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AGL Energy Limited
T 02 9921 2999 Level 24, 200 George St
F 02 9921 2552 Sydney NSW 2000
agl.com.au Locked Bag 1837
ABN: 74 115 061 375 St Leonards NSW 2065
Australian Government
Department of Climate Change, Energy, Environment and Water
By email: GuaranteeofOrigin@industry.gov.au
8 February 2023
AGL Response to Australia’s Renewable Electricity Guarantee of Origin Scheme: Consultation
Paper
AGL Energy (AGL) welcomes the opportunity to contribute to the Renewable Electricity Guarantee of
Origin (REGO) consultation.
AGL is a leading integrated essential service provider, with a proud 185-year history of innovation and a passionate belief in progress – human and technological. We deliver 4.2 million gas, electricity, and telecommunications services to our residential, small, and large business, and wholesale customers across Australia. We operate Australia’s largest electricity generation portfolio, with an operated generation capacity of 11,208 MW, which accounts for approximately 20% of the total generation capacity within Australia’s National Electricity Market (NEM). We have the largest renewables and storage portfolio of any ASX-listed company, having invested $4.8 billion over two decades in renewable and firming generation.
Climate and energy policy
In the last two decades, energy and climate policy in Australia has been fragmented, with both State and federal governments having implemented several policies over the last two decades to incentivise new generation but also keep the system reliable, secure, and affordable.
In order to meet the broader objective of supporting Australia’s national commitment to reducing emissions, governments have implemented several renewable energy investment programs, most notably the federal Renewable Energy Target (RET), which set a target of sourcing 33 TWh of renewable generation per year. The RET has been successful in supporting a major increase in the number of installations of small-scale renewable energy systems, as well as investment in large-scale renewable power stations. At the same time, other policies and reform programs have been sought to achieve other electricity market objectives, in particular regarding price and reliability.
Central to the operation of the RET has been a certificate-based scheme for renewable electricity and the requirement on retailers to purchase and surrender small-scale technology certificates (STCs) and large-scale generation certificates (LGCs).
These LGCs and STCs under the RET have been a major driver for the relatively rapid growth of renewable electricity in Australia, as they have both provided a strong and enduring signal for investment in small- and large-scale systems, and a viable way to support additional voluntary purchases of renewable electricity.
In parallel to policy actions from the Australian Government, State governments have also implemented several programs to incentivise or directly fund renewable generation, both at a small scale, and for large grid-scale projects. These programs have generally operated in addition to the federal RET scheme, leveraging where possible the architecture of the RET that certifies eligible renewable electricity.
The overall contribution of these renewable programs has seen emissions from the electricity sector reduce significantly over the past decade, as aging emissions-intensive generation has exited the market, replaced by subsidised renewable generation.
However, the RET is due to end in 2030, just as the energy transition will need to accelerate in order to meet ambitious climate targets set by governments and other organisations. It is therefore important to know well in advance how renewable electricity will continue to be certified in order to support the rapid growth in renewables we have seen in recent years.
The role of the electricity sector in decarbonisation
AGL understands the importance of the energy sector to Australia’s broader economy and the need to decarbonise the energy sector and reduce Australia’s emissions. Reducing emissions in the electricity sector has the potential to unlock substantial reductions in the transport and industrial sectors through fuel switching, and supporting a new era of economic prosperity powered by renewable electricity.
Businesses and residential customers may also be able to achieve substantial cost reductions on an individual basis by switching to renewable energy sources.
Businesses and residential customers are increasingly concerned not just about their primary (Scope 1) emissions, but also emissions associated with the production of energy (Scope 2) and emissions in other parts of their supply chains (Scope 3). Being able to track emissions associated with the production of electricity is therefore central to the objective of broader decarbonisation.1
The imperative to act on climate change by monitoring and reducing emissions in the electricity sector has also coincided with exponential growth in the use and capability of digital services, the expansion of a much more participatory energy customer base, and an increase in both residential customers and businesses seeking to take voluntary action to contribute to emissions reduction, which has also significantly accelerated the demand for products and services that support decarbonisation.
We expect that these trends are likely to continue, and that the acceleration of the energy transition will continue to be guided by evolving trends in customer needs, community expectations, and emerging technologies.
An enduring certification for renewable electricity
1For further consideration of this issue, refer to AGL’s submission to the federal government’s Guarantee of Origin consultation, published alongside this submission in February 2023.
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Within this context, as customers become more engaged in the energy transition, there is also increasing scrutiny on the detail of products that claim to be supporting emissions reductions, and a need to be able to measure green electricity production from generation through to end-use.
