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The policy and regulatory framework

i The policy background

Australia's RET aims to ensure that by 2020 at least 33,000GWh (or 23.5 per cent) of Australia's total electricity is generated from renewable sources. The RET is an Australian federal government policy that has operated since 2001. Various state and territory governments of the Commonwealth of Australia have also implemented their own renewable energy targets.

On 4 April 2019, the Clean Energy Regulator released the 2018 Renewable Energy Target Annual Statement, which confirmed that the Large-scale Renewable Energy Target (LRET) of 33,000GWh will be achieved and is likely to be exceeded by 2020.

The RET is made up of two schemes – the LRET and the Small-scale Renewable Energy Scheme (SRES). The LRET encourages investment in renewable power stations through financial incentives in the form of tradable certificates; the SRES encourages small users to instal small-scale systems. Australian states and territories have also incentivised the uptake of small-scale solar generators by providing feed-in-tariffs.

It is expected that the LRET will deliver the majority of the RET. The price of renewable energy generation is becoming increasingly more cost-effective. Additionally, investment in large-scale solar projects has been assisted by the Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation, pushing the prices of these projects down to almost half of what they were. For example, in 2015, ARENA committed A$20.90 million in funding for the DeGrussa solar project in Western Australia, which has a total project value of A$39.47 million.

The Coalition's recently announced Climate Solutions Package builds on existing policies and success in meeting Australia's Kyoto commitments. The existing Emissions Reductions Fund has received further funding and there is significant funding for the Snowy 2.0 giant pumped hydro battery and energy-efficiency and electric-vehicle strategies.

ii The regulatory frameworkNetwork access and market dynamics

The largest electricity market in Australia is the National Electricity Market (NEM), which operates in all states and territories other than Western Australia and the Northern Territory. The NEM is operated by the Australian Energy Market Operator (AEMO), in accordance with the National Electricity Law and the National Electricity Rules.

The NEM includes a 'gross pool' market for electricity, where all transmission-connected generation is dispatched in each five-minute period based on the results of a security and transmission-constrained auction. The auction sets a marginal price for each five-minute period, it has a price cap of A$14,200/MWh, and is adjusted annually for inflation. Generation facilities can connect to the network in the NEM on a 'constrained-access' basis – that is, the total amount of generation capacity is not restricted to network capacity, but only the cheapest set of generators are dispatched to meet system requirements.

In the NEM, most renewable generators are considered to be 'semi-scheduled'. These facilities can normally generate unconstrained; however, the AEMO can direct them to operate below certain output limits in certain situations (for example, for system security).

In Western Australia, the Wholesale Electricity Market (WEM) is operated by the AEMO in accordance with the Wholesale Electricity Market Rules and WEM market procedures. The WEM is a gross pool electricity market that includes a mechanism to pay for capacity by low electricity price caps, and a hybrid constrained–unconstrained network access model. A constrained network access model is currently being considered by the Western Australian government. The constrained network access model being proposed for the WEM is similar to the model currently used in the NEM.

Western Australia's mechanism to ensure reliability and security of supply, through which scheduled generators and non-scheduled generators (such as wind and solar) can provide capacity when required, is called the Reserve Capacity Mechanism. The Public Utilities Office (PUO) in Western Australia has completed a review on improvements to the Reserve Capacity Mechanism pricing arrangements in the WEM and the suitability of implementing an auction to determine capacity prices and other alternative pricing arrangements. As a result, the PUO has prepared draft amendments to the WEM Rules to incorporate its final recommendations; these changes have yet to be implemented.

RET

The RET is administered by the Clean Energy Regulator (CER) in accordance with the Renewable Energy (Electricity) Act 2000 (Cth) and the Renewable Energy (Electricity) Regulations 2001 (Cth). The CER is Australia's independent statutory authority, established in 2012 by the Clean Energy Regulator Act 2011 (Cth).

The RET operates as a market for tradable certificates for each megawatt of electricity generated from renewable sources. Tradable certificates are created and issued through the REC Registry, which is administered by the CER. 'Liable entities' (electricity retailers and some large users) must source those certificates from persons that generate power from renewable sources to meet their own renewable energy obligations, and then surrender those certificates to the CER in certain percentages (determined under the Renewable Energy (Electricity) Regulations) to meet annual targets for the RET.

The CER also validates tradable certificates and makes recommendations about tradable certificate requirements.

Approvals for renewable energy projects

There are many regulatory approvals required for renewable energy projects, including planning and environmental approval. The type and timing of approval processes will vary from state to state, depending on the scale and type of project. Applications for funding from ARENA typically take 60 days to negotiate (after an initial expression-of-interest phase) and require the applicant to satisfy the relevant merit criteria to a high standard. Project proponents may also be confronted with environmental-noise and visual-impact assessments.