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Renewable Energy Target

Accelerating carbon abatement for Australia through encouraging investment in renewable energy

Purpose

The Renewable Energy Target aims to:

  • encourage the additional generation of electricity from renewable sources
  • reduce emissions of greenhouse gases in the electricity sector, and
  • ensure that renewable energy sources are ecologically sustainable.

Performance

In summary, the Renewable Energy Target achieved its purpose in 2014–15 with the creation of 31 865 109 valid renewable energy certificates, representing 21 950 705 megawatt hours of additional electricity generated from renewable sources.10

During the year, the Australian Government's Expert Panel review and the Climate Change Authority's review both found that the Renewable Energy Target reduced greenhouse gas emissions.

How it works

The Renewable Energy Target creates an incentive for additional generation of electricity from renewable sources. Participants create renewable energy certificates for every megawatt hour of electricity they generate (the 'supply' side). Wholesale purchasers of electricity (liable entities), mainly electricity retailers, buy these certificates to meet their renewable energy obligations (the 'demand' side). They then surrender these certificates to the Clean Energy Regulator in percentages set by regulation each year.

The Clean Energy Regulator administers the Renewable Energy Target's two schemes:

  • the Large-scale Renewable Energy Target, which encourages investment in renewable power stations to achieve 33 000 gigawatt hours11of additional renewable electricity generation by 2020, and
  • the Small-scale Renewable Energy Scheme, which supports small-scale installations like household solar panels and solar hot waters systems.

The Clean Energy Regulator regulates both the 'supply' and 'demand' to ensure scheme integrity, and provides an online registry to enable the market to operate.

Renewable Energy Target administrative reports

The Clean Energy Regulator publishes more details about the operation and achievements of the Renewable Energy (Electricity) Act2000 in an annual administrative report following the end of each calendar year, as required by the legislation. The Renewable Energy Target 2014 Administrative Report was tabled on 11 May 2015 and is available on the Clean Energy Regulator website.

Regulating market supply

Large-scale systems

The Large-scale Renewable Energy Target creates a financial incentive to establish and expand renewable energy power stations such as wind and solar farms or hydroelectric power stations.

Power station accreditations

Power stations that generate electricity from eligible renewable sources may be accredited under the Large-scale Renewable Energy Target. The number of accreditations has steadily increased since 2001.

Eligibility for accreditation can be as small as a 10 kilowatt system. This would typically be a small commercial and industrial solar photovoltaic system around two and a half times the size of the average household system. A large utility scale renewable power station is typically in the 100 to 200 megawatt capacity range.

In 2014–15 a record 38 new renewable energy power stations were accredited, bringing the total to 454. All applications were processed within the required six weeks.

A solar panel under the Renewable Energy Target.  

Image acknowledgment: Clean Energy Regulator. A solar panel under the Renewable Energy Target.

Table 8: Number of power stations accredited and capacity
Number of power stations accredited Capacity in megawatts
2014–15 38836.7
2013–14 37622.3
2012–13 27494.0
Cumulative total (since 2001) 45425 266.0

Power station energy sources

Eligible renewable energy sources range from wind, solar and hydro to bagasse, biomass and landfill gas.

In 2014–15, for the second year in a row, there was a significant increase in the number of accredited renewable energy power stations using solar energy.

Table 9: Additional accredited power stations by renewable energy source in 2014–15 and their capacities in megawatts
TypeMegawatts
Biomass (3)6.915 MW
Hydro (2) 0.930 MW
Solar (27)110.753 MW
Wind (6)379.880 MW

The total number of accredited renewable energy power stations now comprises 27 bagasse, 67 biomass, 107 hydro, 62 landfill gas, 114 solar and 83 wind (note, some power stations are accredited for multiple power sources).

SNAPSHOT

Over the past 10 years, power stations using wind as an energy source have created the most certificates, followed by solar.

Large-scale certificates created

Large-scale generation certificates are created based on the amount of eligible renewable electricity produced by accredited power stations. Each certificate represents one megawatt hour of renewable energy generation.

In 2014–15 the Clean Energy Regulator validated 13 750 702 large-scale generation certificates. This reflects 13 750 702 megawatt hours of additional electricity generated by accredited renewable energy power stations, enough to power more than two million homes per year.12

The Large-scale Renewable Energy Target experienced a slow-down in investment in 2015 due to ongoing policy uncertainty. As a result, limited new capacity was accredited by the Clean Energy Regulator in 2015.