Certification of green electricity is therefore a key element of driving decarbonisation in the electricity sector, but also supporting decarbonisation of other products and services that use electricity as an energy input.
We therefore support the consideration of an appropriate enduring certification program for electricity as has been put forward in the discussion paper.
Considering the merits of existing schemes
The operation of the existing RET provides a useful starting point from which to assess any improvements that could be made to a certification scheme. The RET has been a useful driver of large- scale generation, both in terms of supporting mandated government policy targets and providing a way to substantiate claims of additional voluntary purchases of green energy through the LGC market. The
RET has also strongly incentivised small-scale PV through upfront subsidies provided by deemed STCs.
While the government’s consultation paper raises several possible shortcomings of existing renewable electricity certificates (RECs)—for example, generator eligibility, granularity of certificate creation, and other attributes—the impacts on the electricity market from changing the existing structure of RECs under the RET has not yet been comprehensively assessed.
Changes in the way RECs are created, traded, and extinguished could have a material impact on electricity markets, including impacts on wholesale spot prices and market operation, existing REC markets, and existing contracts with renewable generators including government-backed agreements.
While the consultation paper has stated that the government intends to minimise these impacts, we would support a phased implementation period for new certificates, guided by possible trials and pilots that can properly assess the impacts of moving towards a more widespread and at the same time more comprehensive certification of renewable electricity.
It is critical that the proposed scheme for certification is resilient, given the scope of renewable electricity development that will be required to support the energy transition both before 2030 and beyond. Helpfully, while the RET continues to be an effective renewable electricity certification for most current purposes, there is a unique opportunity to take some time to carefully consider the best way to structure an enduring scheme for the future.
At the same time, we recognise that there is some immediacy with respect to gaps in coverage of the current RET, which was not established with regard to several issues raised in the consultation paper.
While we support swift action to resolve these gaps and to support the acceleration of the energy transition, some caution should be exercised to ensure that immediate actions do not have the effect of unintentionally dampening the important investment signals currently provided by the RET out to
2030.
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Our position on these issues is further elaborated in our reposes to the consultation questions included at Appendix A to this submission.
We look forward to further opportunities to engage on the direction of this scheme prior to commencement. If you would like to discuss this submission further, please contact Aleks Smits (Senior
Manager Policy) at asmits@agl.com.au.
Yours sincerely,
Chris Streets
General Manager (a/g), Policy, Market Regulation and Sustainability
AGL Energy
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Appendix A – Response to Questions Raised in Consultation Paper
Policy Position Proposal Response
While we agree that the CER is the logical choice for
1. The Department proposes to
administering this scheme, we have some concerns about
develop and implement an enduring
the capability of CER systems and resources, given the
tradeable renewable electricity
many schemes it administers (RET, ERF, NGER, Safeguard
certificate mechanism administered
and GO scheme in future) and the level of granular detail
by the Clean Energy Regulator.
that is expected to be recorded for a variety of certificates.
Accordingly, there may need to be a material increase in
CER funding, which could lead to increases costs for
participants across all schemes. This potential cost should
be examined more closely prior to making immediate policy
decisions.
2. The Department proposes to allow Facilities could have a number of certificates open to them
renewable electricity generation to for creation from a given renewable energy output – REGOs,
create REGOs where that generation IRECs, LGCs or STCs. Their choice as to which certificate to
has not already created LGCs, STCs generate would likely depend on which they are eligible to
(unless the certificate creation period generate and which fetches the best price due to perceived
has passed) or other certificates. value. It will be important that the green credentials of
REGOs are stringently verified ensuring a high level of
integrity so generators can be confident in making a choice
to create this particular certificate.
3. The Department proposes to allow We are supportive of this proposal.
eligible renewable energy sources as
defined under the Renewable Energy
(Electricity) Act 2000 to create
REGOs.
4. The Department proposes to allow We are supportive of this proposal, although it seems
storage facilities to create REGOs for sensible for storage REGOs to be implemented only after
electricity dispatched if they establishment period for REGOs from other generation.
demonstrate that the stored energy
came from eligible renewable
electricity generation by first
surrendering an appropriate REGO
or LGC
While we see the benefits of certifying renewable energy for
5. The Department proposes that
export—particularly in the current context where our large
electricity generated by offshore
trading partners are considering or implementing carbon
renewable energy power stations
border adjustment mechanisms—clarification is required as
and storage facilities located within
to which country’s contributions the emissions would count
coastal waters of states and
towards under Article 6 of the Paris agreement.
territories, the territorial sea of
Australia, and Australia’s Exclusive
Economic Zone, and electricity that is
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exported internationally, be eligible
to create REGOs.
