Queensland Energy and Resources Insights

17 March 2006

Proposed Amendments to the Renewable Energy (Electricity) Act 2000

By Dan Howard and Carla Polson.

Key Points:
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:

  • enhancing market transparency and improving business certainty;
  • encouraging innovation through recognising emerging renewable electricity generation technologies; and
  • increasing opportunities for bioenergy and solar technologies.

Current shortfalls

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:

  • what is an "eligible renewable energy source"?
  • what is an "accredited power station"? and
  • what is a "relevant acquisition of electricity? "

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.

Proposed amendments

In response to the shortfalls identified by the 2003 review, the Bill proposes that:

  • time limits for the creation of RECs following renewable energy generation be introduced
  • the legislation provide for the voluntary surrender of RECs by parties who are not registered under the MRET scheme and do not have a liability to contribute proportionately to the annual targets for renewable energy under the Act
  • a provisional accreditation system be established and timeframes imposed on the Regulator for determining the eligibility of proposed generation projects
  • an accredited power station may be suspended in prescribed circumstances during which time RECs may not be created
  • additional data on baselines allocated to power stations in operation prior to April 2001 and information on liable parties’ RECs shortfalls and renewable energy generation be published to increase transparency and accountability in the market
  • the provisions and definitions in the Act concerning "Eligible Renewable Energy Sources" be clarified and expanded to increase opportunities for bioenergy
  • clarifying the provision of RECs associated with solar water heaters and small generation units and eligibility of such systems generally, including improving the approval process for new solar water heating models
  • recent reforms to the National Electricity Market be integrated to allow for new operators in the market
  • the provisions in relation to a "relevant acquisition of electricity" be clarified to ensure one entity is liable for the purchase of a particular quantum of electricity, and any potential for double liability is removed; and
  • the Regulator be provided with additional powers, primarily to vary assessments and determinations made under the Act and to investigate and monitor compliance with the legislation.

Impact

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.

Disclaimer
Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states or territories.