17 March 2006
The Renewable Energy (Electricity) Amendment Bill was introduced into the House of Representatives on 2 March 2006 following a 2003 review of the Renewable Energy (Electricity) Act 2000. The Bill proposes a number of amendments to the Renewable Energy (Electricity) Act 2000 (Cth) and the Renewable Energy (Electricity) Regulations 2001 (Cth).
In 2003, an independent review of the operation of the Act was conducted, involving participation from a broad range of industry stakeholders such as energy companies, retailers, industry associations, community groups, individuals and governments at all levels. The review concluded that there were areas to be improved and the amendments to the Act arise in response to that review. Specifically, the amendments are aimed at:
Despite the overall benefits derived from the introduction of Mandatory Renewable Energy Target (MRET), the 2003 review identified the following main shortcomings in the practical operation of the scheme.
No time limits for the creation of Renewable Energy Certificates - In contrast to the state-based certificate schemes in NSW, the ACT and QLD under which time limits are imposed for the creation of certificates, a REC may be created anytime after the generation of the eligible electricity. As RECs can be traded at any time while they are valid (and expiry dates are not imposed under the Commonwealth scheme) there is a margin for strategic creation and trading of RECs by larger generators.
Restrictions on parties eligible to surrender RECs - Under the Act, only parties registered under the MRET scheme are able to surrender RECs against a liability. Submissions to the 2003 review noted that parties may wish to surrender RECs for purposes other than against MRET liabilities, for example, to remove the RECs from circulation and encourage the generation of renewable energy.
Accreditation of generators - Accreditation requirements are only met by power stations which are operated in accordance with any relevant government planning requirements and that meet approval requirements (such approvals being given once the plant is operational). Although the Regulator has been willing, in some cases, to provide "indicative approval letters", this process has been criticised by project developers as hindering investment.
Under the current scheme, accreditation may be suspended if the power station or its operators act contrary to the law or are convicted of an offence. Given the risk that the creation process for RECs may be manipulated by generators adjusting their output to increase or decrease REC production, it has been proposed to expand the circumstances in which accreditation may be suspended, to ensure operators conduct themselves in a manner consistent with the objectives of the legislation.
Improving access to and understanding of the scheme for users and manufacturers by promoting solar technologies - The MRET measure also applies to approved installations of solar hot water heaters and small generation units. For example, households and small-scale generators are encouraged to participate in the scheme by installing solar water heaters or small-scale renewable energy generators.
Despite the implementation of solar water heater rebate schemes in most states, growth rates on the uptake of solar water heating has slowed since 2003. Currently, solar water heater systems are REC eligible to the extent they replace non-renewable electricity. Therefore, those solar systems replacing gas systems are not eligible, leading to potential confusion and disincentives for home and building owners on split systems. It has been recommended that the eligibility criteria be broadened to rely on the systems potential displacement capacity, rather than actual impact.
Simplifying the approval process for new installations would provide greater opportunities for the solar manufacturing industry as well as home and building owners to access and participate in the MRET scheme.
Wasted opportunities in the area of bioenergy - Despite the recognised contribution that energy crops make to reducing MRET liability, no such crops have been accredited under the scheme to date. During the review, parties argued that the "primary purpose test" was too restrictive, and the definition of "energy crop" excluded most plantations as well as all woody stemmed species that could not be classified as an agricultural or horticultural crop. Furthermore, the "higher value test", applied to wood waste from plantations to ensure only genuine waste is used for energy generation, has been criticised as excessively regulatory, in an industry in which the market would ensure that only unusable waste would be used for energy generation.
Improving the administrative efficiency of the Act - Clarification of the definitions in the Act has been identified as particularly important for investors in determining, for example:
A revision of the definitions and provisions was also required to reflect the recent reforms to the National Electricity Market and improve the consistency of terminology.
In response to the shortfalls identified by the 2003 review, the Bill proposes that:
For businesses that have significant dealings with RECs, a careful examination of the impact of the amended legislation will need to be conducted.
We will continue to monitor the passage of this Bill and keep you informed of any developments.
For further information, please contact Dan Howard.