Published name
Upload 1
Clean Energy Council submission in response to the
Renewable Electricity Certification position paper
10 February 2023
The Clean Energy Council (CEC) welcomes the release of the Australian Government’s position paper on renewable electricity certification as part of the Guarantee of Origin Framework for
Australia.
The CEC is the peak body for the clean energy industry in Australia. We represent and work with more than 1,000 businesses operating in Australia across solar, wind and hydro power, energy storage and renewable hydrogen. Our mission is to accelerate Australia’s clean energy transition.
Decarbonisation commitments are gathering pace globally, and there is increasing demand for green and low-emissions products. The proposed Guarantee of Origin framework represents a landmark policy proposal, which will provide Australia with an essential mechanism to be able to demonstrate the environmental credentials of the products we produce, for both domestic and international consumption. Please see our submission on the overarching Guarantee of Origin
Framework here. This submission focuses on the design and implementation of a proposed
Renewable Electricity Guarantee of Origin (REGO), which would be a subset of the overall guarantee of origin architecture.
The rationale for the new REGO certification scheme is two-fold:
• To enable sources of renewable electricity generation, which are currently ineligible to
produce Large-scale Generation Certificates (LGCs) under the mandatory Renewable
Energy Target (‘the RET’) – specifically below-baseline generation and electricity intended
for international exports – to demonstrate their product characteristics.
• To ultimately succeed Large-scale Generation Certificates when the RET is due to cease
operation at the end of 2030.
The new certificate scheme is also viewed as an opportunity to modernise the nature of product information available on a renewable energy certificate, by providing more granular information about the time, place and source of production. The CEC considers these to be welcome proposals, noting the growing global interest from business and consumers for more detailed information and transparency relating to the environmental (and social) impacts of the products they purchase.
In 2022, we saw signals from the European Commission that it intended to apply strict standards to the definition of renewable hydrogen, both produced domestically and imported from overseas, which would cover the temporal correlation between hydrogen production and electricity generation, the geographic correlation between the hydrogen production facility and the renewable
Phone: +61 3 9929 4100 Level 15, 222 Exhibition cleanenergycouncil.org.au
Fax: +61 3 9929 4101 Street, Melbourne, VIC info@cleanenergycouncil.org.au 3000, Australia ABN: 84 127 102 443
electricity generation plant, and even the ‘additionality’ of the electricity source supplying the electrolyser.
Regardless of our views about the merits of these requirements, which may yet be softened to some extent (see our submission to the European Commission here), it is clear that there is a growing global macro trend towards more granular information relating to electricity generation and consumption1, and Australia needs to be equipped to respond to these information needs.
The CEC supports the principle of developing a modernised renewable electricity generation certificate which can meet the needs of all renewable electricity generators in Australia. However, we have deep concerns about the potential unintended consequences for renewable electricity investment and wholesale electricity prices, if the Government proceeds with the proposal in its current form – without any other supporting measures – from 2024.
Impacts on renewable electricity investment
The Australian Government has legislated a national emissions reduction target of 43 per cent, and forecast2 a renewable electricity share in the National Electricity Market of 82 per cent by 2030.
However, deployment of large-scale projects has slowed in recent years and new capacity is currently only being deployed at around half the necessary rate (~3 GW per annum3 compared to the needed ~6GW per annum) in order for Australia to reach these levels. There are a number of factors why Australia’s renewable energy deployment is under-performing, including grid connection challenges, a lack of transmission capacity and long lead times to deploy new network infrastructure, and COVID-induced supply chain shortages and global inflation which have led to substantial increases in equipment prices and shipping costs.
More recently, the CEC has become concerned that the introduction of the Inflation Reduction Act
(2022) in the United States (which is providing generous incentives for the build-out of new wind and solar plants, electrification, green manufacturing and industrial decarbonisation), will result in intensified competition for capital, equipment and people, which will further increase the challenges associated with project deployment in Australia. See the CEC’s pre-Budget submission here, which outlines the risks in further detail.
Set against this backdrop of challenging market conditions and intensifying global competition, the
Department of Climate Change, Energy, Environment and Water (‘the Department’) is now proposing to introduce a new form of renewable electricity certificate (REGOs) in less than 12 months, which we are concerned could result in a substantial decrease in large-scale generation certificate prices, which has not been expected or factored in by the market.
