Introduction

On 28 August 2014 the Renewable Energy Target Scheme – Report of the Expert Panel was released, with recommendations to significantly reduce Australia’s Renewable Energy Target (RET). The review is available from the Department of the Prime Minister and Cabinet’s RET Review website here  

The press release accompanying the report’s publication suggested that the Abbott Government will announce its response “in the coming weeks” to the non-statutory panel’s report which has attracted widespread interest since its announcement in February this year.

However, recent public statements of a majority of the Senate have supported the current RET arrangements.  Therefore it appears unlikely that the Abbott Government will have any prospect of implementing the report’s recommendations, resulting in further damaging policy uncertainty for what has been a rapidly growing and successful industry in Australia.  

Mindful of this on-going uncertainty, this legal update provides:

  1. A summary of the non-statutory panel’s report; and
  2. An outline of the next steps in the Abbott Government’s review of the RET.

Summary of the non-statutory panel’s report

Despite the Renewable Energy (Electricity) Act 2000 (Cth) requiring the Climate Change Authority (CCA) to deliver biennial reviews of the RET, on 17 February 2014 the Abbott Government announced the terms of reference for a separate review of the RET by a government-appointed panel. 

The CCA is an independent advisory body on climate change that was established under the Climate Change Authority Act 2011 (Cth) and which delivered the first review of the RET in December 2012. We summarised this in our January 2013 update here

Details of the RET and the background to the non-statutory panel’s terms of reference are available in our February 2014 update here

The recommendations of the panel, which are outlined below, were made on the basis of its position that:

“The Renewable Energy Target (RET) should be amended in light of the changing circumstances in Australia’s main electricity markets and the availability of lower cost emission abatement alternatives.”  

Recommendations for the Large-scale Renewable Energy Target (LRET)

In summary, the report recommended two options to the Abbott Government with respect to the LRET:

  • Option 1 – Closed to new entrants (‘grandfathering’)

In order to reduce the cost of the LRET and its impact on electricity markets, the Panel recommends that the LRET should be closed to new entrants.

a. The LRET is closed to new renewable energy power stations (subject to limited exceptions described below). The Clean Energy Regulator (CER) should set targets annually based on estimated output from accredited power stations.

b. In addition to those renewable energy power stations already accredited under the scheme, eligibility would be extended to:

i. Renewable energy power stations already under construction.
ii. Renewable energy power stations to be constructed where project proponents can demonstrate that there is full financial and contractual commitment to the project (e.g., final investment decision, engineering and procurement contract) within one month of the announcement of this approach.

c. The last year of the operation of the LRET is 2030.

or

  • Option 2 – Share of growth in electricity demand
  • In order to provide support for new renewable power stations and contribute to Australia’s emissions reduction target while achieving less reduction than Option 1 in the cost of the LRET, the Panel recommends that the target be set to allocate a share of growth in electricity demand to renewables in the following manner:

a. The target is set annually by the CER, increasing each year to 2020 by an amount equivalent to 50 per cent of projected growth in national electricity demand, ensuring that new renewable energy power stations are only supported under the RET where electricity demand is increasing.

b. Where national electricity demand is projected to remain flat or fall, the target is held at the previous year’s level.

c. From 2021 onwards, the target is fixed at the 2020 level until 2030, the last year of the operation of the LRET.

Based on current electricity demand forecasts, this approach would achieve a 20 per cent share of renewables in the electricity generation mix by 2020.

Recommendations for the Small-scale Renewable Energy Scheme (SRES)

Similarly, the report recommended two options to the Abbott Government with respect to the SRES:

  • Option 1 – Abolition
  • In order to address the cost of the SRES (and its effect on electricity markets), the Panel recommends that it be closed immediately in the following manner:

a. The SRES should terminate upon announcement.

b. Those who contracted before the announcement for the installation of a small-scale system should receive the certificates they would have done.

or

  • Option 2 – Bring forward the phase-out of the SRES

    In order to reduce the cost of the SRES while providing some support for new small-scale renewable energy systems, the Panel recommends that the phase-out of the SRES be brought forward in the following manner, to take effect immediately:

a. Bring forward the last year of operation of the SRES from 2030 to 2020.

b. Reduce the period for which certificates may be created for rooftop solar PV systems from 15 years to 10 years, and in each year from 2016 onwards further reduce the period for which certificates may be created … .

c. Reduce system size eligibility threshold for rooftop solar PV systems from no more than 100 kilowatts to no more than 10 kilowatts.

d. Reduce the period for which certificates may be created for solar and heat pump water heaters by one year each year, commencing in 2016 … .

