The Renewable Energy Target aims to encourage additional renewable energy and reduce greenhouse gas emissions in the electricity sector.
The scheme has two parts:
The scheme works by creating a market for renewable energy certificates, which drives investment in the renewable energy sector. On the supply side of the market, scheme participants create certificates for each megawatt hour10 of renewable electricity they generate or displace (no longer needed from the grid). On the demand side, electricity retailers source these certificates to meet their renewable energy obligations, in proportion to the total amount of electricity they sell.
Since 2001, the Renewable Energy Target has significantly increased the number of small-scale renewable energy systems and stimulated material investment in renewable energy power stations—helping reduce emissions to meet Australia’s international climate change commitments.
This year the Renewable Energy Target reached a major milestone ahead of schedule. Around the country, there were enough new renewable energy projects under construction or already built to meet the 2020 target.
A total of 6400 megawatts of capacity committed from 2016 to the end of 2018 are needed to meet the target of generating an additional 33,000 gigawatt hours of electricity from renewable sources by 2020. In June 2018 there was 7565 megawatts of capacity from projects either under construction or already built.
This result was partly due to a record level of investment in 2017, which resulted in more than 1000 megawatts of renewable projects accredited—the biggest year ever for new build coming on line.
The next two years are expected to be even bigger, with 2018 and 2019 both expected to triple the amount of new build commissioned compared with 2017.
The bulk of the new construction is in Queensland, followed by Victoria and South Australia.
Solar power stations are an important emerging player in the energy mix. Of the firmly announced projects since 2016, solar makes up almost half (48 per cent) of the total new capacity.
We had previously published that 6000 megawatts of capacity was needed to meet the 2020 target. This was based on a mix of 75 per cent wind projects and 25 per cent solar projects. The upswing in solar projects, now accounting for almost half of total capacity, has increased our estimate to 6400 megawatts. This is because solar has a lower capacity factor than wind, so more installed solar capacity is required to achieve the same level of electricity generation.
As more large-scale solar projects become operational over the next few years we will start to see more power stations with battery storage. This will make a contribution to managing the stability of the grid with higher penetration of renewables.
We publish details about the operation of the Renewable Energy (Electricity) Act 2000 in annual administrative reports, as required by legislation. These reports present information about scheme operation and achievements from the previous calendar year as well as an annual statement on progress towards meeting the target. The 2017 report,
Progress in 2017: Delivering Australia’s 2020 Renewable Energy Target, was tabled on 12 June 2018.
The number of power stations accredited under the Large-scale Renewable Energy Target has increased since 2001.
In 2017–18 we accredited 263 new power stations, nearly three times as many as 2016–17. This brings the overall total to 888. We processed all applications for accreditation within the required six weeks.
The capacity of power stations we accredited has also increased significantly. The total capacity of renewable energy power stations accredited during 2017–18 was 1975 megawatts, more than triple that of 2016–17. The renewable energy projects committed in 2016–17 are now complete and accredited.
This year saw a 171 per cent increase in the number of accredited utility scale renewable energy power stations with a capacity of more than one megawatt. More than 63 per cent of the increase in capacity came from eight power stations with capacities in excess of 100 megawatts.
At the smaller end of the spectrum, the sharp rise in commercial and industrial scale solar power stations continued this year, with the number of accreditations increasing by 141 per cent and capacity increasing by 214 per cent. These are systems of less than one megawatt capacity, and are often used by businesses to reduce their electricity bills.
There are 19 eligible renewable energy sources under the Renewable Energy Target. The most common are solar, wind, hydro, biomass, and waste coal mine gas.
Solar continued to be the dominant renewable energy source in terms of the number of accredited renewable energy power stations in 2017–18, while wind again accounted for the most accredited capacity. The continued increase in solar power accreditations reflects the changing dynamics of the renewable energy industry.
Large-scale generation certificates are created based on the amount of electricity generated by accredited power stations using renewable energy sources. Each certificate represents one megawatt hour of renewable energy generation.
In 2017–18 we validated 20,023,012 large-scale generation certificates compared with 19,374,654 validated in 2016–17.13 This 20 million megawatt hours of additional electricity generated by accredited renewable energy power stations is enough to power about 3.1 million homes for one year.14
More than 70 per cent of the certificates validated in 2017–18 were from power stations using wind as the energy source, 13 per cent were from biomass, and the remaining were from hydro, solar and waste coal mine gas energy sources.
Australian homes and small businesses installed more rooftop solar capacity in 2017–18 than ever before, with 1193 megawatts exceeding the previous record of 917 megawatts set in 2012–13.
This equates to 4.2 million solar panels being fixed to Australian rooftops, or close to 11,600 installed every day.
