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Background

For several years now, the Australian Government has been providing (generous) rebates to householders installing small solar generators on their homes, funding this support from internal revenues.

In recent times, several factors have caused there to be a massive increase in the number of applications for this support, and consequently, the amount of funding required. Of these factors, the major one was the arrival of several major companies with venture capital backing promoting free systems (in turn made possible by drops in world prices, favourable exchange rates, and economies of scale and scope). As a result, the government sought to find a way to continue promoting renewable energy and investment in small scale solar systems without having to pay for it.

As a result, the government has developed the Solar Credit mechanism under their revamped 'Renewable Energy Target' policy, with a view to shifting the financial cost of supporting investment in small scale solar systems to the generators, electricity retailers and large users of electricity.

Under the existing Mandatory Renewable Energy Target (and related legislation), 1 megawatt-hour (1 MWh) of renewable energy generation was allocated the value of one Renewable Energy Certificate (or REC). These are traded on an open market, with generators, electricity retailers and large users needing to purchase a number of these certificates proportional to their sales/usuage each year. Provided the generation source was a complying Renewable Energy source, and regardless of whether the energy was sourced from wind, new small hydro or solar, 1 MWh of electricity was given the value of 1 REC.

Solar Credits

Under the new Renewable Energy Target (and related PLANNED legislation), small solar generators will be given preferential treatment. A multiplier will be applied, such for the 1st 1.5kW of any small system installed, the system will be eligible for five times the RECs it would normally have received under the previous MRET scheme. For each micro-generation system, the multiplier would apply only to the first 1.5 kilowatts of system capacity. The RECs resulting from the multiplier are known as Solar Credits.

In the case of systems larger than 1.5kW, generation from the capacity above 1.5 kW will still be eligible for the standard 1:1 rate of RECs creation. The credits will only apply to the first small scale generation system installed at an address; subsequent systems will earn RECs at the 1:1 rate. The multiplier will reduce in size over the life of the RET.

Under the old scheme, a Sydney based 1kW system would be eligible for 21 RECs (approx $966 @ $46 per REC) and potential rebate of $8000 (total $8966). Assuming a constant price for RECs, under the new system a 1kW system would be eligible for 105 RECs or $4830 in total support

Renewable Energy certificates are a market traded instrument, and as such their value rises and falls, determined by the standard market factors of supply (how many RECs are coming onto the market) and demand (the legal obligations on retailers/large users based on the amount of electricity production/consumption in the system). It follows that increased supply relative to demand will lead to lower prices, althought the current price is approx $46 / REC on the retail market.

Our issues with Solar Credits

Falsely Attaining The Target
Our reading of the proposed legislation is that:

• There is a target for renewable generation;
• Renewable Energy generation is measured in RECs; and
• One technology is permitted to pretend it makes 5 times as much Renewable Energy as it actually does - thereby presenting the real possibility that the target could be reached with only 1/5 of that generation being real renewable generation

Displacement of More Important Projects
We are concerned that if the numbers of small generation systems being installed remain constant, this will lead to a massive oversupply of RECs relative to the modestly increased target under RET. The consequence of oversupply could be a catastrophic drop in the price of RECs, destroying viability of much larger projects, such as large scale wind farms and large-scale solar thermal plants. It could be that a drop as small as $10 will completely destroy these industries, which are far closer to competing with coal generation than small renewable generators.

Volatility of RECs prices destroying jobs
RECs, being a market based mechanism, will become highly volatile as the market digests these new developments. Without the confidence of a permanent, fixed and transparent mechanism such as a feed-in tariff or rebate, solar installation companies will be extremely wary of taking on full time staff memebers, and even more reluctant to invest in their training.

Limited Additionality
It is important that any planned legislation results in an increase in renewable generation. In this respect, the proposed target of 20% by 2020 is quite inadequate. South Australia, for example, is already well on its way to achieving this target by 2014. A stunted target doesn't help anyone - we need significant long term stimulus to attract renewable energy industries to our shores.

We call on the government and major parties to urgently:

• Ensure the RET target is increased annually in line with the number of 'phantom RECs' created;
• Take steps to ensure large projects are not threatened by Solar Credits; and
• Rapidly consult with state governments to develop a framework for a National Feed-in tariff scheme open to all