Bills Digest no. 166 2009–10
Renewable Energy (Electricity) Amendment Bill
2010
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
Financial implications
Main provisions
Concluding comments
Contact officer & copyright details
Passage history
|
COAG
|
Council of Australian Governments
|
|
CPRS
|
Carbon Pollution Reduction Scheme
|
|
EITE
|
Emissions-intensive trade-exposed
|
|
eRET
|
enhanced Renewable Energy Target
|
|
kW
|
Kilowatt
|
|
LREC
|
Large-scale Renewable Energy Certificate
|
|
LRET
|
Large-scale Renewable Energy Target
|
|
MRET
|
Mandatory Renewable Energy Target
|
|
MWh / GWh
|
Megawatt hour / gigawatt hour
|
|
ORER
|
Office of the Renewable Energy Regulator
|
|
RATE
|
RET-affected trade-exposed
|
|
REC
|
Renewable Energy Certificate
|
|
RET
|
Renewable Energy Target
|
|
RIS
|
Regulatory Impact Statement
|
|
SGU
|
Small generation unit
|
|
SREC
|
Small-scale Renewable Energy Certificate
|
|
SRES
|
Small-scale Renewable Energy Scheme
|
|
WCMG
|
Waste Coal Mine Gas
|
Renewable Energy (Electricity)
Amendment Bill 2010
Date introduced: 12
May 2010
House: House of
Representatives
Portfolio: Climate
Change, Energy Efficiency and Water
Commencement: The
main operative provisions commence on 1 January 2011, with a range
of transition and other supporting provisions commencing the day
after Royal Assent.
Links: The
links to the Bill, its Explanatory Memorandum and second
reading speech can be found on the Bills page, which is at http://www.aph.gov.au/bills/.
When Bills have been passed they can be found at ComLaw, which is
at http://www.comlaw.gov.au/.
The Renewable Energy (Electricity) Amendment
Bill 2010 (‘the Bill’) amends the Renewable Energy
(Electricity) Act 2000 to divide the existing Renewable Energy
Target (RET) scheme into two schemes: the Large-scale Renewable
Energy Target (LRET) and the Small-scale Renewable Energy Scheme
(SRES).
The enhanced RET (eRET) scheme outlined by this Bill is a result
of successive Commonwealth policies, legislation and amendments. It
originated as the Mandatory Renewable Energy Target (MRET), which
began in 2001 with the
Renewable Energy (Electricity) Act 2000 (the Act). The
MRET required electricity retailers and other large electricity
buyers to source an additional two per cent of their electricity
purchases from renewable or specified waste-product energy sources
by 2010.
The MRET was implemented through the creation of renewable
energy certificates (RECs). Eligible generation entities earned
RECs on the basis of their renewable generation, where one REC
represents ‘1 megawatt hour (MWh) of electricity generated by
an accredited station from eligible renewable sources that is in
excess of the station’s 1997 baseline’.[1] Liable parties were required to
surrender RECs equivalent to their total liability in that year to
the Regulator. The RECs could also be traded among liable third
parties. Penalties were due if there was a shortfall.
In 2009, the Government created the Renewable Energy Target
(RET) as an expansion of the MRET, by upping the target to 20 per
cent by 2020, and introducing partial exemptions for
‘RET–affected, trade–exposed’ (RATE)
industries. Under the RET scheme, the Government also introduced
the ‘Solar Credits’ system. The Solar Credits scheme
allows households, businesses or community groups to generate
multiple RECs for the first 1.5kW of installed renewable energy
capacity of an eligible small generation unit (SGU).[2] Solar Credits became
available for eligible systems installed on or after 9 June 2009,
and are applied to the first 1.5 kilowatts (kW) of capacity
installed. The Solar Credits REC multiplier is set at 5 until 2012,
at which time it is reduced by one annually until 2015. Generation
from capacity above 1.5 kW is only eligible for the standard 1:1
rate of RECs creation.
For further details and background on the RET, see the
Library’s Bills Digest on the Renewable Energy (Electricity)
Amendment Bill 2009.[3]
The RET scheme was designed with the Government’s
emissions trading scheme in mind, the Carbon Pollution Reduction
Scheme (CPRS). Partial exemptions to the RET were explicitly linked
to ‘emissions-intensive trade-exposed’ (EITE)
activities as recognised under the CPRS. A significant amendment to
the scheme, as negotiated by the Coalition Senators and Independent
Senator Nick Xenophon, resulted in decoupling the RET from the CPRS
legislation.
In the lead up to the 2010-11 Federal Budget release, the
Government announced a deferral of the CPRS until 2013 at
least.[4] The RET
thus became a central feature in the Government’s response to
climate change.[5]
Shortly after passage of the RET legislation through Parliament
on 20 August 2009, REC prices crashed, leading to uncertainty in
the market and deterring potential investment in large-scale
renewable energy projects. The price slump was brought about by a
steep increase in demand for small generation units (SGU), mainly
in households, and hence generation of a large numbers of RECs
within a short period of time.
