Bills Digest No. 198  1999-2000Renewable Energy (Electricity) Bill 2000

Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details

Passage History

Renewable Energy (Electricity) Bill 2000

Date Introduced: 22 June 2000

House: Representatives

Portfolio: Environment and Heritage

Commencement: 28 Days after Royal Assent

Purpose

To introduce a legal requirement for large buyers of electricity to source a greater percentage of electricity from renewable sources.

Background

The announcement of the 2 per cent renewable energy measure

In November 1997, the Prime Minister released Safeguarding the Future: Australia's Response to Climate Change. A major component of this policy announcement was the foreshadowing of a legal requirement for electricity retailers and other large electricity buyers to source an additional 2 per cent of their electricity purchases from renewable or specified waste-product energy sources by 2010. The Renewable Energy (Electricity) Bill 2000 (the Bill) establishes the framework for the implementation of this requirement.

This renewable energy measure will push the level of current use of renewable energy used in electricity generation from 10.7 per cent to 12.7 per cent by 2010 and will result in substantial new investment in this sector. The measure will also result in greenhouse gas emission reductions of around 7 million tonnes per annum. It may also increase the price of electricity to some extent, especially in the short to medium term.

Renewable Energy in Australia

Renewable energy is any source of energy that can be used without depleting its reserves. These sources include sunlight or solar energy, wind, wave, biomass and hydro energy. Some 6 per cent of Australia's total energy use presently comes from renewable energy, largely from biomass in the form of bagasse (sugar cane waste) which is used to generate electricity and steam; and wood which is used primarily for home heating. The major sectors contributing to this renewable energy use are outlined in Figure 1.

Figure 1: Australian renewable energy use:

Source: Australian energy: market developments and projections to 2014-15, ABARE

Note however, the 2 per cent mandatory renewable measure will only apply to the electricity generation and use sector.

The bulk of Australia's electricity is generated by coal-burning power stations (see Figure 2). Australia has abundant reserves of both brown and black coal and natural gas and has amongst the cheapest electricity tariffs in the OECD, largely as a result of the low cost of the fuel sources used in generation. This is likely to remain the case for the foreseeable future. Coal and gas-fired electricity plants can supply continuous base-load power, which is essential for industrial and commercial use and also for household use as lifesyle has become inextricably linked with energy use. Renewable energy supplies, most of which comes from large-scale hydro electricity schemes located in the Snowy Mountains and in Tasmania.

Figure 2: Australia's electricity generation by fuel type

Source: Electricity Supply Association of Australia (ESAA). Note: excludes contributions from Independent Power Producers. This explains why the ESAA figure for Hydro at 8.6 % is lower than the current 10.7 % figure attributed to total electricity generation from renewable sources.

The Department of Industry Science and Resources has recently published a Renewable Energy Action Agenda⁽¹⁾ and the Australian Greenhouse Office has a dedicated internet renewable energy site at www.greenhouse.gov.au.

Implementating the 2 per cent renewable energy measure

As already mentioned, a 2 per cent increase in the contribution of renewable energy to Australia's electricity supply mix for the target year of 2010 will push the current 10.7 per cent figure to 12.7 per cent.

In order to give industry certainty, a fixed requirement for new renewable energy will be established. This requirement will be that an additional 9 500 GWh per year of electricity will be required to be generated by eligible renewable sources by 2010. Hence, 9 500 GWh added to what is estimated to be generated from currently established renewable sources (around 16 000 GWh) divided by the estimated total electricity generated by the year 2010 will equal 12.7 per cent. There will be no exceptions for specific industry sectors.

The range of renewable energy sources eligible for the purposes of the 2 per cent measure will be defined by regulations. However, in addition to the more common sources referred to previously, possibilities include geothermal, biofuels, specified wastes, solar water heating, pump storage hydro, Renewable Stand Alone Power Systems, co-firing renewables with fossil fuels and fuel cells using a renewable fuel.⁽²⁾ It appears that waste coal seam methane gas will be excluded since this is a hydrocarbon. However it is an aggressive greenhouse gas and its capture and use for electricity generation would seem a logical path to follow if one is to maxmise greenhouse gas emission reductions and expand electricity generation from waste products.

