RET Review opens up Pandora’s Box

The Issues Paper for the RET Review was released today and with nothing seemingly off limits for consideration, it could be unsettling for investors in renewable energy.

The Climate Change Authority has released its Issues Paper for the Renewable Energy Target Review. Judging by the questions asked of stakeholders, they’ve left nothing out of scope for consideration.

The breadth of what is up for discussion will be unsettling for investors in renewable energy, who were hoping that the Authority might interpret the scope of their review largely to administrative matters. 

Of particular concern for investors is that the issues paper asks whether the level of the target should be revised in light of the decline in expected electricity demand for 2020. However it is also reassuring that the paper acknowledges the potential problems associated with constantly changing this target due to variations in energy demand forecasts.

It is important to acknowledge that while it seems likely that the RET will lead to renewable energy exceeding 20 per cent of the electricity market, the policy intent has always been for at least 20 per cent renewable energy, not no more than 20 per cent.

On the upside is that the issues paper also broaches the issue of whether the RET be increased to account for generation from renewable energy projects funded by the Clean Energy Finance Corporation. In this way the CEFC’s investments would actually result in additional renewable energy, rather than just a shift in the mix of renewable energy by 2020.

Also of interest is the discussion around the functioning of the small-scale renewable energy component of the scheme (SRES). In Minister Greg Combet’s letter to the Authority regarding the Review, he points out that the costs of the SRES had been “unsustainable” and that in light of this,

“The government is continuing to monitor the efficiency of the SRES and the clearing house which operates to cap the price of certificates in the small-scale market.”

This appears to indicate that Minister Combet is fishing for the Authority to provide some recommendations to contain the costs of the SRES.

In actuality the SRES targets are supposed to be set around what amount of renewable energy supply could be delivered at a price of $40 per certificate, rather than it being just a price cap. This is very important for the solar sector, because if this clearing house price was revised downwards, it would completely revise the amount of the systems supported by the scheme.

The Issues Paper makes some very interesting and important points on this matter, canvassing the idea that a feed-in tariff may be a better model for supporting rooftop solar PV than the SRES:

“The Clearing House potentially fills two roles: first to cap the price of STCs, and secondly to provide a set subsidy for small-scale technologies. In practice, it has operated as a cap on STC prices, but has not guaranteed any particular level of subsidy for small-scale technologies (at least, not with any guaranteed timeframe).

Both potential roles of the Clearing House could be fulfilled through alternative mechanisms. If the primary purpose of the Clearing House is to cap compliance costs, then this could be achieved by relying on the (potentially lower) shortfall charge. On the other hand, if the primary purpose of the Clearing House is to provide a set subsidy to small-scale renewables at an uncapped total cost, then a feed-in tariff could also potentially be used (although it would provide support based on actual generation, not deemed, and would be provided over time, instead of upfront).” 

If the Authority wanted to get people’s attention they’ve certainly achieved it. The Issues Paper makes for compulsory reading by anyone with an interest in the Australian renewable energy sector.