Leslie Nielson, Economics Section
Current policy
Under the current Renewable Energy Target (RET) scheme,
Australia will be generating at least 20 per cent of its
electricity from a variety of renewable sources by 2020 (at least
45 000 gigawatt-hours (GWh) in that year). Briefly, large scale
electricity users and retailers must purchase the required number
of Renewable Energy Certificates (REC) and surrender them to the
government regulator each year. One REC is equal to one mega-watt
hour per year. These certificates are created by the generation of
electricity from renewable sources. Failure to surrender enough
RECs leads to a substantial financial penalty.
From January 2011, the RET scheme will be separated into two
components. The first component is the Small-scale Renewable Energy
Scheme (SRES) covering small-scale generation and residential based
power generation (that is, solar hot water heaters and
photo-voltaic panels). The second component is the Large-scale
Renewable Energy Scheme (LRET), covering commercial-scale renewable
power generation. The set targets for the LRET rise from 10 400 in
2011 to 41 000 GWh in 2020. The balance of renewable power
generation above this figure will be made up of units installed
under the SRES. The graph opposite shows the LRET targets from 2011
to 2020.
Surplus Renewable energy targets
The various state and territory feed-in tariff schemes, and the
fall in the photo-voltaic system costs, have created an effective
incentive for the installation of a large number of residential
renewable energy schemes. This has led to a large number of RECs
arising from this source alone. One estimate suggests a surplus of
some 23 million RECs by the end of 2010. RECs arising from the SRES
may be used to meet the LRET, but not after December 2010.
Part of the incentive for the installation of commercial-scale
renewable energy projects is the return they may receive from
selling the RECs they give rise to. The expected surplus may
depress the REC price to the extent that some large-scale renewable
power generation projects may be deferred, until the long-term REC
price rises. At present the REC spot price is about $37 per
certificate.
This deferral of large-scale projects may restrict the supply of
RECs to the extent that there will not be enough such certificates
created to meet the required targets in later years. This may raise
the REC price to an unstainable level for current scheme
participants in the short term. The only way these participants can
recover this cost is to substantially raise the retail electricity
price or the price of a large-scale electricity user’s
products. Thus, the REC market requires constant monitoring.
The LRET scheme allows for the temporary increase in its targets
if there is a large surplus of REC’s issued at the end of
2010. Parliament may need to examine the need for government to
expand the LRET.
Large-scale Renewable Energy
Scheme targets 2011–20 - Text
version
Crowding out
There are a significant number of renewable energy projects,
mainly wind farms, which are being developed. One estimate puts the
power that will be generated by these projects at over 1000
mega-watts (MW). In particular the Australian Gaslight Company
(AGL) has announced the development of the Macarthur wind farm with
a capacity of 420 MW. One analyst has suggested that all the
currently announced renewable energy projects will keep the REC
market in rough balance for some years to come, even before taking
account of the projected surplus of RECs arising by the end of
2010.
Though these projects are welcome there are some likely
consequences:
- the future REC price may be lower than required to provide an
incentive for further renewable energy projects, and
- a low REC price favors already established technologies, such
as wind and solar thermal, at the expense of developing
technologies, such as geothermal and tidal/wave power generation.
New technologies are expected to require larger amounts of capital
(and hence a higher REC price) to establish.
Technical diversity in renewable energy generation is important.
By their nature solar thermal and wind are intermittent power
sources, where geothermal and tidal/wave power may provide
renewable energy on a constant basis. While diversity is a desired
outcome, it may require a mandated share of energy to be generated
by specified means (such as geothermal).
Transmission lines
Australia’s renewable energy resources tend to be in
remote locations, far from major centers of electricity demand and
major transmission lines. All developers of new power generation
facilities must now provide their own transmission lines. Thus
renewable energy generators face an additional cost to develop
their projects in comparison to conventional power station
developers who have closer access to existing transmission lines.
There may calls for government assistance by renewable energy
developers to help meet this cost.
More please
Currently, the European Union has a goal of sourcing 20 per cent
of its total energy requirements (including liquid fuel
requirements) from renewable sources by 2020. To meet this overall
goal at least 33 percent of its electricity will be generated by
renewable means.
The Australian Greens have proposed that Australia’s RET
be lifted to 30 per cent by 2020. They have also proposed other
changes to the RET, such as removing electricity generated by waste
coal mine gas from the scheme.
Library publications and key documents
G Baker, Operating wind farms by
Commonwealth Electoral Division, Background note,
Parliamentary Library, Canberra, 19 February 2010, http://www.aph.gov.au/Library/pubs/bn/stats/Wind%20Farms_CED.pdf
S Needham, Renewable energy technologies
update, Background note, Parliamentary Library,
Canberra,
30 November 2009, http://www.aph.gov.au/Library/pubs/BN/sci/RenewableEnergy.pdf
AGL Energy, $1 billion wind farm in
Victoria’s south west to be biggest in southern
hemisphere, media release, 12 August 2010,
http://www.agl.com.au/about/media/Pages/$1billionwindfarminVictoria%E2%80%99ssouthwesttobebiggestinsouthernhemisphere.aspx