The Large-scale Renewable Energy Target (LRET)
The Large-scale Renewable Energy Target creates a financial incentive for the establishment and growth of renewable energy power stations, such as wind and solar farms, or hydro-electric power stations. It does this by legislating demand for Large-scale Generation Certificates (LGCs). These LGCs are created based on the amount of eligible renewable electricity produced by the power stations. LGCs can be sold or traded to liable to entities, in addition to the power station’s sale of electricity to the grid. RET Liable entities have a legal obligation to buy LGCs and surrender them to the Clean Energy Regulator on an annual basis.
- Power stations must generate their electricity from approved sources such as solar energy, wind, ocean waves and the tide, geothermal-aquifers, wood waste, agricultural waste, bagasse (sugar cane waste), black liquor (a by-product of the paper-making process), or landfill gas.
- A full list of eligible renewable energy sources is included in Section 17 of the Renewable Energy (Electricity) Act 2000. There are currently more than 15 different types of renewable energy sources being used in accredited power stations.
- Electricity generated from fossil fuels, or waste products derived from fossil fuels, is not eligible for LGCs.
Certificate creation – benefits for renewable energy power stations
- When the Renewable Energy (Electricity) Act 2000 was established in 2001 the aim was to both encourage additional generation of electricity from existing renewable energy power stations and to encourage new renewable energy projects.
- Eligible power stations are entitled to create large-scale generation certificates (LGCs) based around how much additional renewable electricity they produce above their baseline.
- During the accreditation process of a power station the Regulator determines the baseline – generally the average amount of electricity generated over the 1994,1995 and 1996 years. Eligible parties can only create LGCs for electricity generated above the baseline.
- Power stations which generated electricity for the first time after 1 January 1997 have a baseline of zero.
- One LGC equals one megawatt hour (MWh) of generated renewable energy electricity.
- LGCs are created by renewable energy power stations directly in the online REC Registry.
- They must be correctly created and validated in the REC Registry before they can be made available for purchase and surrender.
- LGCs are sold through the open LGC market, where the price will vary according to supply and demand.
How demand for certificates is created
- The Large-scale Renewable Energy Target specifies the amount of renewable energy to be generated by renewable energy power stations, for every year up to 2030.
- In December 2011 the Regulations were amended to prescribe the start day for Waste Coal Mine Gas (WCMG). The number of GWh specified under subsection 40(1) of the Act are to be increased by 425 GWh for 2012 and by 850 GWh for 2013 to 2020. The adjusted 2011 to 2020 targets including the affect of sections 40(1B), 40(3) and 40(4) are:
*One gigawatt hour (GWh) equals one thousand megawatt hours (MWh)
- The Large-scale Renewable Energy Target places a legal requirement on liable entities (typically electricity retailers) to purchase set number of Large-scale Generation Certificates (LGCs) each year.
- The number of LGCs to be purchased is calculated using the Renewable Power Percentage (RPP), set annually in the Regulations.
- The RPP takes into account:
- the required amount in the renewable electricity target for the year;
- the estimated amount of electricity that will be acquired by liable entities for the year;
- the any under or over surrender of LGCs against the annual targets of previous years; and
- the estimated amount of all partial exemptions (provided as Partial Exemption Certificates (PECs) to eligible emissions-intensive trade-exposed (EITE) industries) expected to be claimed for the year.
- The liable entity applies the annual RPP to the total megawatt hours of relevant electricity that they acquire from relevant electricity grids. This determines how many LGCs they will need to purchase and surrender for that year.
- Each liable entity purchases their LGCs directly from renewable energy power stations, or from Agents who deal with LGCs.
- Ownership of LGCs is transferred in the REC Registry, with payment negotiated directly between the businesses outside of the Registry.
- The market price of LGCs is dependent on supply and demand and can fluctuate daily; it has varied between $10 and $60 in the past.
- RET Liable entities must surrender to the Clean Energy Regulator the required number of LGCs to meet their annual liability (as determined by the RPP).
