Chapter 1: Introduction and history
Table of contents
- 1.1. The Climate Change Authority
- 1.2. An overview of the Renewable Energy Target
- 1.3. The Renewable Energy Target review
- 1.4. Development of the Renewable Energy Target
The Climate Change Authority (the Authority) is required by legislation to review the Renewable Energy Target (RET) every two years, beginning in 2012. This report constitutes the Authority's first RET review. Chapter 1 introduces the RET review and outlines the structure of the report. It includes a brief summary of the major developments in the evolution of the RET.
1.1. The Climate Change Authority
The Authority was established on 1 July 2012 as an independent advisory body on climate change. The Authority is to conduct climate change research, as well as periodic reviews on a range of matters, including carbon pollution caps, progress towards meeting national emissions reduction targets, the carbon pricing mechanism, the RET and the Carbon Farming Initiative. The Authority's constitution, functions and guiding principles are set out in the Climate Change Authority Act 2011 (Cth).
1.2. An overview of the Renewable Energy Target
The RET aims to ensure that 'the equivalent of at least 20 per cent of Australia's electricity generation comes from renewable resources by 2020' (Commonwealth Government 2010) (see Box 1).The term 'equivalent' is used to capture displacement technologies – such as solar water heaters and heat pumps, which are included in the RET scheme but do not generate electricity.
Box 1 Summary of the Renewable Energy Target legislation
- Renewable Energy (Electricity) Act 2000 (Cth)
Establishes the large-scale and small-scale schemes, including the liability framework, certificate generation and administrative arrangements.
- Renewable Energy (Electricity) (Small-scale Technology Shortfall Charge) Act 2010 (Cth)
Imposes the small-scale technology shortfall charge at a rate of $65 per megawatt hour.
- Renewable Energy (Electricity) (Large-scale Generation Shortfall Charge) Act 2000 (Cth)
Imposes the large-scale generation shortfall charge at a rate of $65 per megawatt hour.
- Renewable Energy (Electricity) Regulations 2001 (Cth)
Sets out further detail regarding the operation and administration of the large-scale and small-scale schemes.
The RET scheme creates a demand for additional renewable energy by placing a legal obligation on entities that purchase wholesale electricity (mainly electricity retailers) to surrender a certain number of renewable energy certificates to the Clean Energy Regulator each year. Each certificate represents one megawatt hour of additional renewable energy for compliance purposes. Certificates are generated by accredited renewable energy power stations and eligible small-scale renewable technology systems. The sale of certificates supports additional renewable energy investment. Certificates are tradeable and may be 'banked', in the sense that certificates issued in one year may be surrendered to meet an obligation in a later year.
Since 1 January 2011, the RET has operated as two schemes – the Large-scale Renewable Energy Target (LRET) and the Small-scale Renewable Energy Scheme (SRES). The LRET supports large-scale renewable energy projects, such as wind generators and commercial solar, by helping to bridge the cost between renewable and fossil-fuel generation. The SRES assists households, small businesses and community groups with the upfront cost of installing small-scale renewable technology systems (for example, solar photovoltaics (PV) and solar water heaters).
The RET scheme is administered by the Clean Energy Regulator (formerly the Office of the Renewable Energy Regulator). The Clean Energy Regulator is an independent statutory authority established by the Clean Energy Regulator Act 2011 (Cth). The Clean Energy Regulator's main functions in relation to the RET include maintaining the Registry, issuing certificates, managing the surrender of certificates, administering the liability provisions and enforcing compliance with the scheme.
Certificate creation, trade and surrender are managed through the Renewable Energy Certificates (REC) Registry. The Registry is an internet-based registry system that:
- facilitates the creation, registration, transfer and surrender of certificates;
- tracks the ownership of certificates;
- provides access to the small-scale technology certificate clearing house; and
- maintains the public registers required by the Renewable Energy (Electricity) Act 2000 (Cth) (REE Act).
1.3. The Renewable Energy Target review
1.3.1. Legislative requirements and scope of the review
The REE Act and the Climate Change Authority Act 2011 set legislative requirements for the RET review in respect of timing, scope, conduct, recommendations and publication.
Timing and Scope
Section 162 of the REE Act mandates reviews every two years and defines the scope of these reviews:
162(1) The Climate Change Authority must conduct reviews of the following:
- the operation of the REE Act and the scheme constituted by the REE Act;
- the operation of the regulations;
- the operation of the Renewable Energy (Electricity) (Large-scale Generation Shortfall Charge) Act 2000 (Cth);
- the operation of the Renewable Energy (Electricity) (Small-scale Technology Shortfall Charge) Act 2010 (Cth); and
- the diversity of renewable energy access to the scheme constituted by this Act, to be considered with reference to a cost benefit analysis of the environmental and economic impact of that access.
