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Chapter 2: Performance of the Renewable Energy Target

Table of contents


This chapter considers how the Renewable Energy Target (RET) has performed to date, against the objectives of the Renewable Energy (Electricity) Act 2000 (Cth) (REE Act). It explores the RET's impact on levels of renewable energy generation and capacity, changes in greenhouse gas emissions, and the development of the renewable energy industry. It also considers the impact of the RET on electricity prices.

2.1. Renewable electricity capacity and generation

The major aim of the REE Act is to encourage additional generation of electricity from renewable sources. Since the introduction of the Mandatory Renewable Energy Target (MRET) in 2001, Australia's renewable electricity capacity has almost doubled, increasing from around 10 650 megawatts (MW) in 2001 to around 19 700 MW in 2012. As Figure 1 illustrates, renewable generation from sources other than hydro now account for more than 50 per cent of total installed renewable capacity.

Figure 1 Technologies as a proportion of total installed renewable capacity, 2001-2012
This figure presents the total installed renewable capacity by technology type (solar, wind, hydro and other) for the period 2001 to 2012. From 2001 to 2004 hydro accounted for around 80 per cent of total renewable capacity. In 2005 a large amount of capacity was installed for wood waste sourced generation. Solar and wind capacity have grown the quickest in recent years and in 2012 made up 9 per cent and 14 per of total renewable capacity respectively. Due to the increase in other renewable capacity, hydro made up only 36 per cent of total installed renewable capacity in 2012.
Source: Clean Energy Regulator and Climate Change Authority, 2012.
Note: 'Other' includes landfill gas, bagasse, food waste, food processing waste, sewage gas and biomass-based components of sewage, black liquor, waste coal mine gas (to the extent that it is eligible under the RET scheme), agricultural waste, energy crops, waste from processing of agricultural products and biomass-based components of municipal solid waste.

The increase in renewable generation capacity has been supported by the sale of certificates under the RET. Almost 160 million certificates were created over the period 2001 to 2011, and generation eligible under the RET produced around 14 000 gigawatt hours (GWh) of electricity in 2011 (see Figure 2).

Figure 2 RET induced renewable generation and the number of certificates created
This figure compares the amount of renewable energy generated under the RET to the number of certificates created in that year. In 2001, 1 780 MWh of renewable energy was generated resulting in the allocation of 1.7 million certificates. In 2011, approximately 14 000 MWh of renewable energy was generated resulting in the allocation of around 66 million certificates.
Source: Clean Energy Regulator and Climate Change Authority, 2012.
Note: 'RET induced renewable generation' has been calculated using renewable energy certificates accounting for any multiplier impacts.

Renewable electricity generation currently accounts for around ten per cent of total electricity generation in Australia. Despite the increase in absolute terms, renewable generation as a proportion of total electricity generation has not changed significantly since 2000-2001 (see Figure 3).This is because growth in electricity demand, which increased by around 13 per cent over the period, has been met with growth in both non-renewable and renewable electricity generation.

Electricity generation from non-renewable sources grew by ten per cent over the period 2000-01 to 2010 11, although substantial changes have occurred in the composition of the fossil fuel generation mix. The contribution of natural gas almost doubled to more than 20 per cent of total electricity generation in 2010-11.

Black coal electricity generation decreased by around 13 per cent over the same period, to around 46 per cent of total generation in 2010-11, while brown coal increased by six per cent to contribute 22 per cent of total electricity generation. The growth in renewables has been significantly offset by a decrease in generation from pre-existing hydro generators, reflecting low rainfall between 2005 06 and 2008 09.

Figure 3 Australian electricity generation mix
This figure demonstrates the change in mix of energy generation between renewable energy sources and non-renewable energy sources between 1990-91 and 2010-11. It shows that over this period renewable energy generation as a proportion of total generation has stayed reasonably steady accounting for around 10 per cent of total generation.
Source: Bureau of Resources and Energy Economics (BREE), 2012.

