Australia's renewable electricity bill has peaked

Current electricity bills reflect something effectively like a 40 per cent Renewable Energy Target due to extra subsidies for solar – but the good news is the cost of the Renewable Energy Target is going to fall from here.

The bad news: What many people may not realise is that we’re already paying in today’s electricity bills for more than 20 per cent renewable energy, even though we’re not actually getting 20 per cent of our electricity from renewable sources.

The good news: 2012 is the year the cost of the Renewable Energy Target will peak. It will then tumble in the next few years as the multiplier for renewable energy certificates (RECs) from solar PV systems tails off. So, even though the amount of renewable energy will significantly increase over the next few years, we’ll pay less than we do today.

My rough estimates of the costs for the RET per megawatt-hour (MWh) of electricity purchased are illustrated below (broken down by the large-scale and small-scale system targets).

Additional cost of the RET per MWh of liable electricity purchased  

It’s worth noting that the cost would be about a dollar less if we didn’t exempt a number of large industrial companies, like aluminium and zinc smelters and oil refineries from paying their share of the RET.

The Exemption Certificates given to these companies are considerable, accounting for around 10 per cent of Australia’s electricity supply. The bottom-line is the rest of us will pay approximately $230 million extra in 2012 for their favourable treatment.

I only twigged to the drop in costs for the RET when I realised that the Clean Energy Regulator was requiring electricity retailers to acquire RECs to account for 33 per cent of their electricity sales. Prior to the advent of the solar PV multiplier this would have equated to a renewable energy market share approaching 40 per cent once you included pre-existing hydro!

For those who aren’t aware, for the purposes of assessing electricity retailers compliance with the RET each year, the Clean Energy Regulator translates the target from an amount of energy or gigawatt-hours into a percentage. This way each electricity retailer only needs to know their own electricity sales (not those of every other liable company) in order to work out how many large and small Renewable Energy Certificates (LRECs and SRECs) they need to surrender.

For 2012, the percentage of a retailer’s sales that need to be accounted for through LRECs/LGCs is 9 per cent and for SRECs/STCs it’s a whopping 24 per cent. This makes a total effective target of 33 per cent. This is likely to be well above what would be required in 2020 once the solar PV REC multiplier has been phased-out.

So for those of you concerned about rising power bills, you can rest a little easier knowing that renewable energy will not increase your bill by anymore than what you see today.

Assumptions behind calculations

For those that are interested in the mundane details of the calculations behind the chart, here’s an explanation.

I’ve taken out any cost associated with the RECs provided to power projects using waste coal mine gas because they aren’t a form of renewable energy.

For 2011 and 2012 I’ve used average spot prices for SRECs/STCs and LRECs/LGCs.

In terms of costs for 2013 onwards:

-- I’ve assumed that new large scale renewable energy projects to be viable need $100 per MWh through a combination of RECs and the underlying electricity price. This is based on discussions with a range of developers, wind turbine suppliers and other sources suggesting a critical price point in the range of $80-$100 per MWh. Plus I’ve made an allowance for ancillary services costs faced by wind.

-- The electricity price is drawn from projections made for the Australian Energy Market Commission based on Treasury forecasts of the carbon price. Also the ancillary services costs are drawn from the same AEMC work.

-- Electricity generation is based on Treasury forecasts with an adjustment to account for the fact that the liable load for the RET appears to be about 77 per cent of sent-out electricity generation.

-- The costs for the small-scale RET in 2013 are based on a $35 SREC price and the Clean Energy Regulator’s non-binding estimate of the target plus a roll-over of 7 million surplus SRECs from this year. The costs for the small-scale RET from 2014 onwards are drawn from estimates by ACIL Tasman prepared for the AEMC.

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