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Client Update: COAG agrees changes to Renewable Energy Target scheme

12 May 2009

In brief: Partner Grant Anderson (view CV) and Lawyer Ben Strate report on changes to the design of the expanded national Renewable Energy Target scheme that were agreed by COAG on 30 April 2009.

Background

In our December 2008 Focus, we looked at the exposure draft legislation for the expanded national Renewable Energy Target (RET) scheme. The RET scheme will build on the existing Mandatory Renewable Energy Target (MRET) scheme, as well as bring all existing state and territory targets into the one scheme. Submissions in response to the draft legislation closed in February this year. On 30 April, COAG agreed the design of the expanded scheme and released a short paper outlining key details of the scheme. This design differs in a few respects from the Federal Government's previously preferred model as contained in the exposure draft legislation.

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RET annual target no longer phased out

Under the exposure draft legislation, the annual renewable energy targets were to decrease from 2025 until the scheme's end in 2030 as the scheme was phased out. In response to submissions arguing that phasing out of the scheme is not required, the annual target will now remain at 45,000GWh from 2020 to 2030, after which the scheme will conclude. COAG expects that by 2030 renewable energy targets will no longer be needed as the Carbon Pollution Reduction Scheme (CPRS) will begin to drive renewable energy implementation. This initiative (together with the increased shortfall charge – see below) will provide more incentive than the previously proposed model for renewable energy technologies that are not as commercially developed as wind (such as geothermal and solar).

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Fixed shortfall charge

For entities that do not meet the requirements of the scheme, there will be a fixed (not indexed) shortfall charge. The shortfall charge will be set at $65/MWh, an increase from $40/MWh under the current MRET.

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Trade-exposed industries

The treatment of emissions-intensive, trade-exposed (EITE) industries under the expanded RET was the subject of a separate consultation. COAG decided that RET-affected trade-exposed (RATE) activities which are also EITE activities will be partially exempted from liability either through a direct exemption or through an exemption conferred on their electricity retailer. Where the EITE activity qualifies for 90 per cent EITE assistance it will be exempt from 90 per cent of the expanded RET liability, and where it qualifies for 60 per cent EITE assistance it will be exempt from 60 per cent of the expanded RET liability. These assistance rates are intended to mirror the CPRS thresholds and will presumably increase in light of the Federal Government's recent announcement that the corresponding CPRS assistance rates are to increase from 90 to 94.5 per cent and 60 to 66 per cent. However the exemption from liability will only be available in respect of the 'expanded' RET liability – that is, for the increase in liability above the current annual MRET target of 9,500GWh.

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Further reviews

The Commonwealth agreed to prepare a report to COAG before the end of 2009 examining the eligibility of heat pumps and new small-scale renewable technologies to create Renewable Energy Certificates. The report will also look at the current 'self-generation' provisions of the RET, to ensure they fit with the RET's overall objectives.

A full review of the operation of the RET scheme will be undertaken in 2014 (rather than 2015, as previously reported) to coincide with the review of the CPRS. We will keep you updated.

Published 12 May 2009

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