Consumer demand for SGUs was driven by a series of generous
Federal Government subsidies such as the former Solar Hot Water
Rebate and Solar Homes and Communities Plan, and State-based
subsidies such as solar feed-in tariff schemes. Oversupply in RECs
has been further exacerbated by the Solar Credits scheme which has
created a multitude of ‘phantom credits’ not backed by
real generation of electricity from renewable energy:
...solar hot water and phantom RECs from solar
photovoltaics are together set to generate more than 9 million RECs
this year, meaning they alone could account for almost all the
entire 9.5 million REC target for 2009. Flooded by credits from
household units, the REC price has plummeted from more than $50 per
MWh in May to under $30 per MWh today, discouraging investment in
largescale renewable energy projects.[6]
In response to these issues, on 5 November 2009 Senator Wong
announced that the Council of Australian Governments (COAG) would
review ‘both short-term developments in the REC market and
the factors that will determine longer-term pricing’ and
report by end-2009.[7] Five discussion papers have been released in the process
of this review and 102 stakeholder submissions received.[8] According to the
Regulation Impact Statement (RIS) accompanying the Bill, the COAG
review process identified several factors affecting REC prices,
including:
- the increase in the supply of RECs created by the higher uptake
of solar water heaters and heat pumps, driven by Commonwealth and
state subsidies, and the expectation that this trend may
continue;
- domination of the spot market by small industry players, such
as solar water heater providers, who regularly sell RECs for
liquidity reasons; and
- the perception that there is a large quantity of banked RECs,
and that most liable entities will not need to purchase additional
RECs to satisfy their obligations for the 2009 calendar
year.[9]
The Government announced the eRET on 26 February 2010 as a
solution to the collapse of the REC market. A discussion paper,
Enhancing the Renewable Energy Target Discussion Paper,
was released for consultation in March 2010. The 2010-11 Budget
included provisions for $6 million to the Office of the Renewable
Energy Regulator (ORER) towards implementing the RET enhancement
and $4 million over four years to the Productivity Commission
for an industry impact assessment of the eRET.[10]
The Bill implements ‘Option 3’, the last of three
options indentified in the RIS for managing the issues explored in
the COAG review process. These options were:
- Option 1 — maintain the status quo and allow the REC
market to settle with time
- Option 2 — adjust the profile of the targets over time so
that the they are higher in early years
- Option 3 — divide the RET into two schemes: a Large-scale
Renewable Energy Target (LRET) with a target of 41 000 GWh by
2020, and a Small-scale Renewable Energy Scheme (SRES) targeting
4000 GWh annually at a price fixed at $40 initially to be reviewed
in 2014.[11]
Option 3 was considered optimal as it ‘would provide
legislative certainty to large-scale renewable energy developers
while still supporting the deployment of small-scale renewable
energy technologies’.[12] The Government has even suggested that
‘these changes are expected to deliver more renewable energy
than the original 20 per cent target’.[13] A start date of 1 January 2011 is
given with an independent review planned for 2012 and a full
statutory review of the scheme for 2014.[14]
In its latest communiqué of 19-20 April 2010, COAG
acknowledged the eRET design and advised that ‘remaining
matters within the scope of the review will be finalised for
consideration by COAG at its next meeting’.[15] At the time of writing no date
has yet been announced for the next COAG meeting.
The Bill has been referred to the Senate Environment,
Communications and the Arts Legislation Committee for inquiry and
report by 15 June 2010. Details of the inquiry are at
http://www.aph.gov.au/Senate/committee/eca_ctte/renewable_energy_2010/index.htm.
