Mandatory renewable energy target

Renewable energy target (RET)

The Renewable Energy Target (RET) requires that 20 per cent of Australia’s electricity be produced from renewable energy sources by 2020. To achieve this, the Government has set annual targets for each year of the scheme, and requires Australian electricity retailers and large wholesale purchasers of electricity to demonstrate that they meet these targets. Compliance is demonstrated by surrendering renewable energy certificates (RECs), where one REC is equivalent to one additional megawatt-hour (MWh) of electricity generated from renewable energy sources (above a 1997 benchmark). Failure to surrender adequate RECs leads to a shortfall charge of $65 per MWh.

Electricity retailers and wholesale buyers (referred to as ‘liable entities’) can choose to either generate the electricity from renewable energy sources themselves, or purchase the RECs from others that have done so. This creates a market for RECs.

Since the passage of new legislation on 24 June 2010, two types of RECs now exist, and liable entities have obligations with regard to both. Liable entities are required to purchase and periodically surrender both ‘large-scale generation certificates’ (LRECs) and ‘small-scale generation certificates’ (SRECs) equivalent to their total liability. The two types of RECs reflect two parts to the scheme:

  • The Large-scale Renewable Energy Target (LRET) has a target of 41 000 gigawatt hours (GWh) by 2020 and only large-scale renewable energy projects are eligible.
  • The Small-scale Renewable Energy Scheme (SRES) targets a theoretical 4000 GWh annually and is eligible only to small-scale or household installations.

As part of the SRES, a program known as the Solar Credits scheme allows households, businesses or community groups to generate more than just one SREC for each megawatt-hour generated. In fact, depending on the set 'multiplier', they have been able to generate up to five SRECs per megawatt-hour of electricity that they produce. The scheme is based on the capacity of the solar energy system, and on the likely amount it will generate over a deemed period. The Solar Credits scheme applies only to the first 1.5 kW of installed renewable energy capacity of an eligible small generation unit. For units bigger than this, each megawatt-hour generated from the extra capacity is eligible for only the standard 1 to 1 rate of SREC creation. The SREC 'multiplier' is set at five until 2011, and then declines to three on 1 July 2011 and by one for each year after that until the Solar Credits scheme ends in 2013.

While the LRET target is certain and capped, that of the SRES is not; it is only notional. As the LRET is capped, the prices of LRECs fluctuate on the market and can vary with any number of external and internal factors up to the level of the shortfall charge. The price of SRECs, however, is fixed by the Government at $40 (initially). The actual amount of electricity generated under the SRES may or may not exceed the 4000 GWh estimate.

Liable entities are therefore required to surrender a fixed proportion of LRECs annually, but an uncertain and changing proportion of SRECs (as this depends on the total number of SRECs generated each particular year).

Background to the RET

The RET scheme began with the Commonwealth Government's Mandatory Renewable Energy Target (MRET), which targeted the generation of 9,500 GWh of extra renewable electricity per year by 2010. The MRET commenced on 1 April 2001 by means of the Renewable Energy (Electricity) Act 2000 (the Act).

Interim annual targets were set to ensure consistent progress towards achieving the 9,500 GWh target and these applied to calendar years up to and including 2020. However, in 2009, the Renewable Energy (Electricity) Bill 2009 amended the Act and replaced the MRET with the RET. This altered the target from 9500 GWh by 2010 to 45 000 GWh by 2020 and introduced the Solar Credits scheme.

Shortly after the passage of the 2009 legislation, REC prices feel sharply. It seems likely that this was caused by the intricacies and practicalities of the new RET, as well as its interaction with some State-level policy instruments. This price crash created uncertainty in the market and threatened to deter potential investment in large-scale renewable energy projects. In response, the Government announced a series of reviews and consultation papers, and ultimately amended the legislation to create the LRET and SRES.

22 October 2010
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