hydro power station

The Large-scale Renewable Energy Target

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The Large-scale Renewable Energy Target (LRET) 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 through the creation of Large-scale Generation Certificates (LGCs).

LGCs are created based on the amount of eligible renewable electricity produced by the power stations, and can be sold or traded to Renewable Energy Target liable entities, in addition to their sale of electricity to the grid. Liable entities have a legal obligation to buy and surrender LGCs to the Clean Energy Regulator on an annual basis.

Eligibility

To participate under the LRET, 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.

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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 on how much additional renewable electricity they produce above their baseline.

The baseline is determined by the Clean Energy Regulator as part of the accreditation process, and is generally calculated on the average amount of electricity the power station generated over the 1994,1995 and 1996 years. Power stations which generated electricity for the first time after 1 January 1997 have a baseline of zero.

For eligible power stations:

  • One LGC equals one megawatt hour (MWh) of generated renewable energy electricity.
  • LGCs are created by renewable energy power stations directly in the 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.

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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 gigawatt hours (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 effect of sections 40(1B), 40(3) and 40(4) are:

Year Target (GWh)1
2011 10,400
2012 16,763
2013 19,088
2014 16,950
2015 18,850
2016 21,431
2017 26,031
2018 30,631
2019 35,231
2020 41,850

1One 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.

Diagram showing the large-scale generation certificate market

 

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Certificate surrender

RET liable entities must surrender the required number of LGCs to the Clean Energy Regulator to meet their annual requirements (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—including 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.

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For more information please see the following publications:

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Date last updated: 07 Oct 2014