18 Sep 2009

More changes to the mandatory renewable energy target scheme

by Barry Dunphy, Paul Burton

Targets have been increased and the scheme will now operate until 1 January 2031.

The Commonwealth Parliament last month passed legislation expanding Australia's Mandatory Renewable Energy Target Scheme (MRET Scheme) which is established under the Renewable Energy (Electricity) Act 2000 (Renewable Energy Act) by increasing Australia's renewable energy targets and by including waste coal mine gas.

These amendments implement the Federal Government's commitment to achieving a 20% share for renewable energy in Australia's electricity mix by 2020.

The objective of the MRET Scheme is to encourage industries to invest in renewable energy technologies. The MRET Scheme is, in conjunction with the proposed Carbon Pollution Reduction Scheme (CPRS), intended to create economic incentives for businesses to move towards renewable energy sources as opposed to emissions-intensive energy sources.

How the MRET Scheme works

The MRET Scheme, which commenced on 1 January 2001, was designed to place liability on wholesale purchasers of electricity to proportionately contribute to generating prescribed amounts of electricity from renewable energy sources (eg. hydro, wind, solar and landfill gas).

In respect of each MWh of electricity generated from a renewable energy source that is in excess of the relevant 1997 eligible renewable power base line, an accredited entity can create a Renewable Energy Certificate (REC) which then:

  • can be surrendered by the entity in terms of reducing its liability (if any) for wholesale electricity acquisitions under the Renewable Energy Act; or
  • be sold for a negotiated price through the online REC Registry.

Liable entities that have insufficient RECs to acquit their liabilities under the Renewable Energy Act in a relevant assessment year will now attract a shortfall charge in the amount of $65.00 per MWh which is an increase from the previous figure of $40.00 per MWh.

Scheme's operation extended

When the MRET Scheme first commenced on 1 January 2001 it was originally intended to operate until 1 January 2021. The Amendment Act has now extended the operation of the Scheme until 1 January 2031.

Changes to the targets

The original MRET Scheme contained a renewable energy target of 300 GWh in 2001, increasing to 9,500 GWh for 2010 and beyond.

The target for 2010 has been increased from the previous target of 9,500 Gwh to 12,500 Gwh and will now escalate annually until it reaches a maximum of 45,850 GWh in 2020. The target will then revert to 45,000 GWh in 2021, upon the expiration of the inclusion of Waste Coal Mine Gas (WCMG) as an eligible energy source and will remain at that level until the conclusion of the scheme in 2030.

Waste coal mine gas now part of the MRET Scheme

WCMG was not covered under the original MRET Scheme. This was in contrast to the New South Wales Greenhouse Gas Reduction Scheme (GGAS) which allowed WCMG projects to create abatement certificates in recognition of the fugitive methane emissions that were avoided by capturing such methane and combusting it to generate electricity.

Under the amended MRET Scheme, WCMG will be included as an eligible energy source provided that the following criteria are satisfied:

  • the eligible WCMG was used in the production of electricity between 1 July 2011 and 31 December 2020; and
  • the generation plant was in operation during May 2009, or was previously operated and as at the end of May 2009 it was intended that the generation plant would resume operation before the end of September 2009.

WCMG generators will not be able to create unlimited amounts of RECs. The maximum RECs that may be created in respect of electricity generated from a WCMG facility will be capped at the output of that facility in 2008 (2008 WCMG limit). The 2008 WCMG limit will be determined by the Regulator and must not exceed the amount by which the target has been increased to account for the WCMG provisions.

Entities wishing to apply for accreditation of WCMG generation facilities will need to submit an application for accreditation by 30 June 2010. The Regulator is required to determine all applications by 31 December 2010 and if no decision is made by that time, the application is taken to have been refused.

State schemes

The Amendment Act also subsumes the current State schemes (such as the Victorian Renewable Energy Target Scheme) by exempting relevant entities from compliance with State laws that substantially correspond to the expanded MRET Scheme and by prohibiting them from creating a State certificate and a REC for the same unit of electricity. Furthermore, generation facilities accredited under any State law substantially corresponding to the MRET Scheme are taken to be automatically accredited under the MRET Scheme.

Entities will be able to surrender State certificates, issued under a substantially corresponding State scheme, to the State Regulator and substitute those certificates with RECs. The window of opportunity for entities to exchange State certificates for RECs will be 1 April 2010 to 2 November 2010.

Emissions-Intensive Trade-Exposed Activities

Another key amendment is the inclusion of assistance for emissions-intensive trade-exposed (EITE) activities. These changes are substantially in line with the proposed CPRS and are aimed at providing entities with the support that is necessary to allow them to comply with their obligations under the MRET Scheme.

Liable entities performing EITE activities will be provided with partial exemption from liability for a renewable energy shortfall charge for those activities. The Government intends to undertake a formal data collection process in order to assess eligible activities.

The intention is that once the CPRS is enacted that the partial exemptions will apply in relation to EITE activities as defined under the EITE assistance program in the CPRS. However, if the CPRS is not enacted, or until such time as it is, the partial exemptions will be prescribed under regulations made under the Renewable Energy Act.

The partial exemption for EITE activities will be implemented by the issuing by the Regulator of partial exemption certificates to eligible entities. Eligible entities will be able to reduce their total amount of electricity acquired under relevant acquisitions by an amount equal to the amount of electricity acquired for the relevant EITE activity the subject of a partial exemption certificate.

Small Generation Units

The amendments also provide for an increase in the RECs that may be created in relation to a small generation unit (having a hydro, wind or solar (photovoltaic) energy base).

These amendments apply to small generation units that were installed after 9 June 2009 and will apply various multipliers during the period 9 June 2009 to 30 June 2015.

Review of MRET Scheme

Finally, the recent Amendment Act also includes a requirement that the Minister must cause there to be an independent review of the MRET Scheme to be conducted between 1 January 2014 and 30 June 2014.

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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 communication. Persons listed may not be admitted in all States and Territories.