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7 February 2023
Kirsty Gowans
Head of Electricity Division
Department of Climate Change, Energy, Environment and Water
51 Allara Street
Canberra, ACT 2600
Lodged online at: DCCEEW Consultation hub
Re: Response to Renewable Energy Certification
Policy position paper for renewable electricity certification under the Guarantee of
Origin scheme and for economy-wide use
Dear Kirsty:
Tilt Renewables welcomes the opportunity to make a submission to the above Position
Paper (“Paper”) as part of our continuing engagement with DCCEEW.
Tilt Renewables is committed to continue playing a lead role in accelerating Australia’s transition to clean energy. Tilt is one of the largest owners and operators of wind and solar generation in Australia with 1.7 GW of renewable generation capacity across ten operating
(or under construction) wind and solar farms. In addition, Tilt Renewables has a development pipeline of over 5.0 GW of wind, solar and storage projects.
Executive Summary
• Tilt Renewables strongly supports a robust renewable energy certificate scheme
that extends well beyond the currently legislated end of the Large-scale Renewable
Energy Target (LRET) scheme in 2030. Tilt Renewables commends the
Department for developing the Renewable Energy Guarantee of Origin (REGO)
certificate scheme.
• Tilt Renewables does not support expanding generation eligibility for REGOs
beyond that currently utilised for Large-scale Generation Certificates (LGCs) in the
LRET scheme. There is very little policy rationale for expanding the eligibility, and it
would serve to swamp the, soon to be over supplied, voluntary LGC surrender
market decreasing future prices of LGC/REGOs thereby slowing the deployment of
new renewable energy projects.
• Should the Government decide to expand the eligibility to below-baseline
generation, we would recommend the Government implement additional measures
to limit the detrimental impact on the future LGC/REGO market.
Tilt Renewables supports Policy Positions 1-3, 5, 7-11, 13, and 15-17. Our comments on the remaining policy positions are discussed below.
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Policy Position 4 – Storage REGOs
Tilt Renewables has no objection to storage projects earning REGOs if they surrender
REGOs for all of their charging; this could be particularly useful in the context of hybrid generation/storage plants.
However, if the storage export REGOs are valued the same as charging REGOs, it will not be economical for storage projects to generate export REGOs because of the material losses inevitably involved in storage. For example, a storage project may have to purchase
100MWh of electricity for charging to export 80MWh later. Therefore, it’s clear if the charging and exporting REGO prices are the same, the storage project would lose substantial amounts of money by being a ‘Green Storage’ project that sells export REGOs.
Therefore, it appears that the only economic way for storage to sell REGOS is for the storage project to buy cheaper REGOs for its charging. The most likely avenue for this would be to purchase cheaper below-baseline REGOs for charging and then sell their export REGOs at a higher price. As stated in the Executive Summary, Tilt Renewables has concerns with below-baseline generation being included in the REGO scheme as will be discussed in the next section.
Policy Position 6 – Below Baseline Generation
The Paper’s primary stated justification for expanding the eligibility of REGOs to below- baseline generation is to enable consumers “access to certificates at lower cost”. In light of the recent ACCU integrity controversy which triggered significant changes, it is considered that the continued integrity, and additionality, of the LGC/REGO scheme are more important than reducing certificate cost. This is particularly true given that there is very likely to be a large surplus in LGCs in a few years leading to a significant decline in
LGC prices. This surplus will be exacerbated by the proposed addition of another 14 million or so below-baseline REGOs to supply in 2024 which would likely cause a much more significant decline in future LGC/REGO prices thereby inhibiting investment in new renewable generation.
The other issue with below-baseline generation being eligible for REGOs is that doing so will result in the very real scenario that an Australian Government certified ‘Green
Hydrogen’ producer causing an increase in carbon emissions. Buying below-baseline generation REGOs does not displace fossil fuel electricity generation nor does it increase renewable energy generation in the NEM.
A large scale hydrogen production facility will utilise huge amounts of electricity. If REGOs are secured from new wind or solar farms, usually as part of an offtake agreement for the electricity itself (or Contract for Difference), than it would inarguably be a Green Hydrogen plant as there would be no additional greenhouse gas emissions. On the other hand, if the hydrogen plant buys REGOs from below baseline generation, there is no accompanying increase in renewable energy generation. The Hydrogen plant would still have to buy its power from the NEM inevitably resulting in additional greenhouse gas emissions into the atmosphere. An even worse potential outcome is that a large new certified ‘Green
Hydrogen’ plant, purchasing below baseline REGOs, could buy its electricity directly, or indirectly via a retailer, from a coal fired generator which seriously undermines the credibility of the ‘Green Hydrogen’ designation. In addition, such a scenario would likely result in the coal generator staying in business longer which is obviously not aligned with the Government’s emissions reduction targets.