Under the current and proposed legislation
‘liable entities’ are electricity retailers and other
wholesale electricity buyers that are required (should the Bill be
passed) to purchase and periodically surrender both
‘large-scale generation certificates’ (LRECs) and
‘small-scale generation certificates’ (SRECs)
equivalent to their total liability. Liable entities generally
appear to support the purpose of the Bill but are concerned that
the uncapped nature of the SRES delivers open-ended and uncertain
cost obligations.[16] Some are also concerned that new amendments may emerge
from the COAG review adding uncertainty to the scheme.[17] In addition, large
electricity consumers have called for a 90 per cent exemption for
RATE industries.[18]
Renewable energy generators include large
organisations involved in the renewable energy industry, as well as
households looking to install rooftop systems. The renewable energy
industry appears to generally support the intent of the Bill but
has concerns regarding transitionary measures.[19] Large renewable energy
generators would prefer not to see existing RECs form part of the
LRET as they believe that this will not drive investment in
large-scale projects until 2013 or later.[20] Some are also opposed to the Solar
Credits scheme, which they say counteracts the intent of the
Bill.[21]
Smaller renewable energy installers and
technology providers have concerns over the details of the proposed
clearing house which they say may affect small business cash
flows.[22]
Point-of-sale discounts and immediate redemptions of SRECs is the
preferred solution.[23]
Implementation of the scheme involves the establishment of an
optional clearing house to register the creation, transfer and
surrender of SRECs at a fixed price of $40 ($44 with GST). The
clearing house is to be operated by the ORER. Independent
registered REC traders will be seriously affected by the proposed
clearing house. It will be ‘in direct competition with the
registered agents’ and may eliminate the viability of such
service providers.[24]
In its submission to the Committee inquiry, the World Wildlife
Foundation – Australia (WWF-Australia) highlighted three
aspects of the scheme that were of concern:
- The recognition of existing banked RECs in the LRET
- The lack of any ‘banding’ or special treatment to
promote new technologies[25]
- The level of exemption granted to RATE industries.[26]
WWF-Australia’s concerns are echoed by other environmental
groups in their submissions to the Government’s discussion
paper.[27] Banding
of new technologies was an issue raised also in the Economics
Legislation Committee inquiry on the Renewable Energy (Electricity)
Amendment Bill 2009. At the time, Coalition Senators reported that
the ‘coalition does not believe the Government has provided a
solution to the problem and believes the Government should consult
with industry to discuss this issue’.[28]
The Coalition supports the separation of the RET into two
schemes. Indeed, in its alternative policy on climate change, the
Direct Action Plan, the Coalition promised that:
To support the development of larger scale
renewable energy generation, a proportion of incentives provided
through the Renewable Energy Target will be reserved for bigger
projects.[29]
During the Bill’s second reading debate, Shadow Minister
for Energy and Resources, Ian Macfarlane confirmed that the LRET
had general bipartisan support but that details of the SRES were
still to be negotiated:
We agreed to the splitting off of the
41 000 gigawatt hours of LRET and the creation within that of
the new segment that comes on top of the 9500 gigawatts of MRET. We
believe that is the only way you can give certainty to the industry
that has come to rely on the predecessor to this legislation and to
the legislation that was passed subsequent to the discussions last
August.
We also support in principle the establishment
of the Small-scale Renewable Energy Scheme, but we do have concerns
that, on initial modelling, that scheme is going to blow out
significantly. It could perhaps blow out twofold to threefold on
the 4,000-megawatt allocation which is uncapped but which it is
intimated the small-scale renewable energy target is set at. We are
going to have some further discussions on that. One of the things
we want to see, if this part of the scheme is able to be
crystallised, is some of the abuses that are taking place in that
solar heat and solar energy sector, which will be supported by the
SRES, stop.[30]
Shadow Minister for Climate Action, Environment and Heritage,
Greg Hunt, raised other Coalition concerns, particularly relating
to waste coal mine gas (WCMG) and special consideration of EITE
activities. He also highlighted the idea of promoting innovation by
reserving 25 per cent of the LRET for new technologies such as high
voltage direct current transmissions systems.[31]
Specific concerns have been raised by Nationals Senator Boswell
regarding the cost of the scheme in light of the Government’s
statement that the eRET is expected to exceed the 20 per cent
target.[32] On the
whole, the Coalition has stated that it will reserve its judgement
on the Bill until after the Senate inquiry.[33]
On 24 February 2010, the Greens introduced a Private
Member’s Bill.[34] That Bill proposes to amend the existing Act to add the
number of RECs generated from solar and heat pump hot water
systems, plus ‘phantom RECs’ from the Solar Credits
scheme, to the total target of the following year. From this,
although the Greens have not formally announced their position on
the details of this legislation, it would appear that they are
broadly supportive of the general intent of the scheme, which
buffers industrial-scale developments from the effects of
small-scale installations.
The Greens are not in favour of the Coalition’s call for
an examination of ‘banding’ in favour of new and
emerging technologies.
I do not support a banding approach because it
is essentially a restrictive approach. It will restrict the
technologies, the large-scale new technologies, especially if they
do not come on stream in time. It will restrict the whole
process.[35]
The Government has stated that:
The Office of the Renewable Energy Regulator
(ORER) will receive an additional $6 million in 2010-11 to
implement the changes outlined in this Bill. This includes $4.5
million in capital funding to modify and expand the existing
information technology system to enable the ORER to implement the
clearing house functions.
The impact on Government revenue is dependent
on any change in the number of renewable energy certificates that
are traded. Administered revenue is received by the ORER from a
number of statutory fees including fees for the creation and
surrender of renewable energy certificates.[36]
As previously stated, the Productivity Commission has also been
allocated $4 million over four years to continually assess the
impact of this new legislation on industry sectors.[37]
The key issues that relate to the Bill are detailed below. It
should be noted that there has also been some discontent amongst
stakeholders in relation to the process that has led to the
development of the amendments contained in the Bill.[38]
...it would have been prudent to provide
industry experts with an opportunity to test legal and technical
aspects of the proposed legislation for possible unforeseen
consequences.[39
The Bill is driven by the need to provide investor certainty in
large-scale renewable energy generation. Although the Bill may
effectively address this need, it has been suggested that it does
so by shifting the risks to electricity producers and major
consumers. Industry calls for the SRES to be capped or,
...at the very least, to cap liable
entities’ potential exposure to the costs of subsidising
small-scale technologies, by requiring the Government to underwrite
the costs of any Small-scale Renewable Energy Certificates (SRECs)
created over and above the cap.[40]
The Government concedes that a risk does exist for liable
entities with regard to the uncapped SRES.[41] However, it suggests that this
uncertainty is minimised through annual ‘true-up’
periods and the promise of an SREC price review in 2014.[42]
Although the oversupply of RECs has been, at least to some
extent, due to ‘phantom credits’, the Bill does not
consider removing the Solar Credits scheme, nor reducing the
multiplier. This was the subject of a discussion paper released by
the Government in December 2009, The treatment of ‘Solar
Credits’ renewable energy certificates under the RET.
