Opportunity Knocks for Wholesale Purchasers of Electricity

Background

On 28 June 2010 the Renewable Energy (Electricity) Amendment Act 2010 was enacted in Parliament. This Act is part of the Government’s stated aims to reach the 20% Renewable Energy Target (RET). Under the Act the RET is set to increase by over four times from 9,500 giggawatt hours to 45,000 giggawatt hours.

The provisions of the Act come into effect on 1 January 2011.

Renewable Energy (Electricity) Amendment Act 2010 – The Framework

Wholesale purchasers of electricity (Liable Entities) are required to meet a share of the RET which is proportionate to their market share. Renewable Energy Certificates (RECs) are created by generators of renewable energy. RECs can be sold to Liable Entities who then surrender them to the regulator thus demonstrating their compliance with the scheme and avoiding the necessity of paying a shortfall fee (currently set at $65/MWh from 2010).

Under the Act, the existing renewable energy scheme is divided into two parts: the small-scale renewable energy scheme and the large scale renewable energy target. The effect of this is to maintain incentives for the development of large scale renewable energy projects by having the proliferation of small-scale technology factored into the overall large scale target. This is done by fixing the price of the new small scale renewable technology certificate’s (SSRTCs) at $40 (plus GST) and reducing the large scale target from 45,000 GWh to 41,000 GWh.

The New SSRTCs

SSRTCs are automatically generated upon a person becoming the registered owner of the small-scale technology. Once generated, SSRTCs are then compulsorily placed on a clearing house transfer list. This list is maintained by the Regulator. An application to purchase a certificate from the clearing house transfer list must then be made by the Liable Entity to the Regulator in writing, in the proper form, accompanied by the GST inclusive price and accompanied by any fee required by the regulations. Once transferred to the purchaser, the price is paid to the seller of the small scale certificate (i.e. the small scale technology owner). If there are no certificates on the clearing house list, the Regulator must create one if a request is made by the Liable Entity to purchase one. Should a small scale certificate then come onto the clearing house list, this will be immediately transferred to the Regulator by the seller, the certificate is then cancelled and the seller paid.

A Split Shortfall Charge System

As a consequence of the amendments, there are now present two types of shortfall charges: large-scale generation shortfall charges and small-scale generation technology shortfall charges. Companies will have RETs under both systems.

The Technical Aspects: Calculations

Large Scale Generation Shortfall Charges

In terms of large scale shortfall charges, although these are not payable if the Liable Entity’s shortfall is less than 10% of the liable entity’s required large scale renewable energy for the year, this shortfall is carried forward into the next year.

A Company’s shortfall or surplus is calculated on a quarterly basis. This is then carried forward into the next quarter until the end of the fourth quarter when the shortfall charge will be assessed.

Under the Act, Energy Acquisition Statements have to be lodged annually (for both large-scale and small-scale generation). It is within these Energy Acquisition statements that a company provides a full account of its position, including what RECs and SSRTCs have been surrendered.

What it Means for You

The obligations of Liable Entities have been split into two. Not only do they have to meet large scale targets but now have to meet small scale targets as well. In short, the legislation creates a mechanism for Liable Entities to contribute towards the purchase of local renewable energy sources for households.

With the introduction of the SSRTCs comes significant business opportunities for the creative energy company which, given further consideration, might allow them to capitalise on what will quickly become a highly competitive but potentially highly profitable emerging market.