Australian Federal Solar Incentives

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Sun Above Brisbane, Australia (credit: sunisthefuture-Susan Sun Nunamaker)

As I’ve promised in our previous post on “Aussie’s Transition Into Renewable Energy Age“, let’s have a closer look at Australian incentive policies designed to encourage the uptake of solar and other types of renewable energy. In essence, there are two types of financial incentive schemes, the Federal Solar Incentives and the State Incentives. In today’s post, I’d like to concentrate on the Federal Solar Incentives.

Firstly, I want to clarify that MRET (Mandatory Renewable Energy Target) and RET (Renewable Energy Target) are not exactly the same policy, even though both MRET and RET are under the category of Federal Incentives.

The MRET of Commonwealth Government began on April 1, 2001, by means of the Renewable Energy (Electricity) Act 2000 (the Act), targeting the generation of 9,500 GWh (gigawatt hour) of extra renewable electricity per year by 2010. In 2009, the Renewable Energy (Electricity) Bill 2009 amended the Act and replaced the MRET with the RET. This altered the target from 9,500 GWh per year by 2010 to 45,000  GWh by 2020 and introduced the Solar Credits scheme. Definitely, RET has much more ambitious goals.

The Renewable Energy Target (RET) requires that 20 per cent of Australia’s electricity be produced from renewable energy sources by 2020. To achieve this, the Government has set annual targets for each year of the scheme and requires Australian electricity retailers and large wholesale purchasers of electricity to demonstrate that they meet these targets. Compliance is demonstrated by surrendering renewable energy certificates (RECs), where one REC is equivalent to one additional megawatt hour (MWh) of electricity generated from renewable energy sources (above a 1997 benchmark). Failure to surrender adequate RECs would lead to a penalty charge of $65 per MWh. Electricity retailers and wholesale buyers can choose to either generate the electricity from renewable energy sources themselves or purchase the RECs from others that have done so. This creates a market for RECs.

RECs come in 2 forms: Small-scale Technology Certificates (STCs) for renewable energy generators up to 100 kilowatts (kW), and Large-scale Generation Certificates (LGCs) for systems whose capacity is greater than 100kW.

The most recent review of the RET has recommended that the size of renewable energy generators eligible for STCs be decreased to 10kW in 2013.

Shortly after the passage of the 2009 legislation, REC prices fell sharply.  This may had been caused by the intricacies and practicalities of the new RET, as well as its interaction with some State-level policy. This price crash created uncertainty in the market and threatened to deter potential investment in large-scale renewable energy projects. So the Australian Government announced a series of reviews and ultimately amended the legislation to create the LRET and SRES.

  • The Large-scale Renewable Energy Target (LRET) has a target of 41,000 gigawatt hours (GWh) by 2020 and only large-scale renewable energy projects are eligible.
  • The Small-scale Renewable Energy Scheme (SRES) targets a theoretical 4,000 GWh annually and is eligible only to small-scale or household installations.

As part of the SRES, a program known as the Solar Credits scheme allows households, businesses or community groups to generate more than just one SREC for each megawatt hour generated. In fact, depending on the set ‘multiplier’, they have been able to generate up to five SRECs per megawatt hour of electricity that they produce. The scheme is based on the capacity of the solar energy system, and on the likely amount it will generate over a given period. The Solar Credits scheme applies only to the first 1.5 kW of installed renewable energy capacity of an eligible small generation unit. For units bigger than this, each megawatt hour generated from the extra capacity is eligible for only the standard 1 to 1 rate of SREC creation. The SREC ‘multiplier’ is set at five until 2011, and then declines to three on July 1, 2011, and then decline by one for each year after 2011 until the Solar Credits scheme ends in 2013.

While the LRET target is certain and capped, target of the SRES is not; it is only notional. As the LRET is capped, the prices of LRECs fluctuate on the market and can vary daily with any number of external and internal factors up to the level of the penalty charge. The price of SRECs, however, is fixed by the Government (initially at $40). The actual amount of electricity generated under the SRES may or may not exceed the 4,000 GWh estimate.

Australian electricity retailers and large wholesale purchasers of electricity are therefore required to surrender a fixed proportion of LRECs annually, but an uncertain and changing proportion of SRECs (since this depends on the total number of SRECs generated each year).

Related sites/links:

Small Generation Unit STCs Calculator

Gathered, written, and posted by sunisthefuture-Susan Sun Nunamaker

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