In line with these requirements, the Authority has interpreted the scope of its review as covering:
- the capacity of the RET arrangements to support additional generation of electricity from renewable sources to contribute reductions in greenhouse gas emissions at reasonable cost;
- the role of the RET and its relationship to other policy measures;
- the LRET, including the level and trajectory of the target;
- the SRES, including its design, architecture, and administration;
- the liability and exemptions framework, and the shortfall charge of both the large-scale and small scale schemes;
- the eligibility framework for both schemes and the diversity of renewable energy; and
- the frequency and scope of future reviews under the REE Act.
The Authority also sees the RET as part of a broader suite of government climate and energy policies, including:
- the carbon pricing mechanism, planning regulations, energy efficiency schemes and feed-in tariffs;
- the Clean Energy Finance Corporation and the Australian Renewable Energy Agency; and
- rules and regulations regarding electricity markets, including network connection arrangements and retail electricity tariffs.
These policies have implications for the RET review, but are not themselves the subject of specific recommendations in this review; issues in respect of electricity distribution networks, for example, extend beyond the RET arrangements.
The Minister for Climate Change and Energy Efficiency wrote to the Chair of the Authority on 13 July 2012 in respect of the RET review (Appendix B). As well as providing background relevant to the RET review, the Minister noted that the Council of Australian Governments was prioritising a review of climate programs to assess their complementarity with a carbon pricing mechanism, and that the Authority's report will be an input to the Council's work.
In conducting its review, the Climate Change Authority Act 2011 requires the Authority to have regard to a number of broad principles, including economic efficiency, environmental effectiveness, equity in the impacts of measures on households, businesses, workers and communities, and consistency with the development of an effective global response to climate change.
The Authority has had regard to these principles in this review.
As also required, the Authority has consulted widely with interested parties throughout the review, including energy retailers and consumers, environmental and welfare groups, and the renewable energy industry.
To assist the consultation process, the Authority released an issues paper and a discussion paper. The issues paper (released 20 August 2012) described the RET scheme and requested feedback from stakeholders on particular questions. Almost 8 700 submissions were received, including from two campaigns organised by GetUp (over 7 700 submissions) and Hepburn Wind (over 700 submissions). Submissions, including samples from the two campaigns, are available on the Authority's website on the recieved submissions page.
The discussion paper (released 26 October 2012) set out the Authority's preliminary views on key issues. The discussion paper formed the basis for further consultation, including four stakeholder consultation roundtables held on 2 and 5 November 2012 in Melbourne and Sydney respectively. A summary of these discussions has been published on the Authority's website along with a list of the participating stakeholders.
The Authority received 54 written responses to the discussion paper and held more than 60 one on one meetings with participants over the course of the review.
Publication and response
As required by the REE Act, this RET review has been completed and provided to the Minister by 31 December 2012, as well as published on the Climate Change Authority website.
The Minister is required to table copies of the report in Parliament within 15 sitting days of the completion of the review. The Government's response to the Authority's recommendations is required within six months.
Consultants SKM MMA were commissioned to undertake electricity market modelling to assess possible market impacts of potential changes to the RET. The modelling approach and the key results are summarised at Appendix D. The full SKM MMA modelling report is available at the Authority's website.
1.4. Development of the Renewable Energy Target
Prior to the announcement of the Mandatory Renewable Energy Target (MRET) in 1997, Australia produced around 16 000 gigawatt hours (GWh) of electricity from renewable sources. Most of this was from hydro-electricity schemes in Tasmania and the Snowy Mountains, with smaller contributions from landfill gas, biomass (bagasse and black liquor), and solar PV and wind generators. Renewable generation then amounted to around 10.5 per cent of Australia's electricity supply.
1.4.1. The Mandatory Renewable Energy Target
In 1997, Prime Minister, Mr John Howard, announced a suite of greenhouse gas mitigation measures in the statement Safeguarding the Future: Australia's Response to Climate Change. That initiative introduced the MRET, which was intended to impose a legal obligation on electricity retailers and other large electricity buyers to source an additional two per cent of their electricity from renewable or specified waste-product energy sources by 2010.
After two years of negotiation between the Commonwealth, states and territories and stakeholders, the MRET was enacted in legislation with a target of 9 500 GWh of additional renewable electricity to be generated by 2010. In the second reading speech to the House of Representatives, the MRET was said to have both environmental and industry development objectives, which were to:
- accelerate the uptake of grid based renewable electricity to reduce greenhouse gas emissions;
- provide an ongoing base for the development of commercially competitive renewable energy as part of the broader package to stimulate the use of renewables; and
- contribute to the development of domestic industries which could compete effectively in overseas markets. (Commonwealth House of Representatives 2000)
The MRET sought to achieve these ends by creating a liability for wholesale energy purchasers to encourage additional renewable energy by acquiring renewable energy certificates. The REE Act created a framework for renewable energy generators to create certificates for every megawatt hour of electricity produced above a renewable generator's baseline, which was set by the regulator as the average electricity produced between 1994 and 1996 by the generator (called the '1997 baseline'). Eligible generators could continue to create certificates until the final year of the scheme in 2020. The legislation also established a regulator (the Renewable Energy Regulator supported by the Office of the Renewable Energy Regulator) to oversee and manage the scheme.
