Australia reviews solar energy credits

There has been concern from some stakeholders that RECs created by the solar credits multiplier will lead to less actual renewable generation than would otherwise occur. The review is considering whether to increase annual targets to offset these additional RECs created by the solar credits multiplier.

Demand for RECs is created by a legal obligation that is placed on parties who buy wholesale electricity. These parties are required to source an increasing percentage of their electrical purchases from renewable energy to meet annual targets, which are legislated in gigawatt-hours of renewable energy. One REC is generally equivalent to one megawatt-hour of renewable energy. The supply of RECs is created by renewable-energy power stations, as well as small-generation units, including small-scale solar panels, small wind turbines, micro-hydro systems, and solar water heaters. RECs were created to provide a financial incentive to invest in renewable energy technologies.

The RET scheme's rules allow owners of small-scale solar photovoltaic (PV) systems, small wind turbines, and micro-hydro systems to create, upon installation, RECs equivalent to the output of up to 15 years' operation, depending on the system type.

Solar credits provide support to households, businesses and community groups that install small-scale solar PV, wind, and micro-hydro systems by multiplying the number of RECs that can be created for eligible installations. Solar credits apply to the first 1.5 kilowatts (kW) of capacity installed. Generation from capacity beyond 1.5 kW is eligible for the standard 1:1 rate of an REC's creation.

If the system is installed between June 9, 2009, and June 30, 2012, the homeowner will receive five times as many RECs as under the standard deeming arrangements. The multiplier reduces to four for systems installed from July 1, 2012, to June 30, 2013, and continues to reduce each year until it has phased out to the standard multiple of 1 from July 1, 2015.

By providing multiple RECs for each megawatt-hour, solar credits create RECs that are not backed by actual generation; for example, four out of five were created from small-generation installations in 2010.

Solar credits are not expected to have a significant impact on the level of renewable energy generation under the RET. The expanded target is very large; it increases the previous target from 9,500 gigawatt-hours (GWh) to 45,000 GWh by 2020, staying at this level until 2030. RECs also are able to be created and "banked" for sale in future years, but large quantities of RECs created by the multiplier may not be "banked" for extended periods, as they often are held by small traders concerned about liquidity.

Solar credits will be phased out by 2015-16, given that technology costs are going down and that the Carbon Pollution Reduction Scheme is playing a stronger role in providing incentives for renewable technologies. The timing of the phase-out means that the "20% by 2020" RET target is still expected to be achieved, despite the creation of multiple RECs under solar credits in the early years of the scheme.

Renewable energy electricity generation generally costs more than energy produced by fossil fuels. As such, increasing the annual targets under the RET to offset additional RECs created by the solar credits multiplier would increase the costs of the RET for liable parties, as it would increase the number of RECs that these liable parties need to acquire under the RET. This would create higher electricity prices for consumers. The extent of such increased costs would depend on the level of uptake of solar PV systems and other small renewable energy systems eligible for solar credits.

If COAG considers it is appropriate that solar credit RECs not backed by generation are to be offset through increased future RET targets, it will be necessary to establish a mechanism that specifies how and when these targets are to be adjusted, given the total number of solar credits will be known only progressively during the next six years.

Three approaches are being debated in how to amend legislation: annual Solar Credit uptake reviews and RET target adjustments; a review in 2015, with adjustments of subsequent years' targets; and adjusting targets in the early years of the scheme and true-up subsequently for actual solar Credits uptake.