We expect that this fall in prices would occur because the total demand for certificates is currently around 40 TWh per year (33 TWh of which are required under the RET, and a further 7 TWh from voluntary action). Under the current REGO proposal, the 14TWh4 of below-baseline renewable electricity generation which could not previously be recognised as renewable electricity would
1
We also note the rise of initiatives such as Energy Tag, which is working to ‘define and build a market for Granular Certificates that enables energy users to verify the source of their electricity and carbon emissions in real time’.
2
Based on modelling carried out by energy market analyst, Reputex
3 https://twitter.com/AEMO_Energy/status/1614775673473896449?s=20&t=ojDq_C8NfDJo8Y0EgwmkEw
4
We note that this figure, which is based on hydro energy generation fluctuates year to year, but is typically in the order of
13TWh – 16TWh per year
2
become eligible to generate renewable electricity certificates (REGOs). At this stage, the demand for REGOs is not known. While the CEC does not assume that all current buyers of LGCs would immediately switch from LGCs to REGOs5, given contractual commitments and differentiation applied by some buyers – we nevertheless expect that there could be a dampening effect in prices for LGCs, which would further damage the investment case for new projects.
The argument has been made that voluntary demand will continue to grow, meaning that the market for certificates will increase over the coming years. However, this growth is unlikely to be rapid enough or large enough to soak up the additional 14 TWh of certificates that become available in
2024.
Impacts on wholesale electricity prices
In addition to the likely chilling effect on new renewable energy project investment which would slow electricity market price declines over the longer term, the Government should also expect that the introduction of REGOs in 2024 – without other supporting policy measures – would result in higher average wholesale electricity prices in the immediate term.
The reason for this is that the LGC price currently enables renewable electricity plant to continue to operate even at negative prices, until the point at which the negative price cancels out the positive
LGC price. With lower LGC prices, the frequency and magnitude of these negative pricing events is likely to decrease, which will mean an increase in average wholesale electricity prices.
Impacts on energy storage investment
AEMO’s Integrated System Plan identifies that under the Step Change scenario, approximately 46
GW/640 GWh of dispatchable storage capacity and 7 GW of existing dispatchable hydro is needed by 2050, to efficiently operate and firm variable renewable energy.
We note that while interest and activity in energy storage projects has been growing, a single 10
MW utility scale battery was connected in 2022, signalling that a rapid acceleration in battery deployment will be needed in the coming years to meet system requirements.
Energy market arbitrage (buying and storing electricity at low or negative prices and dispatching it at times of higher demand) has been a major component of the energy storage ‘value stack’ for proponents assessing the commercial viability of new energy storage investments. However, a reduction in the scale and frequency of low and negative prices within the wholesale electricity market could reduce the ‘spread’ available to storage proponents and also dampen the business case for new energy storage investments, which are critical to achieving higher shares of renewable energy within the NEM.
CEC recommendations
In light of these significant risks to investment in new renewable electricity generation and storage capacity, the CEC urges the Department and Government to exercise great caution with its proposed introduction of the REGO scheme, and calls on it to consider a range of policy and design options which could minimise adverse consequences for the clean energy transition.
5
The CEC expects that some purchasers will continue to prefer LGCs, which would see this category of certificate enjoy a price
premium to some degree, compared to REGOs.
3
First among these options to be considered by the Government is an increase and extension of the legislated Renewable Energy Target to at least 2035, noting that the scheme would need to continue for some period after this date to ensure investment returns for projects committed to meet these increased targets.
The RET, which requires retailers to purchase a specified amount of renewable electricity generation each year (currently 33 TWh), has already been met, and the mandatory surrender of
LGCs by retailers is scheduled to conclude at the end of 2030. These factors mean that the incentives for new generation investment are declining, and there are no other predictable Federal
Government mechanisms in place to pull new projects through to financial close.
The CEC considers that increasing the volume of generation required under the RET to better reflect the necessary speed and scale of Australia’s clean energy transition, and extending the RET to provide an incentive for capital-intensive, long-lived infrastructure assets, is the cleanest and simplest mechanism for maintaining investment.
