In brief

On 18 May 2015, the Australian Coalition and Labor parties reached agreement on nearly all of the Coalition proposed amendments to the Renewable Energy Target (RET).

Each RET amendment will now need to be effected by way of legislative amendment to the Renewable Energy (Electricity) Act 2000 (Cth) (the Act).

It is anticipated that the Coalition will introduce the relevant amending legislation in Federal Parliament next week. As bipartisan agreement has been reached on nearly all of the proposed amendments, the changes to the RET should be passed by both the House of Representatives and the Senate before the winter recess on 25 June.

LRET Target

Both parties have agreed to a large-scale RET (LRET) target of 33,000 GWh, equalling approximately 23.5% of Australian energy by renewable energy sources by 2020.

Currently, s 40 of the Act provides for a target of 41,000 GWh. This target was introduced by the 2010 amendments to the Act, which also separated the RET into the Small-scale Renewable Energy Scheme (SRES) and the LRET. The target of 41,000 GWh was initially intended to constitute a 20% share of renewables. However, due to a decline in electricity demand, projections indicate that the 41,000 GWh target is likely to be closer to a 26% share of renewables by 2020.

The Clean Energy Council has offered its support for the achievement of a bi-partisan agreement to the LRET target, however it is disappointed with its reduction. The solar industry has argued that the LRET reduction is likely to have a greater impact on large-scale solar. This is due to industry speculation that the majority of large PV solar projects are unlikely to commence until closer to 2020, and at such time, the wind industry may have used a considerable amount of the reduced LRET capacity.

Neither the Coalition or the Labor party have proposed any amendments to the duration of the RET. Under the current Act, no certificates can be created and no liability arises for electricity generated after 1 January 2031.

Biennial Review

Agreement on the removal of a statutory review of the RET every two years has also been reached.

Section 162 of the Act currently provides that the Climate Change Authority must review the RET’s operation every two years (Biennial Review). The Biennial Review was introduced by the Labor Government with the intention of ensuring the effective operation of the RET. However, most industry groups consider that the review undermines investor certainty and hinders the achievement of RET objectives.

The Coalition had resisted a repeal of the Biennial Review out of concern that an increasing number RET Liable Entities (defined below) would be liable to pay a shortfall charge, which would then be passed onto consumers. However, the Coalition has formed the view that such risk can be annually monitored by the Clean Energy Regulator and has therefore agreed to remove the Biennial Review.

Under the current Act, RET Liable Entities are first person acquisitions of electricity from the National Electricity Market (in the Eastern Australian States), the Wholesale Electricity Market (in Western Australia) or embedded generators. These are usually electricity retailers however also include entities who purchase electricity directly from the grid such as steel producers and aluminium smelters.

The repeal of the Biennial Review would not preclude any Government initiated review (an example of which was the Warburton Review) of the RET from time to time.

Native wood waste

Labor has not agreed to the Coalitions’ proposal to include native forest wood waste as an eligible renewable energy source. Both Labor and the Coalition have indicated that they are unlikely to withdraw support for the current RET deal based on a failure to agree on this issue. However, the Coalition is likely to have to rely on the support of non-government Senators in the upper house to pass this proposed amendment.

Native forest wood waste had previously been included as an eligible renewable energy source under the mandatory renewable energy target in 2001 but was removed in 2011. The number of Large-scale Generation Certificates (LGCs) created from wood waste during 2001-2013 remained mostly stable notwithstanding the removal of native wood waste in 2011. As such, the re-introduction of native wood waste is unlikely to materially impact on the LGC market.

Full exemption for EITEs

The Coalition and Labor have agreed to fully exempt all energy-intensive industries such as the aluminium industry from the RET.

The Act currently allows for partial exemptions from LRET liability for emissions-intensive trade-exposed businesses (EITEs) including the manufacturing of metal products (such as alumium, zinc, iron, nickel, copper and steel), the production of LNG, ammonia, ammonium nitrate and petroleum refining.

This proposed RET amendment agreed by Labor and the Coalition will result in a conversion of the current partial exemption for all EITEs to a full exemption for all EITEs.

Next steps

The Coalition intends on introducing the relevant legislation in Federal Parliament this week. Once the House of Representatives passes the legislation, the amendments will move to the Senate. Given the bipartisan support for all changes except for native wood waste (which is likely to have the support of non-government senators), it is the Coalition’s intention that the changes to the RET be passed by the Senate before the winter recess (25 June 2015).

If the RET amendments progress through both houses according to the Coalition’s plan, then Australia can expect the RET amendments detailed above to be in effect by as soon as July 2015.