A central feature of the 2 per cent measure is the creation of renewable energy certificates. Eligible generation assets will earn certificates on the basis of their renewable generation once the measure is in place. Owners of renewable energy generation assets will hold the renewable energy certificates in the first instance, until traded among liable third parties. Liable parties will be required to surrender renewable energy certificates, through the Office of the Renewable Energy Regulator (created by the Bill) equivalent to their total liability in that year. The Government has agreed that penalties for non-compliance should be set at $40/MWh for the term of the measure. Penalties will be redeemable if the shortfall is made up within the next three years.⁽³⁾

The Government intends that the measure will be phased in by specifying a number of interim targets, over the period 2001-2010. Interim targets have been recommended to ensure that there would be consistent progress towards achieving the 9 500 GWh target by 2010 and that all of the investment did not occur in the final years of the scheme. The preferred phasing path has been designed to gradually grow to allow industry to adjust to the target, with a faster growth rate in the final years.

Table 1: Interim targets

Source: The Australian Greenhouse Office

It is intended that the 12.7 per cent target will then remain constant throughout the period from 2010 to 2020.

Magnitude of the task

Some appreciation of the magnitude of the task is gained if one looks at the present level of installed renewable electricity generation capacity as shown in Figure 3.

Figure 3: Australian installed electricity generation capacity (renewables)

Source: The Australian Greenhouse Office

Note the logarithmic scale in the above figure and that electricity from hydro generation is ten times greater than from other renewable energy sources. Present electricity generation from renewables is around 16 000 GWh per annum and the target will raise Australia's renewable contribution to some 25 500 GWh per annum in 2010. The bulk of present generation from renewable sources as is indicated in Figure 3 comes from large scale hydro with the next major contributor, mini-hydro, although of an order of magnitide much smaller. The bulk of new renewable sources will probably include bagasse, solar (including hot water systems) and wind which presently contribute only very small amounts. There is little liklihood that there will be further large scale hydro developments such as the Snowy scheme and the Hydro-Electric Corporation scheme in Tasmania because of large scale opposition to any further major dams in Australia and the perceived environmental problems. Also, most of the areas where any dams may have been considered for Tasmania now lie in world heritage areas.

The economic cost of the 2 per cent renewable energy measure

Renewable electricty (apart from large scale hydro schemes currently in place) is of an order of magnitude more expensive than electricity generated from present conventional means. Costs have been declining with the introduction of newer technologies, but these still remain much higher than electricity generated from conventional means. However, it is envisaged that costs for renewable energy will continue to decline as investment in these areas ramp up to cater for the new supply requirement.

The Electricity Supply Association of Australia (ESAA) estimates the 2 per cent renewable measure, which aims to have 9 500 GWh of new renewable power produced annually in 2010, will require $3 billion in capital outlays and will add $300 million per year (plus GST) to electricity charges. The ESAA estimates that some 3000 MW of new renewable energy generation capacity will need to be constructed.

The ESAA has urged the Senate to accept the mandated renewable energy measure.⁽⁴⁾

International Context

As a signatory to the 1997 Kyoto Protocol, Australia has an undertaking to limit greenhouse gas emissions growth to an 8 per cent increase on a 1990 base level. A number of industry and government stakeholders have suggested that the 2 per cent measure will result in annual savings of 6 to 7 million tonnes a year in savings of greenhouse gas emissions.⁽⁵⁾ Whilst this is not a large contribution in terms of absolute savings when one considers Australia's total emissions in 1997 were 431 million tonnes, it will be an important contributor. Also, in addition to the contribution to reducing greenhouse gas emissions, the 2 per cent measure is expected to greatly assist the development of an important and growing worldwide sustainable energy industry.

By way of comparison, the largest potential renewable energy markets in developed countries are in Europe. The European Commission has set a target of doubling to 12 per cent the contribution of renewable energy to Europe's energy needs by 2010. Europe is also a large market for wind generation. The European market is expected to grow from 4 780 MW in 1997 to 10 000 MW by 2000, at an average growth rate of 22 per cent. Major wind markets are Germany, Denmark, Spain, the Netherlands and the UK. Denmark is the dominant exporter. There is also a large potential for wind in the US, for new, large machines to replace older, smaller units dating from the 1980s but the overall market growth is low.

The International Energy Agency (IEA) predicts global electricity generation will grow by an average of 3 per cent per year between 1995 and 2020. By 2010, the IEA projects electricity generation capacity will have increased to 4556 GWh, an increase of almost 48 per cent from 1995. Renewables (other than hydro) is expected to increase to 43 GWh (or 43 000 MWh) in 2010 compared to 13 GWh in 1995 (an increase of over 230 per cent).

Main Provisions

Part 2 deals with renewable energy certificates ('certificates').

