The RET Scheme (the Scheme) was first introduced in Australia in 2001 with bipartisan support. It imposes legal liability to support electricity generated from renewable sources on retailers and large wholesale purchasers of electricity. These 'liable parties' are required to meet a share of the renewable energy target in proportion to their share of the national wholesale electricity market. Liable parties must prove that they have purchased the relevant proportion of renewable energy by surrendering certificates or paying the shortfall charge, which is a penalty for non-compliance.

The RET legislation contains a requirement for review of the scheme every two years. In February 2014, the Coalition Government announced a review of the RET by an Expert Panel, which attracted more than 23,000 submissions. The Expert Panel issued its report in August 2014. This article outlines the Expert Panel's main observations, recommendations and proposed changes to the RET Scheme.

General observations made by the Expert Panel

Some of the general observations made by the Expert Panel are:  

  • Impact of the RET on uptake of renewable energy
    • The RET has broadly met its objectives. In particular, it has encouraged significant new renewable electricity generation, which has almost doubled as a result of the scheme.
    • Installations of small-scale systems have exceeded expectations.
    • Demand for electricity has been declining and the RET is contributing to a large surplus of generation capacity.
  • Impact of the RET on carbon emissions
    • To date, the RET has delivered modest reductions of carbon emissions.
    • The RET is a high cost approach to reducing emissions because it does not directly target emissions.
    • The Scheme promotes renewable energy ahead of alternative, lower cost options for reducing emissions.
  • Impact of the RET on electricity prices
    • The direct costs of the RET have increased household electricity bills by around 4% but modelling suggests that the net impact of the RET over time is relatively small.
    • Overall, the RET is exerting some downward pressure on wholesale electricity prices because the RET is increasing electricity supply when demand is falling.
    • However, over time, wholesale electricity prices could be expected to rise to better reflect the cost of generating electricity.

Options for reforming the Large-scale Renewal Energy Target

The Large-scale Renewable Energy Target (LRET) involves renewable energy generated from large-scale renewable energy projects. The LRET has a legislated target of 41,000 gigawatt hours (GWh) for 2020 – 2030, with interim targets to 2020.

The Expert Panel acknowledged concerns that repeal of the LRET would affect both existing and future investments. Accordingly, the Expert Panel has recommended two options regarding reform of the LRET to address these concerns:  

  • Grandfathering: The LRET could be allowed to operate until 2030 for existing and committed renewable generators, but would be closed to new entrants. The Expert Panel explains that this option protects investors in existing renewable energy projects while avoiding costs associated with subsidising additional generation capacity that is not required to meet electricity demand.
  • Matching generation with demand: As an alternative, the Expert Panel has suggested that the RET targets could be modified to increase in proportion to growth in electricity demand. The Expert Panel explains that this option would also protect investors in existing renewable energy projects and would support additional renewable electricity generation when demand is growing.

Options for reforming the Small-scale Renewable Energy Scheme

The Small-scale Renewable Energy Scheme (SRES) involves renewable energy generated from small-scale renewable energy projects. The SRES is uncapped, with no quantitative limit.

The Expert Panel noted that the SRES has resulted in the displacement or around 6400 GWh of electricity in 2013, above the original expectation of achieving a minimum of 4000 GWh of annual generation by 2020. The Expert Panel also noted that cost reductions of small-scale solar PV systems coupled with increase in retail electricity prices means that the small-scale renewable energy industry is becoming commercially viable. In addition, the Expert Panel considers that the cost of reducing emissions through the SRES is at least 2 – 3 times higher than via LRET.

Accordingly, the Expert Panel has proposed two options regarding reform of the SRES:  

  • Abolition: The Expert Panel stated that there is a strong case for winding back the SRES through closing the scheme immediately.
  • Accelerated phasing out of the SRES: Alternatively, the Expert Panel has suggested accelerating the phasing out of the scheme. Under this option, the Expert Panel has recommended additional measures to reduce the cost of the scheme, including:
    • earlier reductions in the levels of support
    • reducing the eligibility threshold for rooftop solar PV systems regarding size to ensure that the scheme is targeted towards households.

Passage of the reforms to the RET

The Commonwealth Government has within six months to table its response to the Expert Panel's report. As yet, it is unclear which, if any of the Expert Panel's recommendations will be adopted by the Government. In any case, the Labor Party and the Greens are opposed to any changes to the RET, which means that the Government will require the support of the Senate cross-benchers to pass any reforms to the RET. Clive Palmer has indicated that his party will block any amendment to the RET before the next election because the Government does not have a mandate to amend it. Accordingly, it will be some time before the fate of the RET is finally determined.