The number of large-scale generation certificates issued in 2015 from accredited renewable energy power stations was below the number required to meet the target in that year. The difference will be met from the surplus of large-scale generation certificates in the market, which has been carried over from previous years.

SNAPSHOT

While the number of small-scale installations has begun to decline, the average size of solar installations has increased from 2 kilowatts in 2010 to 4.6 kilowatts in 2014.

Small-scale systems

The Small-scale Renewable Energy Scheme creates a financial incentive for individuals and small businesses to install eligible small-scale solar, wind and hydro systems as well as solar water heaters and air source heat pumps.

Small-scale installations

The number of small-scale installations increased each year from 2001 to 2013 due to the small-scale technology certificate multiplier and generous state and territory feed-in tariffs. Annual installations from 2013 onwards have slowly declined. In 2014–15 a total of 205 059 small-scale systems were installed, bringing the total number of installations to 2 359 730.

In total small-scale installations now have the capacity to generate or displace approximately 8.2 million megawatt hours of electricity each year.

Small-scale systems must be installed by an installer accredited by the Clean Energy Council and use panels and inverters listed on the Clean Energy Council's list of approved components.

Table 10: Valid small-scale installations as at 30 June
Solar water heaterAir source heat pumpSolar panel systemWind systemHydro systemAnnual total
2014–15 42 8577 533154 66180205 059
2013–14 48 164 9 911 180 91573239 000
2012-1349 66911 986263 59952325 261
Cumulative total (since 2001)742 663187 9721 428 685392182 359 730

Notes: Certificates can be created up to 12 months after small-scale systems are installed, which means the complete 2014–15 figure will be higher. This table excludes installations that failed audit or were pending as at 30 June 2015.

Small-scale technology certificates created

Small-sale technology certificates are created after the installation of eligible small-scale systems, based on the amount of electricity a system produces or displaces.

Registered persons and agents created 18 695 796 small-scale technology certificates in 2014–15.

Together with those certificates created in 2013–14 but validated in 2014–15, a total of 19 509 664 certificates where subject to validation audits this year. Of these certificates 18 114 407 (93 per cent) passed and 1 395 257 failed, requiring remedial action and resubmission.

The average certificate validation time halved from 16 days in 2013–14 to eight days in 2014–15, due to the Renewable Energy Certificate Registry (REC Registry) redesign (see page 61).

Under the Small-scale Renewable Energy Scheme, participants can create small-scale technology certificates for up to 12 months after the date the system is installed. This means that during 2014–15, the Clean Energy Regulator validated small-scale technology certificates created for systems installed in 2013–14.

Regulating market demand

Liable entities may acquire renewable energy certificates at any time and hold them in their REC Registry accounts. In 2014–15 the spot price for large-scale generation certificates ranged from $22 to $50.40. The spot market price for small-scale technology certificates ranged from $36 to $40.13

Obligation to surrender certificates

Under the Renewable Energy Target, liable entities have an obligation to purchase and surrender large-scale generation certificates and small-scale technology certificates based on the volume of electricity they purchase each year. Liable entities are required to acquit their liability for the assessment year by 14 February each year or the next working day. They surrender large-scale generation certificates annually and surrender small-scale technology certificates quarterly.

Certificates surrendered

In 2014–15 liable entities offered a total of 17 924 951 large-scale generation certificates and 18 839 856 small-scale technology certificates to meet their surrender obligations.

Shortfall charge

If liable entities fail to surrender the required number of renewable energy certificates by the due date, they are required to pay a shortfall penalty charge of $65 per certificate which is not tax deductible. Liable entities are allowed to carry forward a large-scale shortfall within a 10 per cent margin before having to pay the large-scale generation shortfall charge.

For the 2014 assessment year, three liable entities had a large-scale generation shortfall, all within the 10 per cent margin. These shortfalls will be carried forward to those liable entities' 2015 large-scale generation certificate liability. Three liable entities had a small-scale technology certificate shortfall for quarters one to three. These shortfalls required the payment of the shortfall charge.

Compliance rate

Liable entities maintained a compliance level of more than 99 per cent during the 2014 assessment year.

Table 11: Renewable Energy Target liabilities discharged as at 30 June for 2014 calendar year
Description2013201414
Number of liable entities 97114
Percentage of large-scale generation certificate liability discharged99.9*99.9
Percentage of small-scale technology certificate liability discharged99.9*99.8

* Figures amended from those reported last year, due to revisions made by liable entities on their 2013 surrenders.
14 The Renewable Energy Target operates on a calendar year basis. Therefore, liabilities discharged are presented in calendar years.