Players in the renewable energy industry believe that 4000 GWh
of SRECs will be easily generated but that the Solar Credits
undermines the eRET and dilutes the cost-effectiveness of the
scheme.[43]
An alternative method of incentivising the installation of SGUs
is to offer Government-funded rebates on the capital costs, as was
the system under the Solar Homes and Communities Plan. This reduces
the complexity of the scheme and ensures that the market for LRECs
is not compromised.[44]
In its discussion paper, the Government explained that to
guarantee that the 20 per cent target is met by 2020, ‘the
uptake of small-scale systems will be reviewed in 2014 and the
target increased in the LRET if deployment of small-scale
technologies is lower than expected’.[45] Targets of 41 000 GWh for
the LRET and 4000 GWh for the SRES have been announced.
However the Government has not produced any modelling or
explanation of these targets. Given the uncapped nature of the SRES
it is likely that the number of SRECs generated will exceed
4000 GWh. There is no provision to balance this by any
reduction in the LRET.[46] This is in line with the Government’s expectation
that the scheme may exceed the 20 per cent target, but it places a
further financial burden on liable entities and may result in a
scheme that is expensive per tonne of carbon abatement.
A significant concern is the treatment of banked RECs. The main
operative provisions of the Bill have a start date of
1 January 2011 and propose that all RECs created before 31
December 2010, whether from large-scale or small-scale
installations will be eligible under the LRET. Any pre-existing
forward contracts for the provision of RECs will also be valid in
the LRET. It is expected that this will provide liquidity in the
LRET market.[47]
However, according to calculations undertaken by some in the
renewable energy industry, the ability to use banked RECs will
deliver an oversupply of more than 20 million LRECs by the
eRET’s start date. This will delay the need to generate any
supplementary LRECs until 2013 at the earliest.[48] This might be addressed by
considering an earlier start date or cut-off date for banked
RECs.
SRECs entered into the clearing house are sold on a ‘first
in first out’ basis and liable entities have quarterly SRES
obligations.[49]
Liable entities would therefore not be likely to purchase SRECs on
a more frequent basis than every three months or so. SRECs
registered by the clearing house thus do not offer the seller any
immediate returns. For small businesses this can produce a cash
flow problem.
Any oversupply of certificates would then sit
in a clearing house for an extended period until any new target was
set and we would not be able to redeem them.[50]
In relation to this issue, an immediate point-of-sale discount
would be preferable. Alternatively, a more regular clearing
schedule, such as monthly, may alleviate the problem.[51]
While the Bill contains features that minimise uncertainty and
risk to most major stakeholders, there seems to have been no
consideration given to registered REC agents. Through the creation
of a clearing house, it is possible that this Bill could remove any
market for such independent brokers, and yet there is no provision
to help transition these small businesses.
The Government has promised an independent review in 2012 and a
full statutory review in 2014, with SREC prices to potentially be
adjusted in 2014.[52] Further, COAG is yet to finalise its Review of Specific
RET Issues.[53]
All such reviews are intended to mitigate
hesitation and wariness towards the scheme. However they may have
the reverse effect of actually increasing business uncertainty.
The current COAG review and future independent
review in 2012 will undoubtedly continue the steady tradition of
incremental change and ‘tweaking’ that has occurred
since the MRET was expanded, and will continue to add complexity
and cost to the scheme, a cost likely to be passed on to
electricity consumers.[54]
At a minimum, industry groups have called for the COAG review to
be finalised without delay.[55]
Both finance bodies and renewable energy providers agree that
the eRET must provide certainty beyond 2020. Whether this is a
planned phase-out program, or targets beyond 2020, such details are
needed by businesses and investors soon.[56] Longer targets may also benefit the
scheme by flattening out ‘booms and busts’.[57]
The Bill amends ‘the provisions relating to waste coal
mine gas eligibility to allow for the commencement of eligibility
of waste coal mine gas in the RET to be determined by
regulations’.[58] There is ongoing debate on this issue. The discussion
forms part of the COAG review. A decision is not to be included in
the legislation but left to regulation.
