In our last edition, we discussed how universities in the ACT, New South Wales, Queensland, South Australia and Tasmania have been given an automatic electricity retail licensing exemption to sell electricity to tenants who are connected to an on-site (e.g. on-campus) embedded electricity network, noting that some additional requirements applying to sale of electricity to students in accommodation centres. In this edition, we will consider a licensing exemption that has been put in place for on-site generation (e.g. solar) in the same States and Territory.
To put this into the education sector context, we'll consider a scenario where a university establishes a project company to commission or install a solar generator on campus and supply some of the generated power to one or more on-campus tenants, with the university also consuming some of the power itself.
Energy licensing is structured around traditional industry segments – ie generation, network operation/ supply and retail sale. The exemption discussed in this article only relates to the sale of the output of the solar project to one or more end users (ie, the 'retail' component of the project), which is regulated by the National Energy Retail Law (NERL). Before committing to a solar project, universities may also need to consider the project company's licensing position as an electricity generator and, potentially, as the operator of an embedded electricity network (eg, a network within a campus to supply electricity generated by the solar project to end users). A raft of building & development and non-energy laws may also need to be considered.
In its Retail Exempt Selling Guideline, the Australian Energy Regulator (AER) has granted a 'registrable' retail licensing exemption for electricity sold under power purchase agreements to end users who remain connected to the national electricity grid. The exemption does not apply to the sale of solar power to customers who are wholly off-grid. Sale to such customers would generally require a bespoke licensing exemption to be made by the project company, except if State/Territory-specific exemptions apply.
A power purchase agreement is a contract for the sale and purchase of electricity that is usually of a longer duration than a standard electricity retail contract. Also, the contract relates to the output of a specific generation facility, rather than the sale of electricity sourced from the wholesale market, In the solar context, the contract can be for the operating life of the solar plant or, alternatively, for the period required by the project proponent to recover its capital costs and desired return on capital. The AER Guidelines require the power purchase agreement to include a warning that the agreement is covered by the Australian Consumer Protection laws and is separate to the customer's contracts with their electricity retailer and network service operator, both of which are covered by the NERL.
In relation to residential customers, the licensing exemption requires the power purchase agreement to be of a term of less than 10 years and for the agreement to permit the customer to terminate early. However, in our example, assuming the power purchase agreement does not relate to the sale of electricity to residents in a student accommodation block, the buyers would be commercial customers (eg on-campus retail tenants or a research centre). Certainly, the university, as one of the offtakers from the project, would be regarded as a commercial 'customer'. Accordingly, the conditions in the licensing exemption would not limit the permissible length of the power purchase agreement(s) for the project.
In order to take advantage of the class licensing exemption, the project company would, prior to commencing sale to end-users, need to register the solar project with the AER. This is a relatively straightforward, online, process. However, it should not be forgotten because registration is the regulatory pre-requisite for the exemption to apply to the project.
Lastly, in order to take advantage of the exemption, the project company must not be registered to participate as a buyer or seller in the national electricity market. As at the date of this article, public records suggest that no universities, or their project vehicles, are registered to participate in that market, so this condition should not prove to be problematic.
However, it does mean that any excess power produced by the solar plant that is not consumed on-campus will have to be sold to an electricity retailer (or an aggregator of power from small generation) before being exported into the external electricity network. The project company/university could not, itself, register to trade that excess output in the national electricity market.
All in all, for universities looking to establish a solar project that will supply to commercial customers, the exemption available under the AER Guidelines is a useful 'red-tape reduction' measure within the broader regulatory matrix for the project.
We have used the example of an on-campus solar generation project to illustrate the application of the retail licensing exemption in the ACT, New South Wales, Queensland, South Australia and Tasmania. However, the exemption equally applies to all generation projects supplying to on-site (e.g. on-campus) end users, whether or not renewable in nature.