2.1.1. Mix of renewable energy generation

Wind and solar photovoltaic (PV) generation have accounted for the bulk of the (absolute) increase in renewable energy generation capacity (see Figure 1). Wind has grown rapidly under the RET, generating more than 5 800 gigawatt hours (GWh) in 2010-11, up from around 200 GWh in 2000 01 (see Figure 4). Solar PV generation has also increased significantly, generating around 850 GWh in 2010 11, compared with around 50 GWh in 2000-01 (see Figure 4). Despite the downward adjustment to the Solar Credits multiplier, the rate of solar PV installations remains strong in 2012 (see Chapter 5).

Hydro generation remains the largest single source of renewable energy in Australia, but much of this capacity was installed before 2001 and is therefore not included in the 41 000 GWh target (see Figure 4). Favourable seasonal conditions over the past two years have seen hydro electricity generation recover to its long-run average but, with hydro resources now largely exploited, further significant growth is unlikely.

Figure 4 Australian renewable electricity generation by fuel
This figure presents the change in output between renewable energy sources (bagasse, wood, biogas, wind, hydro and solar PV) for the period 1990-91 to 2010-11. Since the commencement of the RET in 2001 wind has grown steadily and in 2010-11 had grown to approximately 6 000 GWh of generation per annum. There has been a large decay in output from biomass sources, from around 4 000 GWh per annum in 2007-08 to around 1 000 GWh in 2010-11. Hydro has fluctuated in recent years due to low water availability, where it dropped from 16 000 GWh in 2005-06 to just under 12 000 GWh in 2008-09, then rose back to over 16 000 GWh in 2010-11. There has been a marked increase in solar PV output since the introduction of the expanded RET in 2010, where it has grown 3 fold over the period to 2011-12.
Source: BREE 2012.

2.1.2. Distribution of renewable generation capacity

Large-scale renewable projects are scattered across all states and territories (see Figure 5). Significant wind generation occurs across large parts of southern Australia, with hydro generation concentrated in Tasmania, Victoria and New South Wales. Solar generation occurs across parts of central Australia while biomass is confined to eastern Queensland.

LRET certificate creation over the period 2001 to 2012 also indicates that eastern and southern parts of Australia have accounted for around 90 per cent of total new LRET generation, while Western Australia and the Northern Territory have accounted for around ten per cent of total LRET generation (see Figure 6).

Small-scale Renewable Energy Scheme (SRES) installations over the period 2001 to 2012 also indicate that around 90 per cent of installations are located in eastern and southern parts of Australia. On a per household basis, however, solar PV and solar water heater penetration varies significantly from state to state (see Figure 7). Data submitted by the REC Agents Association suggests that small-scale renewable energy systems are widely dispersed across Australia, with urban areas accounting for 47 per cent of installations and regional and rural areas for 53 per cent.

Figure 5 Renewable energy generation in Australia
This figure maps the large-scale renewable power stations installed throughout Australia. Significant wind generation occurs across large parts of southern Australia, while significant hydro generation is concentrated in Tasmania, Victoria and New South Wales. Solar generation occurs across parts of central Australia, while biomass generation is confined to eastern Queensland.
Source: Geoscience Australia, 2012
Figure 6 Large-scale Renewable Energy Target induced generation by state, 2001 to 2012
This figure shows the share of renewable generation in Australia across the different states and territories. South Australia has the largest share with around 24 per cent, New South Wales has around 19 per cent, Victoria and Tasmania both have around 15 per cent, Queensland has around 14 per cent, Western Australia around 12 per cent, and the Australian Capital Territory and Northern Territory have less than 1 per cent combined.
Source: Clean Energy Regulator and Climate Change Authority, 2012.
Figure 7 Penetration of small-scale renewables per household by state, 2001 to 2012
This figure shows the penetration of small-scale technologies (mainly solar PV and solar water heaters) in each state and territory. The highest level of penetration is in South Australia and Western Australia, both with around 26 per cent of households having a small-scale technology installed. The lowest penetration is in Tasmania where only approximately 8 per cent of households have a small-scale technology installed.
Source: Australian Bureau of Statistics Census 2012, Clean Energy Regulator and Climate Change Authority, 2012.

