25 Mar 2013

Renewable energy targets total 30.35% for 2013

The Australian renewable energy targets (RET) for 2013 have been prescribed, totalling (across the large-scale and small-scale schemes) 30.35% of 2013 electric energy acquisitions.

The Federal Government has accepted the recommendation of the Climate Change Authority to retain the current large-scale renewable energy target, and the Federal Opposition has reconfirmed its commitment to the "20% RET".

The Government's announcement may lead to the legislated RET of 41,000 GWh of large-scale generation exceeding the 20% target, given recent reductions in electricity demand forecasts, and this could provide a higher burden on energy suppliers and major users than previously intended. However, the RET could be reviewed again next year, and one of the outcomes might be a reduction in the target to align it with forecast reductions in electricity demand.

Government and Opposition's responses to the Climate Change Authority review

On 21 March, the Federal Government issued its response to the Climate Change Authority's final report (published on 19 December 2012) following the Authority's biennial RET review. According to its response, the Government has decided to implement all but a handful of the Climate Change Authority's recommendations.

On the same day, the Federal Coalition issued a media release addressing the Government's response and outlining the Opposition's position on key points, including the level of the RET and length of the RET the review cycle.

Retaining the RET

The most significant Government response is to maintain the existing fixed large-scale RET at 41,000 gigawatt-hours (GWh). This was set on the basis of electricity demand forecasts at the time, and was calculated to represent 20% of the electricity demand in 2020, a target which had bipartisan political support. However, more recent projections show reducing electricity demand, so it is now forecast that the 41,000 GWh RET will provide closer to 25% of total electricity supply in 2020 instead of the targeted 20%.

The Climate Change Authority recognised this in its review, but concluded that the potential costs savings of changing the RET do not outweigh the need for an environment of investment certainty for renewable energy.

The Government has agreed, and has decided to maintain the 41,000GWh large-scale RET.

The Coalition's media release reconfirms its commitment to the "20% renewable energy target", although it does not refer specifically to the 41,000 GWh RET.

RET review cycle

The Government has also accepted the Climate Change Authority's recommendation that the RET be reviewed every four years, instead of the two-year review cycle which the RET legislation currently requires. A longer review cycle would provide greater investment certainty but would reduce the scope for adjusting the RET based on changing demand forecasts.

The Coalition's media release states that it would keep the existing two-year review cycle, which would mean another RET review in 2014. The Coalition has stated recently that, if it wins Government this year, any RET review next year would be conducted independently from the development of its climate change direct action white paper.

The Government would need to pass legislation to change the RET review cycle to a four-year review cycle.

Climate Change Authority recommendations accepted by the Government

Other Climate Change Authority recommendations accepted by the Government include:

  • maintaining the separation between the large-scale RET (LRET) and small-scale renewable energy scheme (SRES);
  • maintaining the primary point of liability and size threshold of grids;
  • bringing forward the setting of the Renewable Power Percentage and Small-scale Technology Percentage from 31 March of the current compliance year to 1 December of the preceding year;
  • retaining the annual surrender of large-scale generation certificates (LGCs) and quarterly surrender of small-scale technology certificates (STCs);
  • retaining the self-generator exemption;
  • phasing out the rewards associated with the SRES by 2030;
  • removing the requirement to submit a solar hot water heater and small generation unit return;
  • requiring the Productivity Commission to assess the level of assistance through Partial Exemption Certificates (PECs) for emissions-intensive trade-exposed (EITE) industries in its 2014-15 review under the Clean Energy Act 2011.

Climate Change Authority recommendations subject to further review by the Government

The Climate Change Authority recommendations subject to further review by the Government are:

  • the development of an opt-in system for large-scale consumers to participate in the LRET, rather than incur the pass-through of the costs of the RET from their electricity supplier;
  • the trade of PECs, which would not be traded as a substitute LGC or STC, but would allow an EITE business to seek a better market value from another liable entity for the PEC. The current practice is to nominate its electricity supplier to receive the PEC, in exchange for lower electricity rates;
  • the development of arrangements for incidental electricity offtakes to be permissible under the self-generator exemption, where the offtakes provide community benefits in remote locations.

Climate Change Authority recommendations rejected by the Government

The Climate Change Authority recommendations rejected by the Government are proposals regarding:

  • the reduction of the SRES eligibility threshold for small-scale solar photovoltaic systems from 100kW to a smaller 10kW;
  • RET eligibility for technologies using native wood waste as a feedstock; and
  • the Clearing House for STCs only accepting new certificates when the Clearing House is in deficit. This was intended to reduce the time sellers have to wait to sell an STC through the clearing house and make it clear that where the STC spot market is prices are under $40 the price cap is not guaranteed.

Despite leaving the RET scheme substantially unchanged, with a federal election on the horizon, this decision is unlikely to provide investors with greater security that there will be no further regulatory change in the short to medium term.

Clean Energy Regulator sets small-scale renewable energy technology percentage

This new policy announcement quickly followed the announcement by the Clean Energy Regulator of the Small-scale Technology Percentage of 19.7% for 2013, down slightly from the percentage prescribed for 2012. The Clean Energy Regulator also published non-binding predictions of 8-9% for STCs over 2014 to 2015.

The Renewable Power Percentage for LGCs is set at 10.65% for 2013. This follows an adjustment of the 2013 target in the Renewable Energy (Electricity) Act 2000 from 14,200 GWh to 19,088 GWh.

Together, the large-scale and small-scale percentage requirements for 2013 represent a renewable energy mandate for liable entities of 30.35% of 2013 electric energy acquisitions.

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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.