There was a 35 per cent increase in installed solar capacity across all states and territories in 2017–18 compared with 2016–17. Queensland led the way with 321 megawatts installed, and the Australian Capital Territory experienced the largest annual increase, up 83 per cent.
There is now also growing preference for larger capacity systems. With a more competitive market, and technology becoming more efficient and cheaper, it is possible to install systems with higher megawatt capacity for lower costs. The average solar system capacity has doubled in the five years, from three kilowatts to more than six kilowatts.
Now a broad range of consumers and community groups—from households and small businesses to schools and community centres—are installing small-scale solar systems and receiving incentives from the Small-scale Renewable Energy Scheme.
Based on scheme volumes and trends, an even greater increase is expected in 2018–19.
Momentum in the Small-scale Renewable Energy Scheme also continued in 2017–18, with the number of installations increasing for the second year in a row. In 2017–18 a total of 231,656 small-scale systems were installed, taking the overall total to more than three million.
This nine per cent increase in small-scale installations compared with 2016–17 included 178,981 solar photovoltaic (PV) systems and four wind systems, plus 35,884 solar water heaters and 16,787 air source heat pumps.
In total, small generation units now have a cumulative capacity of 7119 megawatts. Based on estimated system performance, this is enough to power around 2.4 million average Australian households each year.15
The growth in the scheme also brings continued challenges associated with higher volumes, new business models and new technology. Our staff receive more than 1000 applications a day related to small-scale systems, respond to numerous consumer enquires, regularly provide education and outreach activities and coordinate a national inspections program. We continue to innovate and build on the work done over many years to refine and develop the scheme to ensure it runs successfully and smoothly.
Renewable energy certificates created under the Small-scale Renewable Energy Scheme are called small-scale technology certificates. Under the scheme, participants can create small-scale technology certificates following the installation of an eligible system. The number of certificates is based on the amount of electricity the system is estimated to produce or displace over its lifetime, depending on the technology.
Small-scale technology certificates can be created up to 12 months after the system is installed. This means that during 2017–18 we validated small-scale technology certificates created for systems installed in both 2016–17 and 2017–18.
We validated 25,567,897 small-scale technology certificates in 2017–18. This is a significant increase from the 18,620,810 small-scale technology certificates validated in 2016–17. This is due to a higher number of solar PV systems installed and an increase in the average capacity of these systems. This is despite a reduction in the deeming period for solar PV systems, which is reducing the number of certificates that can be created for an eligible system by one year, every year until 2030.
Due, in part, to the higher number of solar PV installations and average capacity, the small-scale technology percentage for 2018 was set at 17.07 per cent, an increase from the 2017 small-scale technology percentage of 7.01 per cent.
Under the Renewable Energy Target, liable entities (mainly electricity retailers) have an obligation to surrender a certain number of large-scale generation certificates and small-scale technology certificates to us each year. The number for each entity is in proportion to the volume of electricity they purchase and sell each year and is worked out using the renewable power percentage and small-scale technology percentage. These percentages are set by the Minister for the Environment and Energy and are on our website.
The Renewable Energy Target operates on a calendar year basis, with liable entities required to acquit their liability for the previous year by 14 February. They surrender large-scale generation certificates annually and small-scale technology certificates quarterly to meet any actual or anticipated liability for the year.
By 14 February 2018, liable entities had surrendered a total of 23,203,396 large-scale generation certificates and 12,213,677 small-scale technology certificates against their 2017 liability.
Liable entities’ combined surrender rate for large-scale generation and small-scale technology certificates for 2017 was 95.5 per cent. This is an increase on the 93.8 per cent surrender rate for 2016 liability, due to an increase in the large-scale generation certificate surrender rate for the year.
Liable entities that surrender less certificates than their required amounts for a particular year or quarter are in shortfall.
For large-scale generation certificates, liable entities may carry forward less than 10 per cent of their liability for a particular year without incurring a shortfall charge. In all other circumstances where a liable entity does not surrender sufficient certificates, a non-tax deductible renewable energy shortfall charge of $65 per certificate not surrendered is applied. We also publish the details of all entities in shortfall.
Of the 114 liable entities for 2017, five had a large-scale generation shortfall within the 10 per cent margin. These shortfalls will be carried forward to the 2018 large-scale generation certificate liability for those entities. A total of 22 liable entities had a large-scale generation shortfall above the 10 per cent margin and were required to pay the large-scale generation shortfall charge.
Five liable entities had a small-scale technology shortfall and were required to pay the small-scale generation shortfall charge.
