I thought it might be nice to have a bit of a chat about the RET as it currently stands (before all my knowledge on the topic becomes redundant), and what this week’s changes might mean…
What is the RET?
That doesn’t sounds like the RET I’ve been hearing about…
How does it work? (and what is a REC??)
For the LRET, these certificates are called Large-scale Generation Certificates (LGCs), and are created for each MWh of renewable energy from eligible renewable sources such as wind, solar, and hydroelectric power stations. The LRET has a legislated target for the amount of renewable energy to be produced annually under the scheme, which is indexed each year to 41,000 GWh of renewable energy in 2020. This target was equivalent to 20% of Australia’s predicted energy demand in 2020, but was legislated as a specific amount rather than a proportion in order to provide certainty for investment in infrastructure.
The SRES creates a financial incentive for the installation of small scale renewable energy generation technologies. This includes solar water heaters, heat pumps, solar panel systems, small-scale wind systems, and small-scale hydro systems. These projects create Small-scale Technology Certificates (STCs), equivalent to 1 MWh of electricity generated by a small-scale system, or displaced by the installation of a solar water heater or heat pump. There is no legislated target for the production of renewable energy under the SRES.
These certificates (LCGs and STCs) must be purchased by electricity retailers to cover a certain percentage of electricity that they buy. For 2015, this percentage was set at 11.11% for the LRET and 11.71% for the SRES, and each year these have increased to work towards the 2020 target. These percentages add up to more than the current renewable energy proportion in Australia because some industry purchasers of electricity are exempt from the scheme.
So why reduce the target?
- The Climate Change Authority review. The Climate Change Authority is Australia’s independent government agency responsible for providing advice on climate change policy. The review recommended that the RET remain at the current target, but rephased by a few years due to the slow-down in investment that has occurred because of policy uncertainty.
- The ‘Expert Panel’ review, also known as the Warburton review. This review recommended that the RET be reduced, providing several options for amending the target. This was on the basis that the RET had largely achieved its aims (having doubled renewable generation) and was no longer necessary. It also implied that the RET acting a a subsidy for renewable energy generation and at the same time reducing wholesale electricity prices were negative outcomes.
Um, aren’t renewable subsidies and reduced prices good things?
Electricity demand has been dropping due to energy efficiency initiatives, rooftop solar installations and industry closures. This meant that the legislated 41,000GWh was looking like it would be more like 26–28% of Australia’s electricity (depending on the modelling you look at). At the same time, the RET was legislating that more renewable energy had to be produced, resulting in depressed wholesale electricity prices. So while this might be good for consumers and the renewable energy industry, its not so great for the people who make lots of money from their old fossil fuel generation assets.
How is all of this relevant to me?
- It adds about 4% to your energy bills. Energy retailers pass along the cost of purchasing RECs to consumers. For most people this isn’t separated out as a line item in the bill, but when I did some work for my university it was about 0.49 cents per kWh for the LRET and 0.83 cents per kWh for the SRES.
- It makes your solar panels cheaper. When installing solar panels, the rights to the STCs can be sold, meaning that you can make extra money from your solar panels. Of course, this essentially also means you are selling your clean energy bragging rights, but it does increase the overall generation of renewable energy still.
- It impacts the economics of the electricity market. As mentioned before, modelling shows that the RET will reduce the wholesale electricity prices (compared to a scenario where it is not in place). This is due to the mandated production of more energy as demand falls but also because renewable sources have lower ongoing production costs (compared to fossil fuels which must be continually mined).
So what now?
- The Clean Energy Regulator administers the RET, and they have a whole bunch of information on how it works if you want to get a bit more technical. It’s the reference for anything without a link in this post.