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Electricity Pricing - Costs due to the renewable energy target

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Costs due to the renewable energy target

 

It is interesting that all parties have steered well clear of blaming Australia’s mandatory renewable energy target (MRET) for any of the past price increases.  Learn more about the MRET here…

Yet, as previously discussed on this website, in 2011 the Independent Pricing and Regulatory Tribunal (IPART), the NSW regulator, blamed the cost of renewable energy certificates for most of that year’s increases.  

IPART  determines the maximum prices charged for regulated electricity services provided by TRUenergy (formerly EnergyAustralia) and Origin Energy (formerly Country Energy and Integral Energy) in New South Wales.

There are now two kinds of certificates under the MRET.  Both are created in response to renewable electricity generation.

Small-Scale Technology Certificates (STCs) are earned by domestic PV solar owners; at a fixed clearing house price of $40 per MWh.  There is presently an excess of STCs in the clearing house and they are being discounted by some owners by around $10.

Large scale certificates have renamed Large-scale Generation Certificates (LGCs); previously called RECs in some places on this website.  The LGC price presently fluctuates between $35 and $45 depending on time of year. 

 

image005 
source: Energy Users Association of Australia http://www.euaa.com.au/green-market-prices/


 

Energy retailers have a legal responsibility to purchase and surrender a proportion of their annual demand.  In 2012 this proportion for LGCs is 9.15%. For STCs the proportion is 23.96%  

Using the above crude numbers it can be estimated that the retailers’ average supply price is raised by around 1.2 cents per kWh; equivalent to around 60% of the carbon tax pass-through.

The actual impact on your electricity bill of these certificates is complex. There are also concessions to trade exposed industry that are factored in.

Like the carbon tax the cost to retailers of renewable energy certificates increases in future.  As the MRET target rises retailers are bound to buy a larger number of certificates and the price of LGCs is also expected to rise due to higher demand.

The MRET is a fixed energy target by 2020 not on the percentage (20%) generated by renewable energy.  The target does not fall with the projected decline in electricity demand as the price rises.

 

Annual MRET Targets 2011-2030 (GWh)*
Year

Target **
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
2021-2023 41,000

* Targets adjusted as per Subsection 40 (1A) of the Act.
** One gigawatt hour (GWh) equals one thousand megawatt hours (MWh)
Source: http://ret.cleanenergyregulator.gov.au

 

As the table shows, the mandatory target rises fourfold between now and 2020; so that it may be as high as 30% of actual generation by then.

 

 

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