Shortfall charges must be paid on time. Unpaid shortfall charges attract interest and are managed in accordance with our debt recovery policies and procedures. During 2017–18 we actively pursued debts from five liable entities that did not pay their shortfall charges for 2017 on time, and continued to pursue debts in relation to previous shortfalls.
We issue exemption certificates for emissions intensive trade-exposed entities that are eligible for exemption under the
Renewable Energy (Electricity) Act 2000.
We received 163 applications for exemption certificates for the 2018 compliance year. As at 30 June 2018 we had issued 71 per cent of exemption certificates. This was lower than the same time in 2017 when 100 per cent of exemption certificates had been issued. This is partially due to transactional changes from new regulations allowing exemptions to be calculated in two ways, either a new method based on actual electricity used, or the previous calculation method related to product produced. The total amount for 2018 exemption applied was approximately 41.8 million megawatt hours.
In a significant outcome for industry, we worked with the Department of the Environment and Energy to streamline the method used to calculate exemptions, based on electricity used by emissions-intensive trade-exposed activities rather than weighted industry average electricity used and the previous financial year’s production. The process to amend the regulations was completed in December 2017. Once the regulations were amended we started implementing the changes and developing an online application system that will be used from 2019 for the new electricity use method.
The large-scale generation certificate spot price started the financial year at $79.20, strengthened to $85 by mid-August 2017 and then largely remained level before reaching a high of $86.50 during early February 2018. Following another period of stability and low trading volumes, the large-scale generation certificate spot price weakened in late May and early June 2018 to around $79, and closed 2017–18 at $77.80.17
Large-scale generation certificate forward contract trading volumes increased during 2017–18. Contracts for delivery in 2019 traded at $73.25 at the end of June 2018, down from a high of $81.60 in September 2017. Contracts for delivery in 2020 saw more significant falls, trading at $26.50 at the end of June 2018 from a high of $64 in November 2017. These prices indicate that perceived large-scale generation certificate supply pressures will ease in 2020.
The Large-scale Renewable Energy Target works on a calendar year basis. We have estimated that existing and newly accredited renewable energy power stations will create approximately 24 million large-scale generation certificates in 2018. Given the increase in new project announcements in the past year, we estimate the market will continue to operate with a surplus of around five million large-scale generation certificates during 2019. We expect the large-scale generation certificate spot price to continue to moderate as new capacity comes on line, and more certificates are created.
The increased number of small-scale technology certificates created at the beginning of 2017–18 led to a reduction in the spot price for small-scale technology certificates, which dropped to around $30. The spot price then steadily increased throughout the year, closing at $37.95.18 This is just below the capped price of $40 available for certificates bought and sold through the small-scale technology certificate clearing house.
The small-scale technology certificate clearing house was in surplus throughout 2017–18. We operate the clearing house to provide a mechanism when liquidity is low, enabling trade of small-scale technology certificates at a capped price of $40. The certificate spot price in the market typically trades well below $40 during periods of oversupply, resulting in a low rate of purchase through the clearing house.
The increase in small-scale technology certificates created in 2016–17 continued throughout 2017–18. If this trend continues, we expect a material surplus of small-scale technology certificates to grow and potentially remain into 2018–19.
Large-scale generation certificate and small-scale technology certificate prices change based on supply and demand and no future trends should be assumed from prices published in this report.
The 7565 megawatts of capacity from new large-scale renewable energy projects under construction or already built is considerably more than the 6400 megawatts of capacity required to meet the 2020 Renewable Energy Target.
During 2017–18 a total of 53 large-scale renewable energy projects, with a combined capacity of 4624 megawatts, were committed. An additional 744 megawatts of projects are subject to power purchase agreements and likely to be fully financed and under construction in 2018–19.
Based on this level of new projects built and under construction, we expect the 2020 target will be exceeded.
We will continue to administer the scheme to 2030, accrediting large-scale power stations, ensuring liable entities meet their obligations, and ensuring the required amount of renewable energy generation is maintained throughout that decade.
10. The 2020 target is in the larger measure of gigawatts. There are 1000 megawatts to one gigawatt.
11. Note: 2016–17 data has been adjusted to reflect expansions to existing power stations that were processed in 2017–18.
12. This figure does not include capacity for eight co-fired power stations but does include capacity that does not contribute additional generation (for example, power stations that have a baseline).
13. Note: Large-scale generation certificates can be validated for generation that has occurred in previous years.
2016 Residential Electricity Price Trends, Australian Energy Market Commission.
2016 Residential Electricity Price Trends, Australian Energy Market Commission.
16. As the Renewable Energy Target operates on a calendar year basis, liabilities discharged are presented in calendar years.
17. Wholesale prices sourced from TFS Green and Mercari.
18. Wholesale prices sourced from TFS Green and Mercari.
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