6. The Department proposes to allow We agree with this approach. Allowing pre 1997 or below-
all renewable electricity generation baseline facilities to generate REGOs would bring down the
to create REGOs regardless of power cost of certificates by increasing overall supply and allow all
station age. renewable generation to participate in the scheme. It could
also extend the lifetime of existing renewable energy
generation assets if certificate revenue can tip the balance
of refurbishment costs. Given the RET was aimed
specifically at incentivising new generation this design
feature does not need to automatically carry across to the
REGO scheme.
While broadening out the REGO scheme could result in a
lower certificate price and send the wrong signal to new
renewable energy investment, this could be resolved
through additional future policies. As customer demand
and government policy evolves, the need for incentivising
one type of generation over others may become clearer. It
would therefore be preferable to include a broader range of
generation in the scheme, and allow governments or
voluntary purchasers to make more detailed decisions in
the future about appropriate incentives.
It is unclear from the consultation paper what mechanism
will ultimately drive new renewable energy project
development in place of the RET. It may be that voluntary
commitments and/or state schemes may not be sufficient
drivers to enable the scale of investment required to
decarbonise our grid and meet our national emissions
reductions targets, requiring additional incentives for new
generation build.
7. The Department proposes to allow We are supportive of this concept, as it would allow the
all renewable electricity generation democratic creation of certificates by all energy generators
to create REGOs regardless of power from grid-scale to community-owned assets to households
station or storage facility capacity with rooftop PV and could incentivise more households and
communities to install rooftop solar or battery storage.
In practice, however, monitoring the creation and use of
REGOs from small-scale installations may be very
challenging to execute.
For example, it may be a very large administrative burden
for the CER to administer large volumes of certificates
created by owners of residential rooftop solar or other
assets, noting there are currently well over 3 million small-
scale PV systems installed across Australia.
Allowing aggregators to step in as intermediaries, or
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considering a deemed arrangement for some purposes
(similar to current STC arrangements), could potentially
streamline the administration while meeting the policy
objective of tracking all renewable generation.
Methods to track small-scale generation certificates may be
able to evolve in parallel to improvements in systems and
technology – presently, it is not clear that the benefits of
including small-scale technology in the scheme would
outweigh the costs.
We also note that almost all existing small-scale PV would
have received the benefit of deemed certificates (STC) to
2030 and to avoid double-counting should therefore not
also be able to generate REGOs during this period.
Accordingly, there seems no immediate need to implement
a hurried solution to what may be a particularly challenging
problem, especially if there is no immediate customer
demand to this category of REGOs. Over the coming years,
Government could consider piloting the best administrative
arrangements, leveraging new technologies to monitor and
track generation, in advance of the RET and the STC
program ending in 2030.
8. The Department proposes to require We are supportive of this proposal.
REGOs include all the information
currently displayed on LGCs, and
that this information be publicly
visible.
9. The Department proposes to allow This proposal could effectively add attributes to LGCs which
RET participants to choose to include could lead to less liquidity and fragmenting of the LGC
on LGCs some or all of the additional market.
information required on REGOs.
The stratification of LGCs as a result of several different
attributes could have impacts on the efficiency of markets –
currently LGCs are fungible, supporting liquidity and price
discovery, which in turn supports investment signals in
renewable energy projects.
The impact of stratification of LGC markets is not clear, but
it could dampen investor confidence in specific projects that
are perceived as generating LGCs that are not as desirable
as other credits in the voluntary market, or projects that
could be subject to potential exclusion as a result of a
future policy decision.
To be clear, there are both advantages and disadvantages
to stratification of units within a market, and the policy
decision to support or enable stratification should largely
rest on customer demand for different products compared
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to the efficiency gains from trading a more fungible
product. However, we note that stratified markets will
generally produce less efficient outcomes overall. This
perspective would support fewer attributes, especially in
the absence of a significant demand for different types of
LGCs or a policy program that requires them.
10. The Department proposes to require We are supportive of this proposal in the context of
REGOs include the commissioning potential demand for ‘newer’ generating facilities; however,
date of the power station or storage we note that the commissioning date of facilities may
facility creating the certificates. become more complicated as older facilities are
refurbished, expanded, or redeveloped. Commissioning
date may not therefore be a reflective indicator of recent or
ongoing capital investment into a renewable project.
Although there may be demand for newer generation
facilities, this attribute should not disincentivise continued
and additional capital investment into existing renewable
generation facilities with older commissioning dates. The
benefit of incentivising new developments should be
balanced with the clear benefits of extending and
expanding existing renewable facilities.
