The Australian Government’s Renewable Energy Target (RET) was introduced to encourage additional generation of electricity from renewable energy sources to meet the Government’s commitment to achieving a 20 per cent share of renewables in Australia’s electricity supply by 2020. The RET creates a financial incentive for investment in renewable sources through the creation and sale of certificates. The RET is split into two parts: the Large-scale Renewable Energy Target (LRET) and the Small-scale Renewable Energy Scheme (SRES).

Under the LRET large-scale generation certificates (LGCs) are created in the online Renewable Energy Certificate (REC) Registry by renewable energy power stations. One LGC is equivalent to one megawatt hour of eligible renewable electricity generated above the power station’s baseline.

Under the SRES small-scale technology certificates (STCs) are created in the online REC Registry for correctly installed solar water heaters, heat pumps and small-scale solar panel, wind and hydro systems.

Certificate demand—liable entities

The Act places a legal liability on wholesale purchasers of electricity, defined as liable entities under the Act, to proportionately contribute towards the generation of additional renewable electricity.

Liable entities support additional renewable energy generation from:

• renewable energy power stations through the purchase of LGCs. The renewable power percentage (RPP) establishes the rate of LGC liability for each calendar year. Liable entities are required to annually surrender the number of registered LGCs equal to their liability for the previous calendar year. LGCs that are marked as 'invalid due to surrender’ are no longer available for use during the life of the LRET, and
• solar water heaters, heat pumps, small-scale solar panels, wind and hydro systems through the purchase of STCs. The small-scale technology percentage (STP) establishes the rate of liability for SRES and commenced on 1 January 2011. The STP is designed to remove STCs from the STC market for the current year liability. Liable entities are required to quarterly surrender the number of registered STCs equal to their required surrender amount. STCs that are marked as 'invalid due to surrender’ are no longer available to reuse during the life of the SRES.

Certificate supply—eligible parties

Eligible parties transfer LGCs and STCs in the REC Registry to buyers for a negotiated price. Eligible parties include:

• renewable energy power stations such as wind, hydro, landfill gas, solar and bagasse
• owners of small-scale systems, such as solar water heaters, heat pumps, solar panel, wind and hydro systems, and
• Agents of small-scale systems.

Eligible parties can create LGCs for eligible electricity generated above the accredited renewable energy power station’s baseline or STCs for eligible solar water heaters, heat pumps, small-scale solar panels, wind or hydro systems. Certificates that become registered are a tradable commodity in the certificate markets.

The certificate market

The Act allows for LGCs and STCs to be electronically transferred between REC Registry account holders (typically between eligible parties and liable entities). REC transfers are reported automatically to the Regulator in the REC Registry under Section 28 of the Act. This process is market driven with the price of LGCs and STCs determined by supply and demand. Certificate prices are not regulated by the Clean Energy Regulator.

Figure 1: Large-scale generation certificate (LGC) market

Figure 2: Small-scale technology certificate (STC) market

STC Clearing House

Valid STCs created in the REC Registry for eligible installed solar hot water, heat pump, solar panel, wind or hydro systems can be placed into the STC Clearing House for sale at the fixed price of $40 (excl. GST). STCs are only sold when there is a buyer and there is no guarantee on how long STCs will take to sell in the STC Clearing House. The STC Clearing House is located in the REC Registry.

Baselines

The main objective of the LRET is to encourage additional generation of electricity from renewable energy sources. The Clean Energy Regulator approves the 1997 eligible renewable power baseline for each power station. This determines the baseline for a pre-1997 renewable energy power station by using the average annual amount of electricity generated from eligible renewable energy sources over the 1994, 1995 and 1996 years. Schedule 3 of the Renewable Energy (Electricity) Regulations 2001 (the Regulations) provides guidelines for determining the 1997 eligible renewable power baseline for power stations. Power stations which generated electricity for the first time after 1 January 1997 have a baseline of zero. Accredited power stations are eligible to create certificates from electricity generation above the baseline.