- When certificates are surrendered, they are marked as invalid in the REC Registry. They can no longer be sold, traded, or purchased.
- If a RET liable entity does not surrender its required number of LGCs in a year, it is liable to pay a shortfall charge, currently set at $65 per LGC not surrendered.
- Owners of LGCs may also voluntarily surrender their LGCs at any time. Any person or organisation with LGCs registered to them in the REC Registry can voluntarily surrender their certificates; this includes owners, Agents, and RET liable entities.
- Liable entities may voluntarily surrender LGCs separately to their mandatory liability set by the RPP. For example, when a householder opts to use electricity from renewable energy sources the liable entity can buy certificates equivalent to the householder’s electricity usage and voluntarily surrender these certificates to Clean Energy Regulator.
- Voluntary surrender creates further demand in the market for renewable energy, over and above the mandated requirement.
What is the purpose of the schemes?
The schemes aim to:
- encourage the additional generation of electricity from renewable sources;
- reduce emissions of greenhouse gases in the electricity sector; and
- ensure that renewable energy sources are ecologically sustainable.
This is achieved by:
- the creation of online certificates by eligible renewable energy sources based on the amount of electricity in megawatt hours (MWh):
- generated by a renewable energy power station, or small-scale solar panel, wind or hydro system; or
- displaced by a solar water heater or heat pump; and
- placing a legal obligation on liable entities (usually electricity retailers) to purchase and surrender a certain amount of these certificates each year.
The trade in these certificates thereby provides financial incentive for investment in renewable energy power stations, and for the installation of solar water heaters, heat pumps, and small-scale solar panel, wind, and hydro systems.
The certificates are created and traded through the REC Registry, an Internet-based registry managed by the Clean Energy Regulator.
Since 2001, this mechanism has increased the number of installations of small-scale renewable energy systems, and stimulated investment in renewable energy power stations.
At the end of 2011, total investment in large-scale renewable energy power stations stood at around $10.5 billion. The generating capability of renewable power stations was around 13,700 gigawatt hours (GWh) of eligible renewable energy per typical year. This is equivalent to the residential electricity needs of over 2.1 million households.
From 2001 to 2011, more than 1,329,000 small-scale installations such as solar panels and solar water heaters had certificates created and validated against them in the REC Registry.
What underpins the schemes?
The Renewable Energy (Electricity) Act 2000 and the accompanying Renewable Energy (Electricity) Regulations 2001 define the requirements of the Large-scale Renewable Energy Target and Small-scale Renewable Energy Scheme.
Until 2 April 2012 the Act, Regulations, and all associated requirements were administered by the Office of the Renewable Energy Regulator, which was a statutory agency under the Department of Climate Change and Energy Efficiency. After this date they are administered by the Clean Energy Regulator, the agency responsible for the administration of the Renewable Energy Target, the Carbon Pricing Mechanism, the National Greenhouse and Energy Reporting System and the Carbon Farming Initiative.
About the certificates
From 2001 to the end of 2010, the commodity in the market was called a “Renewable Energy Certificate” or REC.
From 1 January 2011 RECs were reclassified into two certificate types: “Large-scale Generation Certificates” (LGCs) and “Small-scale Technology Certificates” (STCs).
Large-scale generation certificates
Large-scale generation certificates (LGCs) are created in the online REC Registry by renewable energy power stations. One LGC is equivalent to 1 MWh (megawatt hour) of eligible renewable electricity generated above the power station’s baseline.
Small-scale technology certificates
Small-scale technology certificates (STCs) are created in the online REC Registry for correctly installed eligible solar water heaters, heat pumps, and small-scale solar panels, wind, and hydro systems.
One STC is equivalent to 1 MWh (megawatt hour) of:
- renewable electricity generated by the solar panel, small-scale wind or small-scale hydro system (unless the Solar Credits multiplier applies; or
- electricity displaced by the installation of a solar water heater or heat pump.
For more information about the schemes, please see the following publications:
Date last updated: 08 Jan 2013