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Potential Mitigating Options
Should the decision be made to have all renewable generation eligible for REGOs, then we would strongly suggest that additional measures should be taken to avoid the LGC/REGO market crashing which would obviously not help bring forward the additional renewable energy required to meet the Government’s 2030 target as well as replace retiring coal fired generators.
The LGC market is currently experiencing relatively high prices for a number of reasons, some of them temporary, such as retailers electing to pay the shortfall penalty with an intention to purchase LGCs in 2-3 years’ time to then be compliant.
However, the market is headed for a large oversupply of LGCs as more renewable energy capacity comes on line over the following years. Green Energy Markets forecasts a cumulative surplus of about 29 million LGCs in 2024 including all operating, committed and development projects with announced PPAs1. Should the ~14 million below-baseline generation REGOs be added to this figure, the surplus would increase by about 50% to 43
Million LGC/REGOs in 2024 and continue to grow every year aided by 14M below-baseline
REGOs every year. In addition, an unknown, but potentially significant, number of small scale renewable (i.e. rooftop PV) generators will start to earn REGOs (if the REGOs are more valuable than the decreasing deemed value of STCs). On top of this, in 2031, the obligation to surrender LGCs under the LRET disappears, so 33 Million (above baseline)
REGOs will swamp the voluntary surrender market every year.
In summary, enabling below-baseline generation to earn REGOs is making a future bad situation significantly worse. While some entities are very bullish about continuing increases in demand for REGOs from the voluntary surrender market, it is extremely unlikely to soak up these kinds of surpluses and maintain a material REGO price to incentivise renewable generation.
There are a number of options the Government could consider with regards to REGO eligibility to try to mitigate this situation including:
1. Prohibit below-baseline REGOs from being surrendered to meet a company’s LRET
obligation as the Department has indicated they intend to do. This is the absolute
minimum that is required.
2. Restrict below-baseline REGOs to only being acquitted against export projects
(green steel, ammonia, hydrogen etc.), at least until 2030.
3. Begin REGO eligibility for below baseline generation in 2030 after the LRET scheme
has ended.
However, these options, while helpful, would not be sufficient to avoid a very high likelihood of significant declines in the LGC/REGO market. Therefore, Tilt Renewables would also respectfully request other measures be considered to support the upcoming flooding of the
LGC/REGO market. Perhaps the simplest option would be to continue the 33TWh LGC surrender obligation to the REGO scheme until at least 2040. This would avoid 33 million
REGOs swamping the voluntary surrender market in 2031. The LRET scheme was envisioned by many to be a transition to an eventual carbon price in the electricity market.
As there appears to be very little prospect of a carbon price in the electricity market, the
33TWh target should at least be extended. If the Government wanted to improve the chances of meeting their 2030 renewable energy (and emission reduction) targets, they
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Renewables Report Quarter 3 – 2022 Green Energy Markets
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could ramp the obligation up beyond 33 TWh, to perhaps 47-50TWh, which would then
‘soak up’ the additional 14 million below baseline REGOs.
Before any final decision is made, we would suggest that the Department work collaboratively with industry to model the LGC/REGO market using various scenarios, including those suggested above, to try to avoid unintended negative market signals to the renewable energy industry thereby slowing investment in new generation. Tilt Renewables would welcome the opportunity to participate in such collaborations.
Policy Position 12 – Time Stamping
Tilt Renewables considers that the market demand for this feature is limited and unclear.
However, the additional complications brought on by time stamping of REGOs is clear and material. The additional information and time required to try to avoid inadvertent error will be significant as will be the additional burden on the Clean Energy Regulator in their certification and auditing processes. The certificate creation cost will obviously have to be higher to take this additional complexity into account for limited apparent benefits.
Besides certification, the market for REGOs will be complicated by generators having 8760 different REGO products to sell each year (as there are 8760 hours in a year). The LGC market is already thinly traded; this potential fragmentation of the market will not improve liquidity.
If a customer wants to match their load to generation, there is a very easy way to do so.
One simply buys electricity from the renewable generator (typically along with the
LGC/REGOs).
Policy Position 14 – Timeline for Surrender of REGOs
Tilt Renewables does not support the proposal for REGOs to have no expiry date. Such a proposal could cause large financial institutions/market participants to hoard REGOs for long period of times causing artificial REGO shortages and unnecessarily high REGO price increases which is obviously undesirable. Likewise, if there was an economic or strategic advantage to do so, the same entities could sell REGOs from the large holding causing steep declines in REGO prices. While these scenarios may not be likely, they are made possible by not having expiry dates on REGOs.
Tilt Renewables recommends an expiry date of two years after creation.
Thank you for the opportunity to comment on the Paper, and we look forward to continuing discussions with the Department on these issues. Please feel free to contact jonathan.upson@tiltrenewables.com should you have any questions or wish to discuss any aspect of this submission.
Yours Sincerely,
Jonathan Upson
Head of Policy & Regulatory Affairs
Tilt Renewables
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