11. The Department proposes to require We are supportive of this proposal in the context of some
REGOs to include the grid location of demand for projects located in specific areas.
the power station or storage facility
creating the certificates.
12. The Department proposes that In our view the issue of time-stamping requires much more
REGOs created by power stations consideration. While there is some merit to measuring time-
and storage facilities over 1 MW in of-day generation, the potential for severe stratification of
capacity be required to include a the REGO market may have consequences as covered in
timestamp reflecting the hour in other responses to questions above.
which the electricity was dispatched
While we are supportive of eventually moving towards a
by the power station or storage
more granular time element on RECs, especially to support
facility.
more accurate carbon neutral claims, switching from the
current annual creation of RECs to an hourly granularity
increases the complexity of the scheme by several orders of
magnitude.
In our view, there is no clear need to launch the REGO
certification with such a high degree of complexity, and the
issue of greater granularity could be implemented at a later
date. The European Union, which has an advanced GO
scheme that has been operational for several years, has still
not agreed on certified 24h renewable energy certificates
despite several discussion papers, consultations, and pilots
considering the relative merits of such an approach.
Currently certificates in the EU are created on a monthly
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basis.
However, there may be some merit in including optional
time-stamping on REGOs (not mandatory), to enable pilots
and trials to test how 24-hour renewable energy might best
be certified in the future. These pilots could also consider
the way that such certificates should be created, registered,
and tracked, which will be complex issues given the much
greater volumes of certificates created when compared to
annual RECs.
It could be beneficial for government to begin with project
trials to demonstrate best practice for a range of different
generators to begin implementing time-stamping
certification and build up to an hourly granularity. This
would also be an opportunity to gauge consumer demand
for these certificates, which we currently expect to be low.
13. The Department proposes to require We are supportive of this proposal.
REGOs to include information
indicating whether the certificate
was created for generation exported
overseas, or for electricity dispatched
from a storage facility.
For mandatory schemes, the terms of surrendering a REGO
14. The Department proposes that
are likely to be tied to the scheme under which it is required
anyone may surrender a REGO at
to be surrendered. For example, future policy
any time, including for the purpose
developments may mandate the purchase and surrender of
of creating a product Guarantee of
REGOs with a specific creation date in order to incentivise
Origin certificate
new generation. The production time stamp on the REGO
should be sufficient to monitor compliance in this example.
At the same time, in order to support a Product GO claim, a
REGO should also be reasonably temporally consistent with
the production of the commodity for which a GO is being
sought. This point is reflected in the Government’s GO
consultation paper, which proposes that REGO certificates
used to demonstrate renewable electricity usage in GOs
must have been issued within the previous 12 months. This
aligns with international examples such as EU GO
certificates that have a 12-month validity period.
With regard to other potential uses for REGOs—for
example, to support voluntary claims—the approach is less
clear.
For some schemes, such as GreenPower and Climate Active,
certificate vintage will be restricted by the terms of the
scheme. We would support this approach moving forwards,
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and note that the production time stamp of the REGO
should serve to meet any requirements for scheme
compliance.
However, some care should be taken as to other possible
applications for REGOs to ensure that any claims made
using REGOs are legitimate. For example, policy makers
may wish to avoid a situation where older REGOs that have
been banked by organisations are then used to make later
claims that could be misleading.
It is important that the REGO market maintain a high level
of integrity, and that schemes (both mandatory and
voluntary) that utilise REGOs are closely monitored to
ensure this integrity is maintained.
15. The Department proposes that the We are supportive of this proposal, noting that this could
Clean Energy Regulator develop involve a high level of complexity and result in a highly
systems and processes to facilitate stratified market given the different attributes proposed.
the voluntary matching of certificates
There may be no present benefit in developing very
based on time or other energy
complex systems and processes in the absence of any
attributes.
customer demand for these services.
The CER should undertake more research into the potential
need for these services, especially during the initial period,
the costs of developing systems that may not be well-
utilised, and how these costs will be recovered from
participants.
16. The Department proposes to require We are supportive of this proposal.
REGOs to include the name of the
person or organisation on whose
behalf the REGO is being
surrendered, where applicable and if
the surrender is being made on
behalf of many organisations.
We are supportive of this information being provided at an
17. The Department proposes that
aggregate level as this could provide trends and insights for
additional information capturing the
energy sector participants. However, we don’t support the
purpose of the REGO surrender be
public disclosure of individual organisation data as this
required to be provided when a
could reveal commercial in confidence information relating
person or organisation surrenders a
to company strategy.
REGO, and be publicly visible.
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