The purpose of these certificates is to enable 'liable entities'⁽⁶⁾ to avoid or reduce the amount of renewable energy shortfall charge (shortfall charge) that they have to pay when they acquire electricity. The liable entities will generally acquire the certificates by purchasing them. The certificates are created by operators who generate power from accredited power stations using renewable energy sources where the amount generated exceeds the relevant 1997 eligible renewable power base line.

Clauses 9-12 cover the process for registration for persons wishing to be eligible to create certificates. Applications for registration are dealt with by the Renewable Energy Regulator (the 'Regulator').

Clauses 13-17 covers the process for obtaining accreditation of electricity generating power stations for the purpose of creating certificates. The main condition for eligibility under subclause 14(2) is that the power station, or elements of it, generates some or all of its power from an 'eligible renewable power source'. Clause 17 provides that 'eligible renewable energy sources' are to be defined by regulations. It also says that fossil fuels and waste products derived from fossil fuels cannot be eligible sources.

Clauses 18 -24 deal with the creation of certificates. Clause 18 provides that a registered person may create a certificate for every 1 megawatt hour (MWh) of electricity generated by an accredited station from eligible renewable sources that is in excess of the stations 1997 baseline. Clauses 21-23 provide that certificates can also be created by solar hotwater heaters if they are installed on or after 1 January 2001 and 'displace' electricity usage from non-renewable sources. Much of the detail regarding solar hotwater heater certificates are to be decided by regulations. The improper (ie unlawful) creation of certificates is dealt with in Clause 24. Penalties are imposed both according to how many certificates are improperly created and whether the offence is a strict liability offence⁽⁷⁾ or criminal offence. For example, improperly creating 10 certificates could result of a penalty of up to $1 100 for a strict liability offence and $5 500 for a criminal offence. The maximum penalty for improperly creating 100 certificates would be 10 times greater, ie $11 000 and $55 000 respectively.

Clauses 27-28 provide that certificates may be transferred (eg sold) from one person to another, providing the Regulator is advised of the transfer once it has occurred.

Part 3 deals with the acquisition of energy. Essentially this sets out what entities will be 'liable entities' and thus be required to either purchase additional electricity from renewable energy sources or pay a financial penalty (see Part 4). There are a few circumstances where what would otherwise be a liable entity purchase does not give rise to liability under the Bill. The most important are:⁽⁸⁾

• the electricity was sourced from a grid of less than 100 MW capacity which is not connected to another grid of 100MW or greater capacity, or
• the person generating the electricity also consumes it within 1 km of the point of generation or, if greater than 1 km, the electricity is transmitted along a power line whose sole purpose is transmit the electricity between the generation and consumption point.

Part 4 deals with the situation where a liable entity does not have enough certificates to demonstrate that it has bought the prescribed level of energy from renewable sources. If it has such a shortfall, it must pay a renewable energy certificate shortfall charge (shortfall charge).

Under clause 37, the amount to be paid is calculated by multiplying the shortfall (itself calculated by clause 38) by 'the rate of charge' set out in the Renewable Energy (Electricity) Charge Bill 2000. The latter Bill sets this at $40 per MWh.

Clause 42 makes it clear that while the Commonwealth (including any Commonwealth agency or authority) is not legally obliged to pay any Part 4 shortfall in the same way as non-Commonwealth entities are, the Minister for Finance may give certain directions for the transfer of funds between various Commonwealth accounts. The practical effect is of this is that the Minister for Finance may require Commonwealth departments, agencies or authorities to account for any shortfall charges in their budgets.

Part 5 covers the annual lodging of an assessment of energy acquisition statements and renewable energy shortfall statements by liable entities. In broad terms, the purpose of these statements is to allow the Regulator to assess the liability of the entity to any shortfall charges and related issues. The reporting of shortfalls to the Regulator is through a chiefly self-assessment process. In particular, clause 47 specifies that if a liable entity lodges a renewable energy shortfall statement, and has not previously lodged a shortfall statement for that year with the Regulator, that statement shall be taken to be the assessment of a liable entity's shortfall and the charge payable on that shortfall. However the Regulator can amend an assessment (clause 49), or make a default assessment if the Regulator considers that the entity is liable for a shortfall charge but has not lodged a shortfall statement (clause 48).

Part 6 deals with objections, reviews and appeals of Part 5 renewable energy shortfall assessments and charges.

Only the liable entity can object to the assessment. There are no prescribed grounds for an objection. In general, it must be made within sixty days of the Part 5 assessment, although this can be extended (Clause 55 and 57). The Regulator has sixty days to make a decision on the objection - the 'objection decision' (clause 59).

