Historically, increased investment in renewables has primarily been driven by large liable entities
(usually tier one electricity retailers) that are required to obtain and surrender certificates to meet
their obligations under the Renewable Energy Target.
In 2018 market dynamics reached a turning point. Drivers of demand for renewables have now clearly
shifted. Increased competition has expanded the writing of power purchase agreements to tier two
electricity retailers. Tier one electricity retailers only underpin 22 per cent of the 11.6 gigawatt
renewable energy project pipeline but represent 60 per cent of demand in the National Electricity
At the same time, high electricity prices and sustainability drivers have led to the growth of corporate
power purchase agreements (see page 30). Together these drivers suggest that investment in renewables is
now driven more by commercial factors than the Renewable Energy Target.
State and territory incentive programs and targets also continued to support investment in both
Large-scale and Small-scale renewables in 2018.
The boom in utility-scale renewable energy projects will significantly boost supply for the Large-scale
generation certificate market. The increased availability of Large-scale generation certificates reduced
certificate spot prices in 2018. The lower spot price cut the cost of the Renewable Energy Target for
consumers, and may result in lower electricity pass through costs for households and businesses in future
Many liable entities play a role in both the supply and demand side of the market for renewable energy
certificates, as some operate power stations under the Large-scale Renewable Energy Target and support
installations for households and businesses in the Small-scale Renewable Energy Scheme.
Under the Renewable Energy Target, liable entities are required to surrender Large-scale generation
certificates and Small-scale technology certificates in proportion to the electricity they acquire in a
The number of certificates liable entities need to surrender is determined by applying the renewable
power percentage for Large-scale generation certificates and the Small-scale technology percentage for
Small-scale technology certificates to an entity’s relevant acquisitions of electricity, minus any
exemption, for that calendar year.
The Minister for Energy and Emissions Reduction sets the percentages before 31 March of the calendar
year.24 The renewable power percentage for 2018 was 16.06 per cent.
The Small-scale technology percentage for 2018 was 17.08 per cent.
*Medium entities have a liability between 100,000 and 1 million certificate liability and small
entities have less than 100,000.
For 2018, across both the Large-scale Renewable Energy Target and Small-scale Renewable Energy Scheme,
liable entities surrendered 93.3 per cent of certificates on time, down from 95.5 per cent for the 2017
The surrender rate for Large-scale generation certificates in 2018 was 86.1 per cent, down from 93.3 per
cent in 2017. For Small-scale technology certificates, the surrender rate was 99.9 per cent.
Liable entities may surrender Large-scale generation certificates for more than 90 per cent of their
liability and carry forward a shortfall of less than 10 per cent of their liability to the following
assessment year. Carry forward shortfall does not result in a shortfall charge.
Liable entities with shortfall of greater than or equal to 10 per cent of their liability must pay a
shortfall charge of $65 for each Large-scale generation certificate not surrendered.25
In October 2018 we released an updated position on shortfall. This position stated that as the
Large-scale Renewable Energy Target will be exceeded, we have no objections to the use of shortfall
provided liable entities true up their position by surrendering sufficient Large-scale generation
certificates within the allowable three-year period.
A total of $458 million (or the equivalent of 7.5 million Large-scale generation certificates) of
shortfall charges generated in 2016, 2017 and 2018 is in consolidated revenue, which may be redeemed by
liable entities within three years.26 Of this, $220 million relates to
the payment of charges for 3.4 million Large-scale generation certificates in shortfall for the 2018
assessment year. In addition to paid shortfall for the 2018 assessment year there was a further shortfall
of 0.5 million certificates carried forward to 2019.
The use of shortfall by liable entities has likely shifted demand into future years and smoothed and
brought forward a fall in Large-scale generation certificate prices.
For Small-scale technology certificates, the surrender rate in 2018 was 99.9 per cent. As the STC
clearing house provides unlimited certificates at $40 per certificate (GST exclusive), well below the
shortfall charge of $65, a very high surrender rate continues.
We publish the details of all entities in shortfall (see Appendix A).