The argument has two sides. WCMG is not a renewable energy,
rather it is the waste methane released in the process of
underground coal mining. As such it technically has no place in the
eRET. Some argue that its inclusion sets a precedent for all or any
low-emissions power generation technologies.[59]
On the other hand, methane is a greenhouse gas with a global
warming potential many times more powerful than carbon dioxide. The
ultimate purpose of increasing the penetration of renewable energy
in Australia is to displace the emissions of greenhouse gases. It
therefore seems fitting to include existing and new WCMG projects
within the scheme.
Main provisions
Renewable Energy (Electricity) Act
2000
Items 1 to 38
propose amendments to existing definitions, or the introduction of
new definitions into section 5(1) the Act. These
definitions are required as a consequence of the proposal to divide
the RET Scheme into two parts (a standalone Large-scale RET (LRET)
and a Small-scale Renewable Energy Scheme (SRES)). Basically,
umbrella concepts have been retained, but these will include both
large-scale and small-scale elements. Definitions of
particular note follow below.
Item 3 most obviously amends the definition of
‘certificate’ in section
5(1) such that it refers to all renewable energy
certificates. And item 21 provides that the term
renewable energy certificate now refers to both ‘large-scale
generation certificates’ and ‘small-scale technology
certificates’.
Item 4 provides for a new term
‘clearing house’ to have the same
meaning as given by proposed section 30J.
The proposed clearing house will exist within the Office and
Renewable Energy Regulator (ORER). It will serve as a central point
for the transfer of small-scale certificates at a fixed price of
$40 (or $44 including GST) and use of the clearing house by owners
of small-scale certificates will be optional. Its establishment
responds to the demand by many liable entities and suppliers of
small-scale systems for the flexibility to be able to trade small
quantities of-certificates on the market, without the need to go
through a privately run clearing house, at a price set by agreement
between the relevant parties.[60]
While it is anticipated however, that in practice most liable
entities and suppliers of small-scale systems will prefer to
receive an up-front discount on the cost of installation of a
small-scale system from their supplier - as is presently the case -
concern remains about the impact of such a clearing house in terms
of its competition with registered agents.
Item 9 introduces
a new term, ‘large-scale generation
certificate’ which is created under Subdivision A of
Division 4 of Part 2. A large-scale generation certificate is one
created from the generation of electricity by accredited power
stations. In response to this, Schedule 2 contains transitional
provisions which provide that certificates from small generation
units and solar water heaters installed before 1 January 2011 are
to be treated as large-scale generation certificates, though some
small-scale technology certificates may become large-scale
generation certificates where they relate to pre-existing
contracts.
Item 13 provides
that ‘partial exemption’ will refer to
the two types of shortfalls - large-scale generation shortfall and
small-scale technology shortfall. Thus, single partial exemption
amount (in megawatt-hours) will apply to both the large-scale and
small-scale liabilities.
Item 22 repeals
the definition of ‘renewable energy certificate
shortfall’ to accommodate the proposal for two new
types of shortfall – one for each of the large-scale and
small-scale obligations.
Item 29 inserts a
new term ‘small-scale technology
certificate’, defining it as ‘a certificate
created under Subdivision B or BA of Division 4 of Part 2 or under
section 30P’. Thus, it refers to certificates created from
the installation of solar water heaters and small generation units
either by owners or installers of systems or by the Regulator.
Item 41 repeals
the heading of Division 4, replacing it with the heading
‘Creation of renewable energy certificates’ which
relates to the creation of all renewable energy
certificates. A new section 17B is also
inserted which gives an overview of Division 4 relating to the
creation of renewable energy certificates, as follows:
- large-scale generation certificates, which are created in
relation to the generation of electricity by accredited power
stations (Subdivision A); and
- small-scale technology certificates, which are created in
relation to the installation of solar water heaters and small
generation units (Subdivisions B and BA).
- Small-scale technology certificates can also be created by the
Regulator under Part 2A (clearing house for small-scale technology
certificates).
- Subdivision B requires people who create certificates under
Subdivision B or BA to submit returns relating to the creation of
the certificates.
- Subdivision C contains offence and civil penalty provisions
relating to the improper creation of certificates.
Item 42 replaces
the heading of Subdivision A of Part 4 with the
heading ‘Large-scale generation certificates for accredited
power stations’. Thus, this Subdivision exclusively relates
to the creation of large-scale generation certificates.
Item 43 makes a parallel amendment, repealing the current
heading Subdivision B of Division 4 of Part 2 and
replacing it with the heading ‘Small-scale technology
certificates for solar water heaters’ to make clear the
operational ambit of this subdivision.
Item 47 replaces
paragraph 25A(2)(f) and inserts a requirement that
small-scale technology certificates include ‘a
statement that the certificate was created in relation to a solar
water heater, or that it was created in relation to a small
generation unit (as appropriate)’.
Item 48 inserts
subsection 25A(3) clarifying that the section
25A[61] ‘does
not apply in relation to a small-scale technology certificate
created by the Regulator under section
30P’. Certificates under section
30P are those provided to a liable party when there are no
small-scale technology certificates available for purchase in the
clearing house. And, item 50 inserts a new
subsection 26(7) providing that section 26
(dealing with the registration of certificates) does not apply to a
small-scale technology certificate that the Regulator is required
to create under section 30P.