Clause 60 provides that an application for review or appeal against the Regulator's objection decision can be made either to the Administrative Appeals Tribunal (AAT) or the Federal Court. It is not immediately obvious why the Bill gives the choice of two avenues for review or appeal. It appears that the Federal Court may undertake a merits review and substitute its own decision as to a shortfall assessment. Clause 61 provides that the burden of proof in such appeals lies with the liable entity.

A range of other procedural decisions by the Regulator (such as the accreditation of a power station) are reviewable by the AAT (subclause 66(5)).

Part 7 deals with the collection, recovery and refunding of the shortfall charge.

Clause 67 provides that the annual charge is due on the 14 February the following year,⁽⁹⁾ or when the shortfall statement is lodged, whichever is the later. Interest is payable on unpaid charges (clause 70). The Regulator may sue for the recovery of an unpaid charge (clause 71),

The Regulator may also collect unpaid charges and related debts from third persons, liquidators, receivers, deceased estates etc. For example, in the case of third persons, if a liable entity has failed to pay a shortfall charge but is owed or may in the future be owed money by another person, the Regulator may require that person to pay that money to the Regulator rather than to the entity (clause 73). Failure to comply with the Regulator's notice on this is subject to a court imposed penalty of $3,300 on conviction (clause 76).

Part 8 deals refunding shortfall charges where the liable entity surrenders certificates to the Regulator.

The effect of clauses 95-98 is that where a entity has paid a shortfall charge (because it did not have enough certificates to demonstrate that it has bought the prescribed level of energy from renewable sources) in previous years (but not more than 3 years previously) it can in certain circumstances get a refund if it surrenders to the Regulator certificates to the value of that charge.

Part 9 deals with penalties if the entity fails to provide certain statements or information relating to the shortfall charge assessments as required under the Bill or makes false or misleading statements. It is not applicable to Government bodies.

Clause 99 covers situations in which the entity fails to provide statements or information required under the Bill. The penalty is double the shortfall charge that the entity is liable for.

Clause 100 covers the making of false or misleading statements by the entity. The penalty is double the difference between the shortfall charge based on the false or misleading claim and the charge based on the true situation (assuming the false or misleading statement resulted or would have resulted in smaller shortfall charge).

Part 10 provides that the Regulator is responsible for the administration of the Act (clause 104) and at the end of each year must give the relevant Minister a report for presentation to Parliament (clause 105).

Part 11 deals with the auditing of persons registered under the Act and liable entities.

Key provisions under Part 11 are those covering search warrants (clause 125) and the powers of authorised officers in conducting searches (clauses 111-112).

Warrants to enter and search premises can only be issued by magistrates. The grounds for issuing a warrant is that the magistrate is satisfied, by information on oath, that it is reasonably necessary that one or more authorised officers have access to the premises for the purposes of substantiating information provided under the proposed Act or of determining whether the proposed Act has been complied with.

Authorised officers operating under a warrant may inspect and copy any thing that relates to information relevant to the proposed Act. They may also seize things if so authorised by a warrant. Authorised officers operating under a warrant may require any person on the premises to answer questions or produce any document or thing that relates to information relevant to the Act unless this might tend to incriminate the person or expose them to a penalty.⁽¹⁰⁾ Any failure to do so except under the self-incrimination defence carries a maximum penalty of six months imprisonment. Knowingly giving false or misleading answers or documents⁽¹¹⁾ carries a maximum of twelve months imprisonment.

Part 12 covers the requirements of the Regulator, their employees or other persons in protecting confidential information.

Part 14 deals with the position of the Regulator and the Office of the Regulator. The Regulator is appointed by the Minister for Environment and Heritage for a term specified at appointment (clause 143). However, that term cannot be more than 7 years.

Under clause 147, the Minister may terminate the Regulator's appointment on grounds on misbehaviour or physical or mental incapacity, or because of defined absence without leave, or because they engage in other paid employment without the Minister's approval. The Minister must terminate the Regulator's appointment if they become bankrupt, seeks legal relief from bankruptcy etc.

The Minister may appoint a person as acting Regulator where there is a vacancy, or the regulator is absent from duty or 'for any reason' unable to perform the duties of the office (clause 148).

Part 15 is a general provision relating to offences. Clause 152 specifies that the Criminal Code applies to all offences under the Act. Clause 153 provides a penalty of 12 months imprisonment for knowingly giving false or misleading information to a person performing functions under the Act. A failure to provide documents to the Regulator or another authorised person if required under the Act carries penalty of up to $3 300 for strictly liability or 6 months jail if charged under Criminal Code.

Part 16 covers miscellaneous items.

Clause 155 allows the Regulator to employ any person to assist with any of the Regulator's functions.