Industry assistance (partial exemptions)

The Clean Energy Regulator can issue partial exemption certificates to provide partial exemption from Renewable Energy Target liability in respect of electricity used in defined emissions-intensive trade-exposed industries.

Applications for partial exemption may be made for a specific compliance year (1 January to 31 December). The Clean Energy Regulator received and assessed applications for partial exemptions for 2015.

The Renewable Energy (Electricity) Act 2000 requires that certain applications must be accompanied by independent audit reports prepared by qualified assurance providers.

During 2014–15 the Clean Energy Regulator issued 178 partial exemption certificates.

Table 12: Number of partial exemptions processed in 2015 calendar year14
Compliance yearApplications submittedCertificates issuedApproximate partial exemption
(megawatt hours)
2014–1517117826 891 000

Enabling the market to operate

Improved REC Registry

The REC Registry is a secure web-based system for all Renewable Energy Target transactions including creating, registering, selling, trading and surrendering certificates. It also includes several public registers that provide information about the Renewable Energy Target.

The Clean Energy Regulator released a redesigned REC Registry in September 2014, with further enhancements in November 2014 and December 2014.

The REC Registry is now more user-friendly, responsive and efficient. The improvements are delivering benefits to both the supply and demand side of the market by reducing the administrative burden and cost of participating in the scheme, and streamlining processes to create, trade and surrender certificates.

The Clean Energy Regulator held workshops for liable entities in Perth, Brisbane, Sydney and Melbourne to demonstrate the redesigned REC Registry.

The response to the redesigned REC Registry has been positive, with clients commenting that 'it is a great improvement overall', that the new functionality 'makes it a lot easier for us to reconcile the number of certificates we have at any given time', and that enhancements make it 'a faster and more convenient way to monitor certificate transfers'.

Registered persons and agents

Only registered persons or agents can create renewable energy certificates. In 2014–15 the Clean Energy Regulator processed 64 applications for registered agents and 124 applications for registered persons, bringing the total to 1 533 registered agents and 7 489 registered persons. All applications were processed within the required six-week timeframe.

Registration of solar water heaters

To be eligible for the Small-scale Renewable Energy Scheme, solar water heaters must be included in the register of solar water heaters. During 2014–15 there were three application rounds and the Clean Energy Regulator approved 979 applications for solar and heat pump water heater models to be included in the register.

The Clean Energy Regulator processed all applications within the required 180-day timeframe and published the register regularly in 2014–15.

Inspections of small generation units

Each year, the Clean Energy Regulator inspects a statistically significant sample of small generation units installed under the Small-scale Renewable Energy Scheme to assess their eligibility to create small-scale technology certificates.

To be eligible for small-scale technology certificates, a small generation unit must have its panels and inverter listed on the Clean Energy Council list of approved components, and must be installed by an electrician who is accredited by the Clean Energy Council.

Responsibility for electrical safety is a matter for state and territory electrical safety regulators. As part of the Clean Energy Regulator's role, the agency publishes regular updates on inspection results on its website and provides updates to state and territory electrical safety regulators and the Clean Energy Council.

The Clean Energy Regulator received 2 876 reports on solar photovoltaic system inspections conducted in 2014–15. The proportion of systems assessed as compliant declined from 83.7 per cent in 2013–14 to 77.4 per cent in 2014–15. The proportion of systems assessed as unsafe increased from three per cent in 2013–14 to 4.5 per cent in 2014–15. The variation in rates of unsafe systems has often been substantial between individual years due to the limited sample size in any one year. All systems categorised as unsafe are rendered safe by the inspectors and referred to the relevant state or territory electrical regulator to take action as they deem appropriate.

In February 2015, the Clean Energy Regulator met with the Renewable Energy Target Inspection Advisory Committee which included the Clean Energy Council, state and territory electrical safety regulators, Australian Solar Council and Master Electricians Australia to consider long-run data from the inspections programme. This resulted in the electrical safety regulators and peak industry bodies implementing a range of changes to guidelines and training as well as other initiatives aimed at addressing issues identified by the inspection programme.

Renewable Energy Target reviews

The Australian Government's Expert Panel released its report of the review of the Renewable Energy Target in August 2014. The report found that the Renewable Energy Target had 'encouraged significant renewable electricity generation, which has almost doubled as a result of the scheme' and that consultations indicated the 'administration of the Renewable Energy Target scheme is generally efficient and meets expectations of most stakeholders'.15 However, the Panel recommended reforming the Renewable Energy Target on other grounds.

