Hot on the heels of the announcement on 18 May 2015 of a bipartisan deal between the Government and the Australian Labor Party (ALP) on the future of the Renewable Energy Target (RET), the Government yesterday published the draft amending legislation, theRenewable Energy (Electricity) Amendment Bill 2015 (the Bill).

Key changes

There are few surprises in the draft legislation and the drafting reflects the three key features of the deal:

  • A reduction of the RET from a 41,000 GWh target to a new target of 33,000 GWh of large-scale renewable energy generation in Australia by 2020.
  • Replacement of the two-yearly review process with periodic reports by the Clean Energy Regulator (CER) on the progress of the RET towards meeting the new targets and the impact it is having on household electricity bills.
  • A mechanism to permit the RET regulations to provide for a full (ie 100%) exemption for emissions intensive, trade exposed (EITE) industries from the requirement to purchase and surrender large-scale generation certificates (LGCs). Previously, EITEs only received a partial exemption and only in respect of additional RET liability flowing from the expansion of the scheme in 2009. This exemption is intended to apply in respect of the current compliance year (2015) and all subsequent compliance years.

The Department of the Environment has assessed that the amendments in the Bill will result in average annual saving of $519.6 million in regulatory costs for business.

The effect on the average domestic electricity consumer, however, is likely to be cost neutral. The Government’s argument for reducing the RET was premised on plateauing electricity consumption and seeking to ensure that Australia was only committed to achieving a 20% of electricity market share for renewables by 2020. By seeking to maintain the 20% by 2020 target, the Government has moved to ensure that electricity consumers in Australia should not, in theory, be faced with further RET related price increases per kwh of electricity used.

Additional features

Waste coal mine gas allocation

Since 2012, there has been an additional legislated allocation for non-renewable generation using waste coal mine gas which is capped at 850GWh per year and only applies until 2020. This has, in effect, increased the annual RET by 850GWh each year. The Bill proposes to remove the waste coal mine gas sections and instead increase the RET target by 850GWh for each year until 2020. For example, the amended target for 2020 in the table in the RET legislation will be 33,850GWh (rather than 33,000GWh). In 2021, the RET target will reduce to 33,000 in line with the removal of the waste coal mine gas allocation.

Repeal of provisions redistributing pre-2020 targets

The Bill proposes to repeal the sections of the RET legislation which redistributed pre-2020 targets to reduce surplus certificates, as they are now redundant.

Electricity intensity baseline

The RET Regulations currently base the amount of exemption on a business’s reported annual production of the activity output (for example tonnes of aluminium) and the electricity intensity baseline (in megawatt-hours of electricity consumed per unit of activity output). A single electricity intensity baseline is set for each activity which represents the average across all of the individual instances of that activity. This means that in reality most businesses will receive either more or less than the calculated (theoretical) percentage level of partial exemption.

The averaging process described above for establishing the electricity intensity baseline for an EITE activity was based on data from July 2006 to June 2008. There have been changes in industry structure and operation since that time. The Government has identified that these factors mean that, with full exemptions, there is a risk of some EITE companies receiving assistance that exceeds the cost impact of the RET on these EITE activities. The Government proposes to consult on regulations to address this risk.

Wood waste

The only potential sticking point for getting the Bill through parliament is the Government’s proposal to reinstate native forest wood waste from sawmill residue, manufacturing operations or harvesting which meets a number of integrity requirements as an eligible renewable energy source. Prior to amendment of the RET Regulations in 2011, the RET Regulations had from the very start of the scheme included native forest wood waste. The ALP opposition is expected to move to break the legislative amendments into parts, so that it can vote against this change.

Timetable

The Bill is proposed to take effect immediately from the day after the Bill receives Royal Assent.

Next steps

EITE companies should be preparing to respond to the proposed Government consultation on changes to the electricity intensity baseline to ensure that any revisions to activity baselines are calculated correctly from verifiable data and do, in fact, achieve a full exemption from RET liability for each of their facilities.