Assistance is therefore not guaranteed; although the costs are expected to be higher under the RET. If assistance is provided, it will adopt the basic design elements of the assistance provided to emissions-intensive trade-exposed industries under the CPRS.¹²

Form of assistance

Three possible forms of assistance are discussed:

• exemptions (administratively simple, but locks in assistance and increases the burden on those not exempted)
• free provision of RECs (greater business certainty, but burdens taxpayers) and
• direct cash payments (transparent, but burdens taxpayers.

Free provision of RECs appears to be the most likely option, as these RECs would be purchased on-market by the government. This therefore ‘provides a direct link between the level of assistance and the impact of the RET as reflected in REC prices’.
Assistance is likely to be partial.

Materiality threshold

In order to be eligible, the electricity purchaser must demonstrate eligibility by providing access to its supply contracts and satisfying a materiality threshold.

Commencement

The Bill and the Regulations are expected to be passed by mid-2009, with the revised targets commencing from 2010.¹¹ Under the MRET, the target was 9,500 GWh in 2010. Under the expanded RET the 2010 target is now 12,500 GWh.¹² See the table below for the target for each year from 2009 to 2020.

What next?

The Federal Government is yet to draft legislation for three aspects of the RET. These are:

• the treatment of electricity-intensive, trade-exposed industries (discussed above)
• the level of the shortfall charge (currently $40 per MWh), and
• transitional arrangements for absorbing the Victorian RET into the national RET.

The RET will be independently reviewed in 2015.

The Federal Government plans to phase the RET out after 2020, as established emissions trading and competitive pricing of renewable energy will mean such a scheme will no longer be required.¹³

Summary of the new scheme

This summary is adapted from the commentary to the exposure draft of the Renewable Energy (Electricity) Amendment Bill 2008, released 17 December 2008.

Renewable energy targets 2009 – 2020

Endnotes

1. Australian Government, Carbon Pollution Reduction Scheme: Australia’s Low Pollution Future, Commonwealth of Australia, December 2008 (White Paper), xxiii. The other three elements are the Carbon Pollution Reduction Scheme, carbon capture and storage, and action on energy efficiency.
2. Ibid, 19-4.
3. The Federal Government has announced an ‘unconditional’ five per cent reduction below 2000 levels, and a 15 per cent reduction if other developed economies take similar action. See White Paper, above n ii, xix.
4. White Paper, above n ii, 19-4.
5. MRET Review Panel, Renewable Opportunities: A Review of the Operation of the Renewable Energy (Electricity) Act 2000, the Australian Greenhouse Office, 2003
6. David Hodgkinson and Renee Garner, Global Climate Change: Australian Law and Policy, LexisNexis Butterworths, Australia 2008, 93.
7. Renewable Energy (Electricity) Act 2000 (Cth), section 18.
8. Global Climate Change, above n vii, 93 – 94.
9. COAG Working Group on Climate Change and Water, Design Options for the Expanded National Renewable Energy Target Scheme, Council of Australian Governments, 2 July 2008, 4.
10. From 2015, there will be no multiplier at all.
11.  COAG Working Group on Climate Change and Water, Discussion Paper: Treatment of Electricity-Intensive, Trade-Exposed Industries Under the Expanded National Renewable Energy Target Scheme, Council of Australian Governments, December 2008.
12.  Ibid, 7.
13. Ibid, 9.
14. White Paper, above n ii, xlvii.
15. Exposure draft of the Renewable Energy (Electricity) Amendment Bill 2008, released 17 December 2008.
16. Global Climate Change, above n vii, 75; White Paper, above n ii, 19-4.

This article was written by Andrew Clark, Partner and Renee Garner, Solicitor, Melbourne.

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