Following the stakeholder consultation in October 2012, the Climate Change Authority (CCA) has recently released its final report (Report) on the Renewable Energy Target (RET).
The CCA has recommended that the key elements of the RET be retained. This recommendation is based on the CCA’s view that the RET has a continuing role to play in supporting investment in renewable generation in an uncertain policy environment. Instead of challenging the existence or the substance of the RET, the Report focuses on ways to improve the RET.
No changes to key elements
Recognising the need for confidence, predictability and policy stability as a means to encourage investment in renewable energy generation, the Report recommends the retention of the existing fixed Large-scale RET (LRET) of 41,000 gigawatt hours (GWh). The CCA also recommends that RET reviews occur every four years (rather than every 2 years) to promote greater investor confidence. The next RET review is scheduled for 2016.
The CCA also recommends retaining the current arrangements for the surrender of certificates, the exemption from liability under self generation and the LRET eligibility and accreditation arrangements.
While the CCA is of the view that the existing arrangements for waste coal mine gas should be maintained, it considers that there is no rationale for new waste coal mine gas to be eligible under the LRET as the carbon pricing mechanism is now in operation.
The CCA recommends that no new displacement technologies should be added to the RET, given the RET’s primary focus on generation. Whilst it accepts that existing displacement technology should remain for the time being, it notes that in the event a national white certificate were to be implemented, all displacement technologies ought to cease to be eligible under the RET.
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Recommended changes to the LRET
The CCA found that the LRET can be improved and made the following preliminary recommendations:
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- In order to provide flexibility and choice the following changes are proposed:
- in situations where RET costs are being passed on to emissions-intensive, trade-exposed industries, partial exemption certificates should become tradeable to increase the likelihood that the recipient will receive a market-value for them; and
- large electricity consumers should be able to opt-in to manage their own liability under the RET.
- In order to streamline administration and compliance costs of the RET and lessen its impact on businesses, the following changes are proposed:
- given the similarities between the partial exemption framework under the RET and the Jobs and Competitiveness Program, they should be reviewed together by the Productivity Commission; and
- current arrangements to collect information on out-of pocket expenses should be removed and be replaced by surveys.
- Whilst the current shortfall charge is sufficient to encourage compliance with the 41,000 GWh target, if the carbon price or electricity prices are significantly lower than currently projected, there could be a risk that the target would not be met with the current shortfall charge. To address this issue, the CCA recommends that the level of the shortfall charge be reviewed in its scheduled 2016 review or earlier if circumstances warrant it.
Small-scale Renewable Energy Scheme (SRES) to be retained and improved
Whilst the CCA recognises that merging the LRET with the SRES may be cost-effective, the CCA recommends keeping the two schemes separate as it considers that there are less disruptive ways of addressing concerns over costs.
The CCA recommends that the following improvements be made:
- The Commonwealth Government should consider reducing the threshold for solar photovoltaic units. Units over the small-scale threshold would be included in the LRET with five year certificate deeming.
- The Minister should retain his power to lower the price cap to provide an appropriate costs containment mechanism in the event that the installations of small-scale systems accelerate unsustainably.
- To address concerns about the cost of the SRES and provide clarity to scheme participants, the CCA recommends that the clearing house be amended to a ‘deficit sales facility’. This would allow the continued operation of the clearing house as a price cap while making it clear that it is unable to guarantee a set price of $40 per certificate in a timely fashion. This would also mean that the clearing house price could be more easily amended.
Whilst the CCA is in favour of retaining the SRES for the time being, it recommends that the SRES be phased out by reducing deeming to ensure that renewable energy generation from small scale systems is not rewarded past 2030.
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Throughout its Review, the CCA acknowledges the challenge of balancing the promotion of investments in renewable energy generation to reduce Australia’s greenhouse gas emissions and ensuring that electricity prices do not become prohibitive for electricity users and notes that the Government will continue to face this challenge over the coming years.
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The Government’s response is required within six months of receiving the Report. Minister for Climate Change and Energy Efficiency Greg Combet has welcomed the Report and has indicated that to support investment certainty, the Government will respond to the CCA’s recommendations early this year.