August 09 National Newsletter   Green Dollar Revenue for Australian Renewable Energy Companies   Written by   Brook Burke Special Counsel DLA Phillips Fox

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Green Dollar Revenue for Australian Renewable Energy Companies

 

Australia has set itself the ambitious target of sourcing 20% of its energy needs from renewable energy sources by 2020- the equivalent of all household electricity consumption in Australia. This will require billions of dollars in investment in the renewable energy industry in Australia. At the same time the Commonwealth Government has also committed itself to the introduction of the Carbon Pollution Reduction Scheme (CPRS) in 2011.

The introduction of Australia's proposed CPRS is expected to provide a boon to the renewable energy industry by penalising the most carbon emission intensive energy generators. As most renewable energy is deemed to be zero emission it does not incur any CPRS liability, making it more competitive with traditional base load power generation from coal as the relative cost of producing energy will be narrowed.

Australia is a signatory to the Kyoto Protocol. Under the Kyoto Protocol certain activities qualify to earn Kyoto permits which represent abatement of carbon emissions. Australian emitters are entitled to use an unlimited number Kyoto permits to meet their domestic emission obligations under the CPRS. Renewable energy projects may qualify to produce Kyoto permits, thus providing a potential source of revenue. However due to the Kyoto Protocol rules and the CPRS legislation, for an Australian renewable energy company to produce Kyoto permits it must set up an eligible renewable energy project overseas and export the produced Kyoto permits back to Australia. While this may be of interest to some renewable energy companies based in Australia, it does not increase the renewable energy generated in Australia.

Perhaps then the biggest driver of investment in the development of renewable energy in Australia, at least in the short to medium term, will not come from the introduction of the CPRS, but from Australia's recently announced Renewable Energy Target (RET) scheme which establishes the 20% renewable energy target. The existing scheme has been in place since 2001 but an expanded RET has been announced which is due to commence in January 2010 and last until 2030.

The RET acts more like a carrot than a stick. While it does require large users of electricity (such as electricity retailers) to source a percentage of their energy needs from renewable energy sources, it is primarily designed to reward the generation of energy from renewable energy sources. Although one of the stated objectives of the RET is to reduce greenhouse gas emissions, this is really the result of substituting renewable energy for more carbon intensive generation.

Under the RET, renewable energy generators are entitled to produce a Renewable Energy Certificate (REC) for every megawatt hour of energy produced. RECs are freely tradable on a future and spot market. RECs are purchased by liable parties to verify that they have sourced a mandated percentage of their electricity requirements from renewable energy sources. If a liable party fails to remit the required number of RECs it must pay a REC shortfall penalty to the regulator. This penalty is to be increased under the expanded RET, which will in turn raise the maximum price that a party may be prepared to pay for a REC. REC revenue received by a renewable energy generator is in addition to revenue received from the sale of the electricity, and at its current spot price of more than $50 per REC provides a substantial source of revenue and incentive for investment in renewable energy.

The renewable energy industry in Australia is poised for an exciting future. The green dollar revenue available to renewable energy companies will play a crucial role in driving investment in renewable energy and securing the future of the industry. It is to be hoped that the recent uncertainty over whether the legislation to pass the expanded RET will be tied to the passage of the CPRS legislation will be resolved so that at the very least the expanded RET will be able to commence early next year.