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2.2. Abatement from the Renewable Energy Target

A related major objective of the REE Act is to reduce emissions of greenhouse gases from the electricity sector by encouraging greater renewable generation.

Assessing the impact of the RET on greenhouse gas emissions requires a consideration of what emissions would have been if the RET had not existed.

This counterfactual cannot be observed; it must be estimated. A number of emission reduction estimates have been calculated by various organisations over time and often with different results, depending on the underlying assumptions used. A recent study conducted by SKM MMA for the Clean Energy Council, estimated that the RET had induced cumulative emission reductions of around 20 million tonnes of carbon dioxide equivalent between 2001 and 2012. The SKM MMA report also indicated that over the same period, around 90 per cent of the abatement achieved in the electricity sector was attributable to the RET, with the remainder attributable to other renewable generation support mechanisms. The report suggests that without the RET, Australia would not have met its emissions reduction target under the Kyoto Protocol by around two to three percentage points.

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2.3. Industry development

As noted, one of the announced objectives of the MRET was to 'contribute to the development of internationally competitive industries, which could participate effectively in overseas markets' (Commonwealth House of Representatives 2000, p.18 031). The impact of the RET on investment and employment patterns in the renewable generation sector is discussed below.

2.3.1. Investment

The RET has stimulated considerable investment in Australian renewable energy over the last decade. In 2011, investment in large-scale and small-scale renewable energy in Australia totalled in excess of $5 billion from almost nothing in 2001 (see Figure 8).

Investment in large-scale projects has dominated the renewables sector for most of the past decade but, since the introduction of the expanded RET and the Solar Credits multiplier, small-scale PV investment has eclipsed large-scale investment. In 2011, small-scale PV investment totalled more than $4.3 billion.

Figure 8 Total large and small-scale renewable energy investment in Australia
This figure shows the annual amount of investment in renewables (both large and small-scale) over the period 2001 and 2011. Investment grew from a negligible amount in 2001 to over $5 billion in 2011.
Source: Bloomberg New Energy Finance, 2012.

Globally, investment in renewable technologies has been increasing. According to Bloomberg New Energy Finance (2011), global investment in large-scale renewable technologies grew roughly sevenfold between 2004 and 2010, from US$19.2 billion to US$142.7 billion (see Figure 9).

In broad terms, Australia contributed around US$5.3 billion, or two per cent, to global investment in clean energy in 2011 (see Figure 10).

Figure 9 New financial investment in large-scale renewable energy by region
This figure demonstrates the growth in global investment in large-scale renewable technologies by region (North America, South America, Europe, Middle East and Africa, Asian and Oceania) over the period 2004 to 2010. Total global investment grew roughly sevenfold between 2004 and 2010, from US$19.2 billion to US$142.7 billion. Over the period new investment in renewables was highest in Europe until recently when investment in Asia and Oceania exceeded new investments in Europe. The Middle East and Africa has seen the lowest rate of new investment in large-scale renewable energy over the period.
Source: Bloomberg New Energy Finance, 2011.
Figure 10 Total new clean energy financial investment 2010 and 2011
This figure presents Australia’s level of investment in clean energy relative to other countries. In 2010 and 2011 Australia invested approximately US$5.3 billion which accounted for approximately two per cent of total global investment in clean energy.
Source: Bloomberg New Energy Finance, 2011.

2.3.2. The renewable energy industry in Australia

Investment in renewable energy stimulated by the RET has boosted the renewable energy sector in Australia. This in turn has supported the growth of new firms entering the renewable energy industry.

Between March 2006 and September 2011, the number of accredited solar PV installers and designers in Australia accelerated to over 4 200 (see Figure 11), although not all installers work full-time on PV installations; many alternate between solar PV installations and other electrical work.