Other recommendations

The report also included the following recommendations with respect to the supporting mechanisms of the RET scheme:

  • The current partial exemption arrangements for emissions-intensive trade-exposed businesses should be maintained.
  • The self-generation exemption should be amended to extend the one kilometre radius restriction and to permit self-generators to supply incidental amounts of electricity (below a set threshold) to third parties without attracting a RET liability. The Government should consult with affected parties to determine an appropriate distance limit and threshold for incidental off-takes.
  • The Government’s commitment to the reinstatement of native forest wood waste as a renewable energy source under the LRET should be implemented through the reintroduction of the relevant regulations in force prior to 2011.
  • The requirement for statutory reviews of the scheme should be removed from the Renewable Energy (Electricity) Act 2000.
  • Projects, or components of projects, receiving support under the RET should be excluded from participating in Emissions Reduction Fund auction processes.
  • Projects that receive support under the RET should not be eligible to receive further assistance from the Clean Energy Finance Corporation or the Australian Renewable Energy Agency.
  • To further reduce the costs of the RET the Government should consider the following proposals to improve the operation of the scheme:

a. Bring forward the dates for setting the Small-scale Technology Percentage and   the Renewable Power Percentage from 31 March in the compliance year to a date prior to the commencement of the compliance year (e.g., 1 December).

b. Align the acquittal of LRET and SRES obligations so that both are acquitted six monthly, and allow liable entities to carryover a shortfall of small-scale technology certificates (as is currently the case for large-scale generation certificates).

c. Publish the RET liable entity with whom an EITE business will negotiate the provision of the Partial Exemption Certificate.

d. Update guidelines for determining the renewable components in waste for electricity generation.

  • The Government should consult with affected parties on implementation of the Panel’s recommendations for the RET including:

a. Measures for ensuring that large-scale generation certificates trade in a suitable price range that provides an appropriate level of support for accredited power stations.

b. Methods for setting targets.

c. Setting the distance limit and threshold for third party off-takes for the self-generation exemption.

  • The Panel’s recommendations for progressively reducing the deeming rate for solar PV installations and reducing the size eligibility threshold from 100 kilowatts to 10 kilowatts should take effect from the date of announcement. Transitional arrangements should be provided for parties that have entered into contracts on the basis of the current policy at the date of announcement.

The next steps in the Abbott Government’s review of the RET

While the Abbott Government has committed to reviewing the report in coming weeks before responding to it, the current options proposed by the non-statutory panel are unlikely to be legislated in their current form, should the Abbott Government attempt to do so.

Senate hostility

While the Abbott Government succeeded in repealing the Clean Energy Act 2011 (Cth) and therefore the Carbon Pricing Mechanism, before the winter recess on 17 July 2014, its other attempts to repeal climate change related legislation have been unsuccessful.

Notably in the context of the RET, the following repeal bills have all been rejected by a Senate majority comprising of the Labor Party, Greens and independents (including the Palmer United Party (PUP)):

  • The Clean Energy Finance Corporation (Abolition) Bill 2014 which sought to abolish the Clean Energy Finance Corporation (CEFC) has been rejected twice and is now noted on the Parliamentary website as ‘Not proceeding’;
  • The Australian Renewable Energy Agency (Repeal) Bill 2014 which sought to abolish the Australian Renewable Energy Agency (ARENA) has not been passed in the House of Representatives yet and as the PUP has indicated that it will block this Bill, it is unlikely to be passed in the Senate.  On 19 June 2014, the Senate referred the provisions of the Repeal Bill to a Senate Committee for inquiry and report by 4 September 2014.

The Climate Change Authority (Abolition) Bill 2013 [No. 2] which sought to abolish the CCA was passed in the House of Representatives on 26 June 2014, and is before the Senate.  However, the same Senate majority that has refused to abolish the CEFC and ARENA has publicly opposed the abolition of the CCA, and it is therefore also likely to remain in place.

Critically, in relation to the RET the PUP has publicly announced that it would not support any reduction in the 41,000 GWh target.  Therefore, despite the recommendations of the non-statutory panel’s report, they are unlikely to be able to be implemented in their current form through any legislative mechanism.  Specifically on 19 August 2014, the PUP leader Clive Palmer stated that the PUP will block any moves by the Abbott Government to weaken or abolish the RET, a position that has also been supported by Senator Nick Xenophon.1

Broader review process

When the terms of reference for this non-statutory panel was announced, its report was intended to form part of a broader Energy White Paper process.  The progress of this broader energy review is uncertain as the Commonwealth Department of Industry website (insert link to http://ewp.industry.gov.au/) notes that a Green Paper is expected in August 2014, and there has been little public information to date as to its release.

Furthermore, as the CCA’s role in providing independent advice on climate change appears to have been preserved by the Senate, it continues to have a statutory obligation to undertake its 2014 review of the RET by 31 December 2014.  However, given that the terms of reference provided to the non-statutory panel were largely the same 2 as those which the statutory review would have been based on, it is unlikely that the CCA would replicate the task (notwithstanding the significant departure from the CCA’s review findings in 2012).

Ongoing controversy and uncertainty

Given the conflicting public positions of the Abbott Government and the majority of the Senate, it is unlikely that the Abbott Government’s response to the non-statutory panel’s report will result in a certain outcome for the RET and the renewable energy industry in Australia in the near future.

In the six months during which the non-statutory panel produced its report, there was significant controversy about the damaging impact of the ongoing policy uncertainty, let alone the widely predicted reductions to the RET. 

Unfortunately the delivery of the non-statutory panel’s report is unlikely to have provided any further certainty and the renewable industry will inevitably continue to suffer as a result.