The Renewable Energy (Electricity) Act 2000 allows exemptions from Renewable Energy Target
liability for companies conducting eligible emissions-intensive trade-exposed activities. Companies
eligible for exemption are issued with a certificate detailing an amount of exemption in megawatt hours.
They then agree to a commercial arrangement with their electricity retailer, which can then use the
exemption certificate to reduce their obligation under the Renewable Energy Target.
A total of 211 exemption certificates were issued for 2018. This is an increase of 23 per cent compared
with 2017. Of these, 192 were issued under the old production calculation method and 19 were issued under
the new electricity use method (see page 51 for more information).
The exemptions represent 39,126 gigawatt hours of electricity that can be used to reduce electricity
retailers’ relevant acquisitions and hence the amount of renewable energy certificates they need to
surrender to meet their liability obligations.
According to the Australian Energy Market Commission, the Renewable Energy Target accounted for an
estimated 5 per cent (or an average of $68.50 per year) of the average household electricity bill in 2018.
The Large-scale Renewable Energy Target was estimated to contribute $39.40 and the Small-scale Renewable
Energy Target around $29.10.
The Australian Energy Market Commission’s modelling suggests that across the next few years wholesale
electricity costs are expected to decrease in all jurisdictions of the National Energy Market, in part due
to additional renewable energy and battery storage entering the market.27
Large-scale generation certificate spot prices fell sharply towards the end of 2018—from $85.30 in
January to $70.50 at the end of August, before falling a further 33 per cent to finish the year at
The fall in Large-scale generation certificate prices will likely reduce the impact of the Large-scale
Renewable Energy Target on electricity prices in 2019 and 2020, despite the increase in the renewable power
percentage and the Small-scale technology percentage.
The Small-scale technology certificate spot price was more stable throughout the year, fluctuating
between $33.50 and $39. The Australian Energy Market Commission estimated the impact of the Small-scale
Renewable Energy Scheme to be $29.10 per household in 2018.
Drivers of investment in renewables are diversifying. Aside from the Renewable Energy Target, state and
territory incentive schemes are bolstering demand and power purchase agreements are finding favour with
corporate entities. A number of institutions such as the Australian Renewable Energy Agency and the Clean
Energy Finance Corporation have also played a central role in driving the cost of renewables down and
supporting investment to enable Australia to meet the Large-scale Renewable Energy Target.
During 2018 several state and territory incentive programs encouraged further investment in both
Large-scale and Small-scale renewables, to meet individual state and territory targets. These programs
include incentives that make Small-scale renewables more accessible to those previously unable to take
advantage of these systems, such as low income households, renters and public buildings. Newer initiatives
are encouraging the co-installation of batteries and solar PV systems, which will improve reliability and
assist in grid stability. These schemes are expected to drive even higher levels of Small-scale
installations from 2019 onwards.
A power purchase agreement is a contract between two parties, where the buyer purchases electricity
generated by the seller.
These agreements have traditionally been between Large-scale renewable energy power stations and
electricity retailers. However, rising electricity costs combined with low renewable energy costs means it
is becoming commercially viable for businesses to enter into corporate power purchase agreements with
renewable energy electricity generators, to meet all or part of their energy needs.
Corporate power purchase agreements are likely to drive new investment in renewables post-2020 and soak
up the surplus of Large-scale generation certificates available in the 2020s. Large Australian corporates
have begun to sign contracts to purchase Large-scale generation certificates after 2020, intending to
voluntarily surrender the certificates to meet carbon neutral goals or to enhance their corporate social
While several Australian companies have led the field in signing corporate power purchase agreements for
renewable energy—such as Bluescope, Telstra and Nectar Farms—industry-led initiatives are also growing.
For example, the global RE100 initiative includes 162 of the world’s most influential companies that are
committed to sourcing the equivalent of their entire energy demand through 100 per cent renewables. In
2018, the Commonwealth Bank of Australia became the first Australian corporate to join RE100. While it was
the first Australian company to join, almost three-quarters of RE100 companies have operations in
Australia, including Mars, Fujitsu and Carlton United Breweries.
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