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Progressive Green PTY LTD T/A Flow Power
ABN 27 130 175 343
Australia’s Guarantee of Origin
Scheme
Flow Power submission
February 2023
Ground Floor, 109 Burwood Rd, Hawthorn, VIC hello@flowpower.com.au 1300 08 06 08 flowpower.com.au
3122
About Flow Power
Flow Power is an electricity retailer that works with energy customers throughout the National
Electricity Market (NEM). Together with our customers, Flow Power is committed to our vision of creating Australia’s renewable future.
We empower customers to take meaningful action. By providing energy knowledge and innovative technology, we are delivering smarter ways to connect customers to clean energy to make our renewable future a reality. We provide our customers with:
+ Engineering support, access to live data and transparent retail tariffs that reward demand
flexibility and encourage electricity usage at times of plentiful renewable output.
+ Hardware solutions that equip customers with greater information, visibility and control over
energy use.
+ Access to renewable energy, either through distributed solar and storage installed on site, or
through a power purchase agreement with utility-scale wind and solar farms
We believe that by equipping customers with these tools, we can lower costs for all energy users and support the transition to a renewable future.
Overview of submission
The key points we would like to make regarding the Department of Climate Change, Energy, the
Environment and Water’s (DCCEEW) consultation paper are:
+ We support the development of the Guarantee of Origin (GO) scheme to replace the LRET.
Having a scheme in place after 2030 is important for providing clarity to long-term renewable
offtakes and maintaining a framework for attributing renewable energy. This will pave the way
for more renewable backed retail offers and voluntary commitments. In addition, the
information attached to the Renewable Energy GOs (REGOs) will allow for more nuanced
product development, such as “24/7 renewables backed” electricity.
+ The introduction of REGOs should be delayed until closer to 2030. There is no pressing need to
introduce a new scheme administered by the Clean Energy Regulator, particularly alongside the
existing LRET.
LGCs are an important to renewable project financing. Equity and debt decisions are influenced
by expectations of LGC prices and the revenue implications for renewable generators.
Introducing REGOs in parallel with LGCs creates a risk of distorting the LGC prices and adding
uncertainty to forward curves, particularly if the market is flooded with hydro REGOs. If REGOs
can be traded alongside LGCs, it may capture some of the voluntary LGC demand that is
boosting prices.
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The importance of the REGO scheme is its availability after 2030. Having the scheme operate
after the LRET would create continuity for projects and allow participants to form a view on
expected prices of renewable energy certificates. Therefore, the DCCEEW should consider
delaying the implementation to follow the end of the LRET, maximising the value investors and
minimising uncertainty.
+ DCCEEW should consider scheme designs that recognise the value of when renewable energy is
produced. It is increasingly important to reflect the value of renewable projects that can supply
customers in peak periods. DCCEEW should design this scheme to reflect this value. The rest of
this submission focusses on this concept.
+ We would welcome the opportunity to discuss our submission in more detail. We are always
available to discuss the contents of our submission with DCCEEW.
We’ve provided some additional comments below on how the temporal value of renewable generation, storage and demand response could be better reflected.
The temporal value of renewable energy
Not all renewables will be equally valuable in decarbonising Australia. The renewables that generate at times of peak grid carbon intensity will have additional value in displacing thermal generation. Greater consideration should be given to how a GO scheme could be designed to reflect and reward this.
The graph below shows the correlation between the renewable output, carbon intensity of the grid, and wholesale electricity price dynamics in New South Wales from 2017 to 2021. It shows an inverse relationship between wholesale prices and renewables/grid carbon intensity. This effect should become more pronounced as renewable penetrations continue to increase.
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Figure 1: Renewable percentage, grid carbon intensity and spot price profile in NSW, 2017-21
This highlights the how the challenge of decarbonising the grid varies through the day. As more solar is developed, the carbon intensity of the grid in the middle of the day has rapidly fallen. The value of renewables, storage and demand flexibility that can decrease the emissions linked with peak periods will only grow as more renewables connect.
Recommendations
The Department should consider expanding the proposed scheme to ascribe carbon values to renewable certificates. These values would be reflective of the average grid emissions at the time of production.
DCCEEW should also explore a greater role for these certificates in carbon accounting. Lastly, the methods for carbon accounting should be updated to better reflect the role of storage and demand flexibility.