Figure 11 Total number of accredited renewable energy installers and designers in Australia This figure demonstrates the significant growth in the small-scale solar PV industry, where the number of Clean Energy Council accredited installers and designers grew exponentially from 237 in 2006 to 4 273 in 2011.
Source: Clean Energy Council, 2011.

Employment in the renewable energy industry also has risen with increased levels of investment. In 2010, the industry employed more than 8 600 full-time employees, primarily in the bioenergy, wind, hydro, solar PV and solar water heating sectors (see Figure 12). New South Wales, Victoria and Queensland together accounted for more than 70 per cent of the total number employed (see Figure 13). These figures cover those directly involved in construction, installation, operations and maintenance activities, and exclude significant numbers in related sales, administration and management activities; the Clean Energy Council estimated that 6 000 people were employed in the distribution, sales and installation of solar hot water systems in 2011, compared with only around 900 working directly in the sector.

Figure 12 Full-time equivalent jobs in the Australian renewable energy industry, 2010
This figure presents the amount of employment in the renewable energy industry by energy source in 2010. There were 8 600 full-time employees in the renewable energy industry in 2010, primarily in the bioenergy, wind, hydro, solar PV and solar water heating sectors in 2010.
Source: Clean Energy Council, 2011.
Figure 13 Full-time equivalent employees in the renewable energy industry by state, 2010
This figure presents the amount of employment in the renewable energy industry by state and territory in 2010. New South Wales, Victoria and Queensland together accounted for more than 70 per cent of the total number employed.
Source: Clean Energy Council, 2011.

2.3.3. Cost performance of technologies over time

The cost of several renewable technologies has decreased significantly over the life of the RET.

Domestic and international factors can influence the costs of deploying renewable technologies in Australia. The bulk of domestic costs consist of labour costs in construction and installation activities. Improvements in Australian 'know how' and supply chains can be influenced by the scale of domestic operations, and by domestic policies. The most significant cost associated with wind and solar PV installations however, is the cost of the technology module. BREE (2012a) suggest that around 70 per cent of solar PV and onshore wind costs reflect internationally sourced technology, principally modules.

Module costs have fallen as increased global production capacity has created economies of scale, and as the technologies themselves have improved in response to research and development activities. As a relatively small player in the development and manufacture of renewable technologies, the RET has arguably had little impact in reducing technology costs. The high Australian dollar over recent years, however, has contributed to lower costs of imported modules.

Many electricity generation technologies, and renewables in particular, are characterised by high fixed capital costs and low running costs. Different technologies operate at different capacity factors – that is, the proportion of the year they can produce energy. Levelised costs of energy are often used to compare the relative costs of different technologies when faced with varying capital and operating costs, as well as different capacity factors. The levelised cost of energy is a measure of the average cost per megawatt hour over the life of an electricity generating asset.

Historically, the levelised cost of renewable energy technologies has been far higher than that of fossil fuel generation, although the gap has been shrinking. At a global level, solar PV and wind costs, in particular, have decreased dramatically on the back of advances in technology (see Figure 14).

The Bureau of Resources and Energy Economics (BREE) expect the cost differences in electricity generation between non-renewable and renewable sources to continue to narrow over time. In its 2012 report, BREE notes that the levelised costs of energy of solar PV and onshore-wind in Australia declined significantly over recent years and forecasts they will have the lowest levelised cost of all technologies by 2030; BREE's underlying assumptions include falling module costs and a rising international carbon price over the period (BREE 2012a).

While international economies of scale appear to have driven down the module cost of many technologies, domestic costs associated with installing and mounting small-scale PV systems also appear to have declined between 2009 and 2011 (see Figure 15). Increased competition among installers and suppliers, driven in part by the RET, has also compressed retail margins, with flow-on reductions in the costs to households of PV systems.