Adopting this measure would have a positive impact on wholesale electricity prices, noting that there is a clear correlation between higher shares of renewable electricity generation and lower electricity prices, meaning that this measure would accelerate downward pressure on consumer electricity bills.
Other complementary design measures that the Department could also consider would be a gradual phasing in of REGO certificates over time, or limitations on the use of REGOs within the domestic market, although any such measures would require careful consideration.
Another important initiative that the Australian Government should deliver as part of any introduction of the REGO scheme prior to the conclusion of the RET, is to provide substantial funding support for a major, national public education and marketing campaign for
GreenPower - the government backed certification scheme for voluntary purchases of additional renewable electricity generation. Years of underinvestment in this scheme mean that many consumers are unaware of what the GreenPower accreditation scheme signifies, and as such it is difficult for them to differentiate between different renewable energy products. Investing in a consumer education campaign will help to support demand for GreenPower, and accordingly, new renewable electricity projects.
Conclusion
The CEC strongly supports the vision and intent of the Guarantee of Origin framework and the provision for all forms of renewable electricity to be able to demonstrate their characteristics in a transparent way. However, as this submission notes, the current proposal for the introduction of
REGOs represents a material risk to the speed and scale of Australia’s clean energy transition.
Complementary measures and design considerations will be required in order to reduce the risks to new investment in the coming years. Foremost among these measures is the increase and extension of the Renewable Energy Target.
Please find in the appendix which follows, a response to the full range of draft policy proposals put forward within the REGO position paper.
We would welcome the opportunity to work with the Department and the CER over the coming weeks and months to further discuss and refine the policy design to support the successful introduction of Australia’s Guarantee of Origin framework.
4
Yours sincerely,
Anna Freeman
Policy Director, Decarbonisation
5
APPENDIX 1 – CEC COMMENTS ON PROPOSED POLICY POSITIONS
Page Departmental policy position proposal CEC comments
10 #1 The Department proposes to develop and The CEC supports the principle
implement an enduring tradeable renewable electricity that all forms of renewable
certificate mechanism administered by the Clean electricity generation should have a
Energy Regulator. mechanism for demonstrating their
renewable energy credentials.
11 #2 The Department proposes to allow renewable The CEC supports the
electricity generation to create REGOs where that Department’s proposal for broad
generation has not already created LGCs, STCs eligibility for certificate creation,
unless the certificate creation period has passed) or allowing all renewable electricity
other certificates. generators operating in Australia to
create REGOs, including small-
scale (solar) systems, where the
maximum deeming period has
passed. However, participation on
the scheme should be reliant on
metering rather than deeming (as is
currently the case for STC creation
under the RET).
12 #3 The Department proposes to allow eligible The CEC supports this position.
renewable energy sources as defined under the
Renewable Energy (Electricity) Act 2000 to create
REGOs.
12 #4 The Department proposes to allow storage facilities For stand-alone batteries
to create REGOs for electricity dispatched if they operating in the NEM, some
demonstrate that the stored energy came from eligible members have noted their
renewable electricity generation by first surrendering concerns that treating batteries as
an appropriate REGO or LGC. generators will require asset
owners to operate their plants
based on two different price
signals – one from the REGO
scheme and another from the
NEM spot market, which would
add complexity and some degree
of distortion.
We note that hybrid (generation &
storage) systems could continue to
adopt an approach that is similar,
or which leverages the existing
sub-metering LGC methodology,
for noting there are probably some
opportunities to improve it.
13 #5 The Department proposes that electricity generated The CEC supports the principle
by offshore renewable energy power stations and that all forms of renewable
storage facilities located within coastal waters of states electricity generation should have a
and territories, the territorial sea of Australia, and mechanism for demonstrating their
Australia’s Exclusive Economic Zone, and electricity renewable energy credentials. We
6
Page Departmental policy position proposal CEC comments
that is exported internationally, be eligible to create agree that REGOs created by
REGOs. projects directly supplying offshore
markets should be labelled
accordingly.
13 #6 The Department proposes to allow all renewable The CEC supports this position for
electricity generation to create REGOs regardless of all renewable electricity generation,
power station age. regardless of age, to be able to
create REGOs, noting that
independent certification schemes
or voluntary action programs (eg.
RE100) may apply their own
criteria relating to the age of
generation facilities.