Reflecting the carbon value of renewable energy
There is an established process for measuring the emissions associated with using electricity (scope 2 emissions1). Currently, the carbon footprint of electricity use is determined by looking at the total
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1
Scope 2 greenhouse gas emissions are the emissions released to the atmosphere from the indirect consumption of an energy
commodity. For example, 'indirect emissions' come from the use of electricity produced by the burning of coal in another
facility.
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electricity taken from the grid over the year and multiplying it by an emissions factor determined by the
Clean Energy Regulator.2
Reducing scope 2 emissions can be achieved by surrendering LGCs. However, there is no consideration given to when these LGCs were produced. That is, did the renewable generator produce the LGC displacing carbon intensive generation, or was it displacing other renewables?
We suggest DCCEEW develop a methodology that gives each REGO a carbon value. This carbon value would be reflective of the grid carbon intensity at the time of generation. To facilitate this, the Clean
Energy Regulator could update its carbon reporting to produce values for each trading interval throughout the year.
This would create a framework that rewards generators that displace the most carbon intensive generation, accelerating the transition. It would strengthen incentives for hybrid projects, where storage can be used to push wind or solar into peak periods.
This concept has previously been explored and accepted by the Federal Government.
A Panel, chaired by Grant King, was tasked with providing advice to the Minister for Energy and
Emissions Reduction on how to incentivise low cost abatement opportunities from across the economy, with a focus on the industrial, manufacturing, transport and agriculture sectors, and energy efficiency.
The final report made recommendations regarding the expanded use of LGCs as an eligible offset.3 It suggested doing so would create additional demand for renewable generation, leading to reduced thermal generation and emissions.
The Panel was of the view that a convention should be adopted for the implicit carbon content, or
“carbon exchange rate”, of a LGC. This would be based was either the average grid carbon intensity per
MWh or the state-based grid average emission factor for the jurisdiction in which the generator is located. In response to the Panel’s recommendations, the Federal Government agreed, noting it would develop a convention that would “provide additional information to assist buyers and sellers in voluntary markets to understand the carbon content of LGCs.”4 It also clarified that it did not intend for businesses covered by the Safeguard mechanism to be able to use this convention to meet their obligations.
DCCEEW should progress this recommendation through the GO scheme, and allow consumers to use renewable energy to offset emissions.
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2
This methodology has been consulted on by the Federal Department of Industry, Science, Energy and Resources (DISER). See:
https://consult.industry.gov.au/2022-nger-scheme-proposed-updates
3
Australian Department of Industry, Science, Energy and Resources, Report of the Expert Panel examining the additional
sources of low cost abatement, pp. 63-65.
4
Australian Government, Australian Government response to the Final Report of the Expert Panel examining additional sources
of low-cost abatement (‘the King Review’), p. 5.
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Carbon accounting that rewards demand flexibility
Measuring scope 2 emissions also fails to account for when electricity is used. From the perspective of measuring carbon emissions, a kWh of electricity used in peak solar periods has the same footprint as electricity used in a wind and solar drought. There is a missed opportunity to strengthen the incentives for consumers to align their electricity demand with the output of renewable generators.
Using annual averages of emissions intensity does not adequately recognise the variability of grid emissions. A recent study of the British grid found that the long-run marginal emission rate was the best measure of the long-term impacts of load shifting. The study also found that moving loads into periods of high renewable output had a positive influence on new renewables being added to the system.5
Another option would be to use average emissions intensity for each dispatch interval. That is, looking at the grid-emissions intensity for all the generation on the grid every five minutes, and matching this to energy use. The average grid emissions intensity varying throughout the day has been noted as a good proxy6 for more complex metrics like the long-run marginal emissions intensity. This means it is easier to calculate and should be manageable for governments and industry to implement.
To strengthen the links between carbon footprints and energy productivity, we recommend the DCCEEW work with Climate Active to update its electricity accounting standard to allow the use of carbon intensity measures that vary through the day. This could occur with updated, dynamic NGERS data, or
Climate Active could allow the development of methods using more dynamic metrics, as long these metrics are transparent and subject to scrutiny.
If you have any queries about this submission, please contact me on (02) 9161 9068 or at
Declan.Kelly@flowpower.com.au.
Yours sincerely,
Declan Kelly
Regulatory Policy and Corporate Affairs Manager
Flow Power
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5
Gagnon, P, Cole, W, ‘Planning for the evolution of the electric grid with a long-run marginal emission rate’, iScience, 25.
6
ElectricityMap, Marginal vs average: which one to use in practice?, accessed 6 June 2022, available here.
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