Figure 14 Global levelised cost of energy
This figure demonstrates the fall in the levelised cost of solar PV from 2009 to 2012. Historically, the levelised cost of renewable energy technologies has been far higher than that of fossil fuel generation, although the gap has been shrinking.
Source: Bloomberg New Energy Finance, 2012.
Figure 15 Average photovoltaic system prices and retail margins
This figure presents the change in the main costs of small-scale solar PV between 2009 and 2011. It shows that capital costs have declined significantly over the period, likely due to international economies of scale. Domestic costs associated with installing and mounting small-scale PV systems have also declined between 2009 and 2011.
Source: SolarBusinessServices, sub. 227.
Note: 'bos' refers to balance of system price, 'inv' refers to invertor costs and 'p/w' refers to per watt.

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2.4. Impact of the Renewable Energy Target on electricity prices

The RET's impact on electricity prices paid by consumers is the net result of two factors:

  • the RET's effect on wholesale prices arising from changes in the demand/supply balance in the electricity generation market; and
  • the cost of certificates, which is passed on to consumers in retail prices.

2.4.1. Wholesale prices

The RET can be expected to exert downward pressure on wholesale electricity prices for two reasons. First, the RET can result in additional supply entering the market earlier than would otherwise have been required to meet demand. Secondly, this extra capacity is likely to be characterised by low marginal costs of production – it sits at the bottom of the supply curve, and means that the dispatch of generators with higher short run supply costs is sometimes avoided.

The Authority has not commissioned any modelling on the historic effect that the RET would have had on wholesale prices. SKM MMA modelling commissioned by the Clean Energy Council, however, suggested that for most states, the RET has reduced average wholesale prices which led to a reduction in retail prices (Clean Energy Council 2012).

2.4.2. Cost of certificates

Operating to offset any reduction in wholesale electricity prices driven by the RET are increases in retail electricity prices due to the need for liable entities, generally electricity retailers, to purchase renewable energy certificates to acquit their annual RET liability. Liable entities generally pass on the costs of these certificates to energy consumers.

Since 2009 certificate prices have fluctuated, ranging from around $20 for small-scale technology certificates (STC) to $50 for large-scale generation certificates (LGC), but have remained relatively stable in recent years (around $35 for large-scale certificates and around $30 for small-scale certificates) (see Figure 16).

Figure 16 Certificate price history
This figure presents the change in large-scale generation certificates (LGCs) and small-scale technology certificates (STCs) between 2009 and 2012. Since the commencement of the separate SRES in 2011 STC prices have fluctuated, ranging from around $20 to $40. At the same time LGC prices have remained relatively stable at between $35 and $42.
Source: Nextgen, 2012.

2.4.3. Retail prices

As noted, the RET's impact on retail prices depends on the net impact of its effect on wholesale prices and the cost of renewable energy certificates.

In jurisdictions where retail prices are regulated, the relevant regulator, as part of its price determination, estimates the cost impact of the RET and sets an allowable limit on RET-related costs that can be recovered from consumers through retail tariffs.

For example, in New South Wales, the Independent Pricing and Regulatory Tribunal (IPART) allowed for a sharp rise in the RET component of regulated tariffs in 2011-12 and 2012-13 (see Figure 17).

IPART estimates that the impact of the RET on a typical New South Wales customer's annual electricity bill in 2012-13 will be around $100, which represents around five per cent of that customers total electricity bill. It should be noted that the IPART 2011-12 figures assume a SRES price of around $40 per STC, while the actual cost of certificates averaged around $30 in 2011-12. It is possible that customers who found a competitive retail offer, rather than staying on the regulated tariff set by IPART, may have benefited from a lower SRES certificate cost.

SKM MMA modelling commissioned by the Authority delivers retail price forecasts under a number of scenarios (see Chapter 4). Under current settings, the modelling estimates that the effect of the RET on a typical Australian's annual electricity bill in 2012-13 will be around $68, or around 4.5 per cent of their total electricity bill. This is similar to the estimate in the Australian Energy Market Commission's (2011) report on the Impact of the Enhanced Renewable Energy Target that the cost of the RET accounted for around three per cent of residential retail electricity prices in Australia in 2011-12.