The REE Act required that an independent review of the Act be undertaken in 2003.
1.4.2. The 2003 Tambling Review
The 2003 MRET review was chaired by Mr Grant Tambling (former Senator for the Northern Territory). It considered the extent to which the Act had contributed to reducing greenhouse gas emissions and encouraged additional renewable energy generation, as well as the achievement of other policy objectives, and the need to amend aspects of the Act or consider alternative approaches.
The review panel found that the MRET had broad community support, contributed significantly to additional renewable energy generation, resulted in some exports of domestically manufactured equipment, and had a very small negative effect on the Australian economy from the associated increases in electricity costs (MRET Review Panel 2003).
Of the review's 30 recommendations, the most significant was for the target to be increased over time, to reach 20 000 GWh in 2020. The Panel argued that such an increase would:
- provide investment confidence and industry development opportunities;
- deliver the minimum 'critical mass' of investment needed to demonstrate commercial viability and create the potential for domestically manufactured components of renewable energy projects;
- establish a domestic demand base for the development of further export markets; and
- provide for a more managed investment framework that would promote cost effective technology improvements and industry learning.
In August 2004, the Commonwealth Government accepted most of the review's recommendations, but decided not to increase the target, instead maintaining its commitment to the 9 500 GWh target announced in 1997.
By 2007, there was sufficient renewable energy generation capacity in place to meet the legislated targets and no further investment was necessary for that purpose.
1.4.3. State and territory renewable energy target schemes
Following the Commonwealth Government's decision to maintain the 9 500 GWh renewable energy target, a number of state governments planned or enacted their own renewable energy targets.
Victoria, New South Wales and South Australia all announced renewable energy targets. Victoria announced a scheme in 2006, which commenced on 1 January 2007 (Theophanous, Thwaites 2006). The Victorian Renewable Energy Target required electricity retailers to purchase a minimum of ten per cent of electricity from renewable energy sources by 2016. The New South Wales Renewable Energy Target was set at ten per cent of New South Wales end use consumption by 2010, and 15 per cent by 2020 (New South Wales Government 2006). However, while a certificate based trading scheme was planned, it never commenced. A target of 20 per cent of energy generated from renewable energy sources by 2007 was set in South Australia; this target was achieved ahead of schedule in 2011, and South Australia is now aiming for 33 per cent renewable electricity generation by 2020 (Rann 2011).
1.4.4. The 2009 expanded Renewable Energy Target
In 2007, the Commonwealth Government embarked on a two year consultation period with state and territory governments and stakeholders to expand the MRET, which was agreed by the Council of Australian Governments in April 2009. The amended Renewable Energy (Electricity) Bill 2000 was introduced into the House of Representatives in June 2009, one month after the Carbon Pollution Reduction Scheme was introduced.
While the basis of the MRET remained, significant changes were made to both the target and how it would be achieved. These included:
- increasing the target to 45 000 GWh in 2020, to be maintained at that level until 2030;
- introducing Solar Credits, which would assist households and business with the upfront costs of small-scale renewable energy generation units by applying a 'multiplier' to the number of certificates received from installation of small-scale generation technologies;
- providing a partial exemption from liability for emissions-intensive, trade-exposed activities, to reflect the cumulative cost impact of the RET and anticipated carbon price on those industries. The partial exemption applied only to the expanded part of the RET and not the 9 500 GWh target set under the original legislation; and
- allowing state-based renewable energy targets enacted under state legislation to transition to the RET.
1.4.5. The Renewable Energy Target today
In 2010, the Commonwealth Parliament passed amendments to separate the RET into two parts: the LRET and the SRES. Higher than expected uptake of small-scale systems – stimulated by falling system costs, the financial incentives offered through the Solar Credits multiplier, and state and territory feed-in tariffs – had created a large spike in the number of certificates. This depressed certificate prices and discouraged investment in large-scale projects, which have very large capital requirements. The division of the RET was designed to address this issue by creating separate incentives for large-scale projects and small-scale technologies. This meant that large-scale and small-scale technologies were no longer directly competing with one another under the RET scheme, effective from 1 January 2011.
The LRET is expected to deliver the majority of the target – 41 000 GWh of the original 45 000 GWh 2020 target – and retains many of the design features of the original MRET scheme. The LRET is discussed in more detail in Chapter 4.
The SRES has an implicit target of 4 000 GWh of renewable energy generation or displacement of electricity through solar water heaters and heat pumps. However, the SRES is an 'uncapped' scheme, meaning its gigawatt hour contribution by 2020 is uncertain. The SRES is discussed in more detail in Chapter 5.