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Impact on electricity prices

Impact on electricity prices

Meeting the statutory demand target of 33 million megawatt hours in 2020 may have a modest impact on household electricity bills. We used the quantity of shortfall as an indicator of whether the rate of progress towards meeting the target had any unanticipated impacts for 2015.

The impact of the Renewable Energy Target on household bills is difficult to quantify accurately because the cost of certificates is only one of many factors influencing electricity prices. The Australian Energy Market Commission estimated that in 2015, the Large-scale Renewable Energy Target accounted for 1.9 per cent of electricity prices or an average of $7.13 per quarter for an average household electricity bill.30

The overall impact is likely to be less than this estimate because the Large-scale Renewable Energy Target can place downwards pressure on wholesale costs of electricity. According to the Expert Review Panel, the price-supressing effect in the wholesale market outweighs the direct cost of certificates.31

Where liable entities incur a non-tax deductible shortfall charge of $65 per large-scale generation certificate, the extent to which they will pass these costs through to customers in the form of higher electricity prices is unknown. Factors such as operating costs of liable entities, current contractual arrangements and the competitiveness of the marketplace will influence the actual impact on electricity prices. In any case, the amount of shortfall charge was immaterial for the 2015 calendar year.

The large-scale generation certificate spot price has continued to increase since the end of 2015. As a result, a watch point in 2016 will be whether it remains at levels comparable to the shortfall charge, continues to increase or falls to levels more consistent with the price required to make new projects viable. Projects are viable where revenue from large-scale generation certificates fill the gap between the wholesale electricity revenue and project costs.

Our finding

Overall, we have found that progress under the circumstances is adequate towards meeting the Large-scale Renewable Energy Target in 2020 and that there was no unanticipated impact on household electricity bills in 2015. We estimate 6 000 megawatts of installed capacity is required to meet the total cumulative demand for large-scale generation certificates through to 2020.

Table 3: Summary of 2015 progress indicators and status
Progress indicator2015 status
Committed projectsWITHIN REACH
Accredited projectsON TRACK
Large-scale generation certificate spot pricesON TRACK
Supply and demand dynamicsON TRACK
Large-scale generation certificate shortfallON TRACK

Footnotes

30 Australian Energy Market Commission report- 2015 Residential Electricity Price Trends. Estimates for 2015 price impacts are an average of the 2014-15 and 2015-16 financial year estimates.

31 Renewable Energy Target Report of the Expert Panel Review, 2014.

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