Figure 17 Electricity price tariffs in New South Wales attributable to the RET
This figure presents the contribution of the RET to retail electricity prices in New South Wales over the period 2002-03 to 2012-13. As shown, the NSW electricity price regulator, IPART, allowed for almost a fivefold increase in the RET component of regulated tariffs in 2011-12 and 
2012-13. The figure shows a rise in electricity prices attributable to the RET from around 0.002 cents per kilowatt hour in 2010-11 to around 0.008 cents per kilowatt hour in 2011-12 and almost 0.01 cents per kilowatt hour in 2012-13.
Source: IPART determinations and reviews of regulated retail prices for electricity, 2002-03 to 2012-13.
Note: Tariffs have been averaged where determinations provide an allowable range. IPART did not incorporate the announced RET changes into its 2010-11 determination.

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2.5. Distributional impacts of the Renewable Energy Target across states and socio-economic issues

The distribution effects of the RET can be considered, in very broad terms, according to their net impacts on different household types and on different regions.

2.5.1. Equity of benefits across households – beneficiaries

The geographic distribution of small-scale installations since the commencement of the RET is shown in Figure 18.

New South Wales and Queensland have the highest number of installations for both solar PV and solar water heaters. On a per capita basis, however, the Northern Territory has the highest penetration of solar water heaters, while South Australia has the highest penetration of solar PV units (see Figure 19).

Seed Advisory (2011) investigated the characteristics of postcodes which had installed solar PV and solar water heaters under the RET and found that postcodes with higher average income generally had a lower take-up of solar PV than the national average.

Penetration of solar PV was also found to decrease in areas where: residents were in the 20-34 age bracket, people had low levels of literacy and/or where there were high population density levels. Similar results were found for the installation of solar water heaters.

While some households have benefited directly from the SRES, all energy consumers, including households, share the costs of the RET through the impact which the renewable energy certificates (SRES and LRET) have on retail electricity prices.

Figure 18 Number of small-scale systems installed by state and territory, January 2001 to September 2011
This figure shows the total number of small scale systems installed by state and territory over the period 2001 to 2011. Queensland and New South Wales have the highest number of installations of small-scale solar PV and solar water heaters, and solar water heaters have been more popular than small-scale solar PV in Victoria and Western Australia.
Source: Clean Energy Regulator, 2012.
Figure 19 Per capita installation of small-scale systems by state and territory, January 2001 to September 2011
This figure presents the geographic distribution of small-scale installations since the commencement of the RET on a per-capita basis. The Northern Territory has the highest penetration of solar water heaters, while South Australia has the highest penetration of solar PV units.
Source: Clean Energy Regulator, 2012.

2.5.2. Impact on household expenditure

Conceptually, the RET can be considered as a levy on electricity consumption to promote the development of the renewable energy industry and, ultimately to contain greenhouse gas emissions. The incidence of this levy affects different consumers in different ways.

Analysis conducted by the Australian Bureau of Statistics, in its Household Expenditure Survey 2009-10, indicated that households with the lowest disposable income spent $7 less each week on domestic fuel and power (including gas and electricity) than the average household. At the same time these households spent the highest proportion of their expenditure on domestic fuel and power (four per cent), compared with average households (2.6 per cent), abstracting from differences in types of dwellings and numbers of occupants.

Of households with the lowest disposable income, the Australian Bureau of Statistics found that 17.9 per cent experienced difficultly in paying electricity, gas or telephone bills on time during the 12 months before the survey, compared with the 12.5 per cent of average households.

While the Commonwealth Government has created the Household Assistance Package to offset cost of living increases as a result of the carbon price for low income households, no comparable arrangements were instituted to compensate for higher electricity costs attributable to the RET.

 

 

 

 

 

 

 

 

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