Executive summary  

  • Renewable Energy Target (RET) scheme amendment legislation passed by Federal Parliament.
  • 20 per cent of Australia’s electricity generation to come from renewable energy sources by 2020.  
  • Limited inclusion of Waste Coal Mine Gas in the RET scheme as an eligible energy source that can generate Renewable Energy Certificates (RECs).  
  • Increased RECs available for hydro, wind or solar household small generation units.  
  • Shortfall charge increased from $40 to $65 per MWh.  
  • Partial exemption from RET for emissions-intensive, trade-exposed activities, full detail still to be seen in regulations.  
  • Future of CPRS still uncertain.  

Introduction  

On 20 August 2009, the Federal Parliament passed legislation for the expansion of the Mandatory Renewable Energy Target (MRET), now to be called the Renewable Energy Target (RET), giving effect to the Federal Government’s election commitment to require 20 per cent of Australia’s electricity generation to come from renewable energy sources by 2020.

The Renewable Energy (Electricity) Amendment Bill 2009 (Cth) (Amending Bill), which amends the Renewable Energy (Electricity) Act 2000 (Cth) (REE Act), now awaits Royal Assent.

Pursuant to the Amending Bill, the annual renewable energy targets applicable to wholesale purchasers of electricity will increase with effect from 1 January 2010, reaching a maximum of 45,850 gigawatt hours in 2020 and then continuing at a level of 45,000 gigawatt hours from 2021 to 2030 inclusive, at which point the RET will cease operation. The full list of annual targets is available here  

How does the existing MRET work?  

MRET was established by the REE Act, which obliges Australian electricity retailers and other large purchasers of electricity to source increasing amounts of their required electricity from approved renewable sources1 (eligible energy sources). Other legislation underpinning this scheme is the Renewable Energy (Electricity) Charge Act 2000 (Cth) (REE Charge Act), and the Renewable Energy (Electricity) Regulations 2001 (Cth).

MRET is administered by the independent Renewable Energy Regulator.

Renewable Energy Credits  

RECs: Renewable Energy Certificates. Tradeable certificates surrendered to the Renewable Energy Regulator to demonstrate compliance with the MRET, and once the RET commences, the RET.

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 megawatt hour (MWh) of electricity generated.2 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 REE Charge Act. This shortfall charge has now been increased to $65 per MWh, see below.

Owners of eligible micro-generation units (photovoltaic systems, wind systems and small hydro-electric 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.3

Expanded RET

RET: The Rudd Government’s expanded renewable energy target, expanding the MRET, to source an additional 20 per cent of energy from renewable sources by 2020.

What is an eligible energy source under the RET?  

Eligible energy sources under the RET are set out in the table below. The Amending Bill also provides for the partial availability of waste coal mine gas (WCMG) as an eligible (although not renewable) energy source under the RET. WCMG will be eligible from 1 July 2011 (unless a different date is prescribed by the regulations) until 31 December 2020, and only from power stations generating electricity from WCMG as at May 2009. The regulator is also empowered to place quantitative limits on the amount of power generated from WCMG that is eligible for the purposes of the RET, and to vary those limits from time to time.

Annual targets under the RET  

The annual targets have been updated to capture the renewable energy created by eligible WGMC. As WGMC is not a renewable energy source the Federal Government does not intend for WCMG to contribute to the 2020 target.4 Rather the annual targets have been increased by 425 gigawatt hours in 2011 and 850 gigawatt hours for the period of 2012 to 2020 to reflect the energy generated by WGMC. These higher targets will allow for transitional assistance for the WCMG generation sector while ensuring the government meets its 2020 renewable energy target.5 See below for the target for each year from 2009 to 2030.

Increased shortfall charge  

A related Bill which was also passed through both Houses of the Federal Parliament on 20 August 2009, the Renewable Energy (Electricity) (Charge) Amendment Bill 2009, will increase the shortfall charge under the REE Charge Act for failure to source the required quantity of electricity from RET-eligible sources from $40 to $65 per MWh, with effect from 1 January 2010.

Partial exemptions  

The Amending Bill provides for ‘partial exemption certificates’ for emissions-intensive trade-exposed activities (EITEs), but leaves details of the quantum of the exemption, and (for the present) the identification of EITEs, to regulations which will be made for the purpose. The holder of a partial exemption certificate will see a stated percentage of its electricity usage exempted from the calculation of its ‘required renewable energy’ in a given year. If an electricity retailer/large user makes a relevant acquisition of electricity and then sells the electricity for use by another entity in an emissions-intensive trade-exposed activity, or when the electricity retailer/large user itself uses the electricity to carry on an emissions-intensive trade-exposed activity, then provided that an entity does not receive a windfall gain, a partial exemption can apply.

The Federal Government indicated in the Second Reading Speech in the House of Representatives on 17 August 2008 that, initially, electricity-intensive trade-exposed industries which exceed a threshold of 3,000 megawatt hours per million dollars of revenue, or 9,000 megawatt hours per million dollars of value added, will qualify for partial exemption certificates. Such industries would include aluminium smelting, silicon production, and newsprint manufacturing. The partial exemption would be for 90 per cent of an EITEs’ additional liability that results from the increased RET annual targets due to the passage of the Amending Bill.

However, in a subsequent statement, Climate Change Minister Penny Wong indicated that the Federal Government had agreed to apply the same criteria in relation to EITE assistance under the RET that it proposes for the Carbon Pollution Reduction Scheme (CPRS). If legislation for the CPRS is enacted, an EITE for the purposes of the CPRS will in any event also be an EITE for the purposes of the RET, and exemptions will be available in relation to either 90 per cent or 60 per cent of the additional RET targets, depending on the EITE’s classification as ‘highly’ or ‘moderately’ emissions-intensive, respectively.

All details of EITE assistance under the RET will be contained in the regulations.

Solar Credits for micro-generation units  

A new feature of the RET is ‘Solar Credits’ for micro-generation units. Solar Credits will be issued for household small generation units where the energy source is hydro, wind or solar photovoltaic. The Solar Credits scheme replaces the current Solar Homes and Communities Plan.

Solar Credits work by allowing owners of small solar panels (and other micro-generation units such as 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 2012.6

Replacement of state-based schemes

In order to ensure that the RET scheme operates on a national level, the Amending Bill contains transitional provisions for the RET to supplant existing or proposed state-based schemes.

In particular, a provision that will come into effect on 1 July 2011 (the proposed commencement date for the CPRS), if not proclaimed to commence beforehand, will exempt constitutional corporations from the need to comply with a law of a state ‘that substantially corresponds to’ the Federal legislation for the RET. This is intended to encompass legislation such as that which establishes the Victorian Renewable Energy Target (VRET) and the proposed legislation for the New South Wales Renewable Energy Target (NRET) (state RET legislation).

There are also transitional provisions for the automatic accreditation for RET purposes of power stations which are accredited by state RET legislation, and for the conversion of surrendered renewable energy certificates created under state RET legislation into corresponding certificates under the Federal RET.

Renewable energy targets 2010–2030 under the RET  

The  table lists the new targets for power from eligible energy sources (that is, renewable sources and, until 2020, WCMG).  

RET Eligible Energy Sources

For table click here

What next?  

The RET will be independently reviewed in 2014.

The Federal Government plans to maintain the commitment of 20 per cent renewable energy sources by 2020 to 2030. No RECs can be generated on or after 1 January 2031.

The future of the CPRS remains uncertain.