Item 53 inserts a
new subsection 28(4) which provides that
‘section 28 (which relates to notifying the Regulator of
certificate transfers) does not apply in relation to the transfer
of small-scale technology certificates at the top of the clearing
house transfer list that the Regulator is required to transfer
under subsections 30N(2) or
30P(4)’.[62]
Item 58 inserts a
new Part 2A which deals with the establishment and
operation of a clearing house to manage the
transfer of small-scale technology
certificates.
Proposed Division
1 provides an overview of the operation of the clearing
house. Of note is that:
The clearing house will effectively set the
market price as it stands ready to facilitate the transfer of all
small-scale technology certificates at the fixed price of $44 (GST
inclusive).The clearing house would manage the sale of all
certificates offered to it, and deliver certificates at $44 (GST
inclusive) to purchasers.[63]
Proposed Division
3 deals with entering small-scale technology certificates
into the clearing house. Proposed section 30K
details the process and requirements for a person to make an
application for a small-scale technology certificate to be entered
into the clearing house. These form and manner requirements are
that the application must be in writing, and must include
additional information and documents as specified in the
regulations.
Examples of such information or documents may include:
- proof of identity
- details of registry accounts
- ABN and GST status, and
- bank account details.[64]
Where this process and requirements
are met, the Regulator must enter the certificate into the clearing
house by including the certificate on the clearing house transfer
list in accordance with the regulations (proposed section
30L).
Proposed Division
4 deals with the purchase of certificates through the
clearing house. Proposed section 30M sets out the
procedure for applying to purchase small-scale technology
certificates through the clearing house. That application must:
- be in writing
- be in a form approved, in writing, by the Regulator
- be accompanied by $44; and
- be accompanied by any fee required by the regulations.
The
regulations may provide that certain persons are not entitled
either generally or in particular circumstance, to make an
application.
Proposed section
30N provides that if a purchaser makes an application to
purchase a certificate and there is a certificate on the list, the
Regulator must transfer the certificate at the top of the list
(proposed subsection 30N(2)). The Regulator must
as soon as possible inform the purchaser in writing, pay the seller
and alter the register to show the purchaser as the owner
(proposed subsection 30N(3)).
Proposed subsection
30P(2) provides that where a purchaser makes an
application to the clearing house and there is no certificate on
the transfer list, then the Regulator must create a
certificate.
The
Explanatory Memorandum states that the power given to the Regulator
to create and cancel certificates is designed to:
ensure that there is always a supply of
certificates available to purchasers by, in effect, temporarily
increasing the supply of certificates, or ‘borrowing
certificates from the future’. In order to reduce this
temporary supply the Regulator must cancel the next certificate
registered in the clearing house. This is achieved by
immediately cancelling the certificate, paying the seller and
updating the register of small-scale technology
certificates to show that the transferred certificate is no
longer valid (paragraph 30P(4)(b)). The creation and cancellation
of certificates in this manner does not impact on the
small-scale technology percentage for the year
which is set with reference to the certificates created in relation
to solar water heaters and small generation units.[65]
Furthermore:
Purchasers will not have control over which
certificates are allocated to them from the clearing
house. They may be allocated a certificate which the seller
did not transfer as a taxable supply. In these circumstances the
purchaser will not be entitled to claim an input tax credit because
the transfer to the purchaser did not include GST.[66]
Proposed Division 5 –
Renewable Energy Special Account. Proposed section
30R establishes the Renewable Energy Special Account,
which is a Special Account for the purposes of complying with the
Financial Management and Accountability Act 1997.
Proposed section
30T provides that the purposes of the Renewable Special
Energy Account are:
- paying amounts under paragraph 30N(3)(b) in relation to the
transfer of certificates
- paying amounts under subparagraph 30P(4)(b)(ii) in relation to
the transfer of certificates
- refunding amounts under regulations made for the purpose of
paragraph 30U(2)(i)
- paying amounts of GST for which the Regulator is liable because
of the creation of certificates for purchasers under section
30P.
Proposed section
30U enables the details of policies, procedures and rules
for the establishment and operation of the clearing house to be
prescribed in regulations.
Item 59 inserts a
new Division 1AA into Part 4 relating to the
renewable energy shortfall charge. It specifies
what is taken into account in determining the amount of large-scale
generation shortfall charge or small-scale technology shortfall
charge that would apply to a liable entity.
- A large-scale generation shortfall charge (Subdivision
B of Division 1), is calculated by reference to a liable
entity’s relevant acquisitions of electricity, its partial
exemptions, the number of large-scale generation certificates it
surrenders and the renewable energy power percentage, and
- small-scale technology shortfall charge (Subdivision C
of Division 1), is calculated by reference to a liable
entity’s relevant acquisitions of electricity, its partial
exemptions, the number of small-scale technology certificates
it surrenders and the small-scale technology percentage.