Subclause 156(1) deals with delegation. Any senior officer⁽¹²⁾ of the Regulator's office may be delegated by the Regulator to perform any of his / her functions or powers. The delegation must be in writing. Subclause 156(2) allows the Regulator to delegate a limited range of his / her functions or powers. Note there appears to be an error in that paragraph 156(2)(b) refers to Part 9A. There is no Part 9A in the Bill as drafted.

Clause 161 provides for the making of regulations, including those dealing with penalties of up to $5 500.

Concluding Comments

Subsequent to the initial drafting of this digest in late June, the Bill was referred to the Senate Environment, Communications, Information Technology and the Arts References Committee.⁽¹³⁾ The Committee is due to report on 15 August.

Public Hearings were held in Canberra on 13 and 14 July 2000. Almost 20 organisations provided evidence to the hearings. From a legal perspective, the evidence of Dr Harry Schaap of the Electricity Supply Association of Australia is of particular interest. Noting that ESAA had had very little time to consider the Bill in any detail, Dr Schapp flagged that a number of both broad and specific issues had been referred to ESAA's legal counsel for advice. The broader issues included:⁽¹⁴⁾

• the federal government's powers to impose conditions on the buying and selling of electricity, and the roles of the state
• the cost pass-through issues, particularly for large contract customers buying from generators which act as proxy retailer
• the identification of provisions that create absolute strict and fault based liability
• the need to identify the term 'grid', and
• the consistency of the bills with respect to existing complex state legislation and regulation.

The more specific issues included:

• the need to pin the (proposed) Act to the Environment Protection and Biodiversity Conservation Act, rather than to electricity related legislation (clause 5)
• the need to ensure long-term certainty once an energy source is accredited (clause 14)
• the acquisition of electricity, including exemptions and notional wholesale acquisitions (clauses 31 to 34)
• problems related to generators acting as proxy retailers for large electricity buyers, such as a generator being the proxy buyer for an aluminium smelter
• the need for the renewable power percentage to be subsidiary to the collective annual liability and the potential for overshooting annual targets (clauses 39 and 40) business costs, deductibility and taxation, including refunding charges (clauses 95 to 98 and 99 to 103)
• the publication of certain information, implied misconduct, position of companies, directors and managers and corporate law compliance (clauses 134), and
• limiting the need of public access to confidential business information needed by the regulator (clauses 140 to 141).

Endnotes

1. Department of Industry Science and Resources 1999, 'Renewable Energy Action Agenda, Discussion Paper', Big Island Graphics, Canberra, December.
2. Department of Industry Science and Resources 1999, 'Renewable Energy Action Agenda, Discussion Paper', Big Island Graphics, Canberra, December, p. 19.
3. The Australian Greenhouse Office, '2%: A boost for the renewable energy industry, A positive greenhouse outcome', www.greenhouse.gov.au
4. ESAA Media Release 2000, 'ESAA calls for energy efficiency to become greenhouse priority', 15 June, Canberra.
5. Second reading speech, The Hon Dr Sharman Stone, House of Representatives Debates 27 June 2000 p. 16685
6. A liable entity is defined in clause 35 of the Bill. In lay terms, it is an entity who buys electricity (eg an electricity retailer) from someone who did not have to purchase themselves (eg an electricity generator). An end user such as a residential house or commercial office would not a liable entity because they purchase electricity from a retailer, not direct from a generator.
7. For strict liability, a 'fault' element does not have to proven as it would have to be for a criminal offence.
8. Further details are set on pages 55-57 of the Explanatory Memorandum.
9. Ie a shortfall charge for 2001 would, under certain circumstances, become due on 14 February 2002.
10. Compare, for example, section 52 of the Diesel and Alternative Fuels Grants Scheme (Administration and Compliance) Act 1999 which provides that self-incrimination is not an excuse for failing to provide information to an authorised officer conducting a search operation.
11. However in the case of documents the penalty does not apply if the person providing the documents to the authorised officers makes a written statement that they know the documents is false and misleading.
12. Senior Officer is someone of Director level (Executive level 2 or old SOG B) or above.
13. Senate Debates 28 July 2000 p. 15953.
14. Senate Committee Hearing Proof Transcripts 14 July 2000, p. 161. See http://www.aph.gov.au/hansard/senate/commttee/comsen.htm

Contact Officer and Copyright Details

Angus Martyn and Mike Roarty
9 August 2000
Bills Digest Service
Information and Research Services

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ISSN 1328-8091
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Published by the Department of the Parliamentary Library, 2000.

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