The Climate Change Authority published its statutory review of the Renewable Energy Target in December 2014, finding that the Renewable Energy Target 'was effective at reducing emissions'.16

FEATURE

Demonstration of market trends to represent the Small-scale Renewable Energy Scheme.  

Secure and enduring infrastructure

Small-scale technology certificate supply and demand in balance puts the spotlight on the Clearing House

To meet their obligations under the Renewable Energy Target, liable entities must buy and surrender small-scale technology certificates on a quarterly basis.

They can buy small-scale technology certificates through the open market or through the Small-scale Technology Certificates Clearing House (STC Clearing House) at the fixed price of $40.

The STC Clearing House was established as a facility within the REC Registry in 2011. It was intended to be used for a large number of trades that would set the market price. However, owing to the oversupply of small-scale technology certificates since 2011, the open market traded below the fixed price. As a result, the STC Clearing House was only used for a limited number of trades.

The oversupply, partly due to the boom in small-scale installations since 2011, has now reduced.

In the lead up to the first quarterly certificate surrender deadline for the 2015 assessment year, supply and demand of small-scale technology certificates was closely matched, and the market price ranged from $36 to $40. This saw liable entities purchasing certificates from the Clean Energy Regulator through the STC Clearing House at the $40 fixed price.

On 21 April 2015, all certificates held in the STC Clearing House were purchased by liable entities and the clearing house went into deficit for the first time. These STC Clearing House trades assisted in achieving a 100 per cent compliance rate among liable entities. The sale of these certificates provided a good return on investment for certificate holders, including some 'mum and dad' investors who had been waiting for the right time to sell.

If there are no small-scale technology certificates available for sale in the STC Clearing House, the Clean Energy Regulator can generate 'Clean Energy Regulator created small-scale technology certificates' for buyers to purchase. These certificates can be traded and surrendered exactly like ordinary small-scale technology certificates.

At the end of 2014–15 the STC Clearing House had returned to surplus. The number of certificates held in the STC Clearing House is expected to continue to rise and fall, as small-scale technology certificates are traded more often through the system as originally planned. If it is in deficit on 31 December 2015, the Clean Energy Regulator will reduce the small-scale technology percentage for 2016 by the deficit amount.

The STC Clearing House is part of the secure and enduring infrastructure established by the Clean Energy Regulator to protect the integrity and utility of the schemes it administers.

Image acknowledgment: Clean Energy Regulator. Demonstration of market trends to represent the Small-scale Renewable Energy Scheme.

Wastewater to represent the domestic, commercial and industrial wastewater method under the Emissions Reduction Fund.  

Image acknowledgment: Clean Energy Regulator. Wastewater to represent the domestic, commercial and industrial wastewater method under the Emissions Reduction Fund.

10 Total 21 950 705 is the sum of 13 750 702 megawatt hours from large-scale generation certificates and approximately 8.2 million megawatt hours from all small-scale installations

11 On 23 June 2015 the Australian Parliament passed the Renewable Energy (Electricity) Amendment Bill which reduced the Large-scale Renewable Energy Target from 41 0000 gigawatt hours to 33 000 in 2020 with intermediate and post-2020 targets adjusted accordingly.

12 Based on average household electricity consumption of 122.3 kilowatt hours per week. Australian Bureau of Statistics, 'Household Energy Consumption Survey, Australia: Summary of Results', www.abs.gov.au/ausstats/abs@.nsf/Lookup/4670.0main+features132012

13 Market prices are sourced from external sources.

14 Amendments to the legislation to provide for full rate exemption for emission intensive trade exposed industries came into effect on 27 June 2015. The supporting regulations came into effect on 24 July 2015. The Clean Energy Regulator subsequently amended partial exemption certificates in accordance with the amended regulations. Details of full rate exemption certificates for the 2015 calendar year will appear in next year's annual report.

15 Expert Panel, Renewable Energy Target Scheme Report of the Expert Panel, August 2014, viewed 18 February 2015, https://retreview.dpmc.gov.au/ret-review-report-0.

16 Climate Change Authority, Renewable Energy Target Review, December 2014, Summary, viewed 18 February 2015, www.climatechangeauthority.gov.au/reviews/2014-renewable-energy-target-review.

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