Item 61 provides
that a large-scale generation shortfall charge is payable by a
liable entity if it has a large-scale generation shortfall for a
year where it has not met the requirement to surrender their
proportion of large-scale generation certificates to meet its
annual liability (proposed sections 36 - 38).
Thus, the amount of large-scale generation
shortfall charge payable by a liable entity is worked out using the
formula:
Large-scale generation shortfall x Rate of charge
where:
rate of charge is the
rate of charge as specified in section 6 of the Renewable
Energy (Electricity) (Large-scale Generation Shortfall Charge) Act
2000.
Proposed section 38 provides a method statement
for how to calculate a liable entity’s large-scale generation
shortfall for a year.
This item also inserts new
sections 38AA to 38AI for the purposes of calculating a
liable entity’s small-scale technology shortfall. A liable
entity will be liable to pay a small-scale technology shortfall
charge if it does not surrender small-scale technology certificates
on a quarterly basis. The structure basically resembles the
large-scale generation shortfall charge. The small-scale
technology shortfall charge for a liable entity is
calculated by a liable entity’s small-scale
technology shortfall multiplied by the rate of charge as specified
in section 6 of the Renewable Energy (Electricity) (Small-scale
Technology Shortfall Charge) Act 2010 (proposed
section 38 AC).
There are four surrender periods
throughout the year. These quarterly surrender periods are meant
‘to encourage the timely purchase of small-scale technology
certificates by liable entities’[67] (proposed subsection
38AA(5)).
Item 63 inserts a
new heading for Division 2 Part 4,
‘Renewable power percentage for large-scale
generation shortfall charge’ to clarify that this
part only relates to the renewable power percentage for determining
large-scale generation liability.
Item 65 inserts
proposed paragraph 39(3)(d) which clarifies that
the Minister must take into consideration an estimate of the
partial exemptions[68] likely to be claimed in determining the renewable power
percentage.
Item 66 provides
for the regulations to specify a small-scale technology
percentage[69] for
use by liable entities in calculating their small-scale liability
(proposed section 40A). According to the Explanatory
Memorandum, while the regulator will provide the Minister with
advice on what that percentage should be, it is also expected that
other expertise will also be engaged in order to develop that
estimate.[70]
Item 67 provides
that before 31 March in each year, the Regulator must publish on
its website an estimate of the small-scale technology percentage
for each of the next 2 years. However, this estimate does not in
any way bind the Regulator, the Commonwealth or any other person,
and does not in any way affect the determination of a liable
entity’s liability to small-scale technology shortfall charge
for a year (proposed section 40B). It is
‘intended to provide liable entities with an indication of
their potential liability over the forward two years to assist
liable entities in managing their small-scale liabilities into the
future’.[71]
Item 69 inserts
proposed Divisions 1AA and 1 into existing Part 5.
Part 5 deals with various matters relating to the determination of
a liable entity’s liability for the renewable energy
shortfall charge. Proposed Subdivision A of Division
1 requires that a liable entity that acquired electricity
under a relevant acquisition during a year (the
assessment year) must lodge an energy
acquisition statement for the year on or before: 14 February in the
next year, or any later day allowed by the Regulator
(proposed subsection 44(1)). Proposed
subsection 44(2) lists the information that the
acquisition statement must contain.
Further information is required for an entity wishing to claim a
partial exemption (proposed subsection 44(3))
The entity may surrender renewable
energy certificates for the year (or for the quarters of the year)
in the statement. The entity may surrender additional certificates
in certain circumstances (proposed
subsection45C).
Proposed section
45 sets out the requirements of a liable entity to provide
notice to the Regulator when it surrenders small-scale technology
certificates for the first three quarters of a year, and also as
part of the annual energy acquisition statement for the fourth
quarter surrender. The purpose of this notice is to better enable
the Regulator and liable entities in managing compliance with the
requirement to surrender small-scale technology certificates. Also,
it is possible to pay quarterly surrender fees annually, and this
option is designed to minimise compliance costs.[72]
Proposed section
45A makes provision so that a liable entity is able to
apply for an amendment to an energy acquisition statement
within 12 months of lodging that statement.
Item 69 also
inserts proposed Subdivision B of Division 1,
which requires the lodgement of annual renewable energy shortfall
statements by entities that have large-scale generation shortfalls
or small-scale technology shortfalls. The requirements for lodging
a large-scale generation shortfall statement for a year are mostly
the same as the current provisions. A few additional requirements
have been inserted relating to the lodgement of a small-scale
technology shortfall statement.
Existing section 66 allows affected
persons to request the Regulator to reconsider certain decisions.
Item 73 adds another class of decision to this
category – namely the decision by a Regulator on a liable
entity’s application to use a proposed amount instead of the
previous year’s reduced acquisitions or the default rule in
section 38AH when calculating the amounts for
quarterly surrender of small-scale technology certificates
(proposed subsection 66(1)).