14 #7 The Department proposes to allow all renewable On principle, the CEC considers
electricity generation to create REGOs regardless of that all renewable electricity
power station or storage facility capacity. generation should be treated
equally. On that basis, for this
generation to be allowed to create
REGOs, we agree that the
maximum deeming period must
have concluded. In addition, all
sites (including homes and
businesses) participating in the
scheme must have metering to
measure actual output (rather than
relying on deeming).
14 #8 The Department proposes to require REGOs The CEC supports the adoption of
include all the information currently displayed on the data currently represented on
LGCs, and that this information be publicly visible. LGCs as the core data to be
publicly available for REGOs.
14 #9 The Department proposes to allow RET The CEC supports the CER making
participants to choose to include on LGCs some or all it possible for RET participants to
of the additional information required on REGOs. voluntarily provide additional
information should they choose to
do so.
New information proposed for inclusion on REGOs
15 #10 The Department proposes to require REGOs Noting the increasing level of
include the commissioning date of the power station or international interest and scrutiny
storage facility creating the certificates. relating to environmental claims,
the CEC considers that making
more granular information
available will enable buyers to
exercise greater choice in their
purchasing decisions if they wish to
do so.
Accordingly, the CEC welcomes
the proposal to include the power
7
Page Departmental policy position proposal CEC comments
station commissioning date or
storage facility on the certificate.
16 #11 The Department proposes to require REGOs to The CEC supports this proposal,
include the grid location of the power station or storage noting some buyers will prefer to
facility creating the certificates. support projects within their same
grid.
16 #12 The Department proposes that REGOs created by In principle, the CEC does not see
power stations and storage facilities over 1 MW in the need for time-matching, noting
capacity be required to include a timestamp reflecting that effective investment signals to
the hour in which the electricity was dispatched by the build electricity supply which meets
power station or storage facility. load profiles are already available
via the wholesale electricity market.
Nevertheless, the CEC supports
this proposal for timestamping on
certificates at one hour intervals,
noting that some international
markets are pursuing requirements
for time-matching, and some
Australian renewable electricity
producers may be required by their
customers to report such data.
17 #13 The Department proposes to require REGOs to The wording of this policy proposal
include information indicating whether the certificate requires clarification. If the
was created for generation exported overseas, or for Department is proposing that
electricity dispatched from a storage facility. ‘…information indicating whether
the certificate was created for
electricity generation directly
exported overseas’
[our insertions in red], suggesting a
direct grid connection, then the
CEC is comfortable with this
proposal.
We would however regard this
proposal as unworkable if it is
intended to extend to electricity
generation sold into the wholesale
electricity market which may then
be purchased by companies
utilising the electricity for
renewable energy exports (eg.
green hydrogen/ammonia exports).
17 #14 The Department proposes that anyone may We support this proposal that a
surrender a REGO at any time, including for the REGO owner could surrender a
purpose of creating a product Guarantee of Origin certificate regardless of the
certificate. certificate vintage or energy
attributes. This allows flexibility
within the market, while noting that
independent certification schemes
may have vintage requirements.
8
Page Departmental policy position proposal CEC comments
18 #15 The Department proposes that the Clean Energy While we are pleased to see the
Regulator develop systems and processes to facilitate CER doing the forward planning to
the voluntary matching of certificates based on time or enable its systems to provide a
other energy attributes. time-matching service, we note that
it is not currently envisaged that the
government/Regulator will perform
certification services.
While it appears entirely feasible
for the CER’s data registry to
perform time-matching services in
the coming years, such a service
could blur the line between
‘accounting’ and ‘certification’, and
as such may require further
consideration prior to
implementation.
18 #16 The Department proposes to require REGOs to The CEC does not envisage the
include the name of the person or organisation on REGO certificates themselves
whose behalf the REGO is being surrendered, where including the name of the
applicable and if the surrender is being made on behalf person/organisation on whose
of many organisations. behalf the REGO is being
surrendered, but rather this
information being subsequently
reported/recorded when the
certificate is surrendered.
18 #17 The Department proposes that additional The CEC would envisage this
information capturing the purpose of the REGO information being
surrender be required to be provided when a person collected/recorded upon surrender
or organisation surrenders a REGO, and be publicly of the certificate, rather than being
visible. published on the certificate itself.
9