Item 90 repeals
section 134 and replaces its content with new
requirements relating to information that the Regulator may
publish. This reflects the separate large-scale shortfall
charge information and inserts new provisions in regard to
publishing small-scale technology shortfall charge
information.
Item 96 inserts a
new Division 4A dealing with the register
of large scale generation certificates. Several aspects of
the current renewable energy certificate registry are re-used, with
the new necessary feature that a separate registry must be kept for
small-scale technology certificates as well as one for large-scale
generation certificates. The register is also required to hold
information on small-scale technology certificates created by the
Regulator to lend to liable entities where there are not enough
certificates in the clearing house.
Most
of the amendments in this part are basically aimed at enhancing the
enforcement and compliance framework in the Act.
Item 120 proposes
the insertion of section 24A (Improper creation of
certificates – civil penalty) and section
24B (False etc. information resulting in improper creation of
certificates under Subdivision B or BA—civil
penalty) in the Act.
Proposed section
24A provides for a civil penalty to be imposed on those
found guilty by a court of creating certificates without an
entitlement to do so. This will enable penalty actions to be
undertaken by the Regulator and will only require a civil standard
of proof. The criminal penalty in section 24 is retained for
‘the more serious offenders’.[73] The combination of civil and criminal
provisions enables a proportionate, fairer yet more efficient
approach to dealing with non-compliance of the Act.
Proposed section 24B creates a similar civil
penalty provision in relation to false or misleading information
(including through omissions) which results in the improper
creation of certificates.
Proposed section
154M provides that the proposed civil penalty provisions
of sections 24A and 24B will be strict liability offences.
The Explanatory Memorandum states that the justification for doing
so is ‘the information asymmetries which exist in relation to
the Regulator investigating and gathering evidence in relation to
non-compliance with the Act and regulations. Nonetheless,
proposed section 154N will make clear that the
mistake of fact defence still applies in relation to the
prosecution of the civil penalty’.[74]
This new framework is consistent
with the civil penalty frameworks in the National Greenhouse
and Energy Reporting Act 2007 (Cth).
Proposed amendments to
section 40 under items 122-124 will affect
existing, as well as future, WCMG projects. It is proposed that 1
July 2011 be repealed as the date from which existing WCMG power
stations (once accredited) may commence creating renewable energy
certificates. Both this date and dates for accreditation of
existing WCMG power stations are deferred, and put aside as matters
to be decided in the future by regulations.
This Bill is intended to improve market confidence to promote
investment into large-scale renewable energy to assist in meeting
the 2020 target of having 20 per cent of electricity generated from
renewable sources. The Bill goes some way to achieving this,
although questions still remain regarding ‘phantom
credits’ created through the Solar Credits scheme, and the
capacity of banked RECs to flood the LREC market. Robust government
policy will be needed to address these issues.
By means of imposing a renewable energy target, the Government
has created a market for RECs. By then offering incentives for the
installation of SGUs it has distorted and subsequently stalled the
REC market. This is the result of the Government attempting to
retain influence over the REC market.
Through repairing the market failures of the RET, the eRET
introduces new issues. While stability may be returned to the
renewable energy industry, it may be done by increasing financial
uncertainty to electricity providers and consumers. The eRET also
threatens the source of revenue of independent registered REC
agents, for whom a market was created only through opportunities
presented under the previous scheme. The Bill’s contingency
plan regarding these issues is to conduct intermittent reviews.
This might be viewed as ‘fine-tuning’ the scheme.
However, determining the finer points (such as the right SREC price
for desired outcomes) is likely to become more a matter of
‘trial-and-error’.
At the core, this policy instrument is intended to be a low-cost
solution to reduce greenhouse gas emissions. The cost aspect has
yet to be determined as the Government has presented no comparative
assessment of the eRET against alternatives. Also, according to
modelling by ClimateWorks, even if it meets the eRET target,
Australia will continue to increase its greenhouse gas emissions
between now and 2020 (assuming no price on carbon).[75]
So, in essence, the eRET is not of itself sufficient. To enhance
efforts in this area a number of complementary measures are needed.
If the objective is ultimately to continue the policy intent
post-2020, a complete energy system restructure will be required.
According to the Australian Bureau of Agricultural and Resource
Economics:
Utilising new energy resources, particularly
renewable energy sources, will require a more flexible and
decentralised electricity transmission grid... While Australia has
an abundance of energy resources, this transformation will need to
be underpinned by significant investment in energy supply chains to
allow for better integration of renewable energy sources and
emerging technologies into our energy systems.[76]
The eRET may further entrench the existing transmission systems
rather than promote a more flexible and futureproofed solution.
Policies that reward supply and demand side energy efficiency plus
measures that lead to a more decentralised energy supply system
could complement the eRET to go beyond existing targets.
Members, Senators and Parliamentary staff can obtain further
information from the Parliamentary Library on (02) 6277 2421.
[61]. Section 25A relates to the
form and content of certificates—solar water heaters
and
Anita Talberg and Juli Tomaras
11 June 2010
Bills Digest Service
Parliamentary Library
Back to top