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Department of Climate Change, Energy, the Environment and Water
GPO Box 3090
Canberra ACT 2601
By email: GuaranteeofOrigin@industry.gov.au
3 February 2023
To whom it may concern,
Australia’s Guarantee of Origin Scheme: consultation papers
ENGIE Australia & New Zealand (ENGIE) appreciates the opportunity to respond to the Department of
Climate Change, Energy, the Environment and Water (“the Department”) in response to the consultation papers on the Guarantee of Origin Scheme (“the Papers”).
The ENGIE Group is a global energy operator in the businesses of electricity, natural gas and energy services. In Australia, ENGIE has interests in generation, renewable energy development, and energy services. ENGIE, the owner of Simply Energy, is also a leading provider of electricity and gas to business and retail customers accounts across Victoria, South Australia, New South Wales, Queensland, and Western
Australia.
Timely consultation with prompt implementation highly desirable
ENGIE commends the Department for its timely consultation on the development of two interlinked instruments: a Hydrogen Guarantee of Origin (HGO) certification process and a Renewable Energy
Guarantee of Origin (REGO) certification process. ENGIE is one of several proponents of current clean hydrogen projects in Australia and given the high levels of interest from actual and potential customers for assurance of the emissions profile of clean hydrogen, we consider that the development of these certification processes (noting that hydrogen produced via electrolysis will need to create/obtain REGOs in order to meet HGO standards) should be expedited. To that end, we support initial design choices that minimise complexity, noting that some of the additional elements canvassed in the Papers can be introduced later without compromising the schemes.
For this reason, we support the nomination of the Clean Energy Regulator as the administrator of both schemes. This has the benefit of utilising an existing agency with the experience of running very similar schemes (certificates associated with the current renewable energy target, for example).
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HGO certification
ENGIE agrees with the Papers’ view that hydrogen should be the first candidate for GO certification, given that is the product where there is clearest demand. Attempting to design for other products (other than renewable electricity) would slow down the process unduly. There may also be useful insights from implementation of HGO that could help to improve the design of future product GO schemes.
ENGIE also agrees with the voluntary nature of the scheme. Hydrogen producers who are not using low emissions techniques would have no reason to want to incur the costs of complying with the scheme, and as such their non-participation is informative to prospective buyers in itself.
ENGIE considers that the proposed change of boundary from the previous expectation that emission would be based on well-to-gate to also include transport and storage adds complexity to the scheme. However, to the extent this is consistent with emerging international norms, it may be a necessary complexity.
ENGIE notes that while there are clear technology pathways to zero emissions production (i.e. electrolysis of hydrogen using renewable electricity), transport vectors such as shipping currently lack zero emissions alternatives. Accordingly, the combination of a well-to-use approach and the proposal to disallow offsets may preclude zero emissions certification in many circumstances. Notably, this is likely to include exports, which is a key rationale for aligning with international GO schemes. The Department should consider whether this is a desirable outcome, and whether there are ways in which it can be mitigated. If there are residual concerns about the use of offsets more broadly in the certification process, they could still be allowable for the transport component and other hard-to-abate activities. Whether offsets should continue to be allowed in the future as new technologies diffuse through the economy could be a matter for the periodic reviews.
The Department’s proposal on admissible emissions measurement methods is a little ambiguous. More clarity is required that existing standard methods for each step of the supply chain will be acceptable. For example, while ENGIE accepts that direct continuous measurement is the most robust approach, it is not yet the norm for many activities, with transport being a key example. Vehicular transport emissions are usually based on manufacturers’ fuel efficiency standards or on testing in controlled circumstances extrapolated to actual usage. Such methods should be allowed in the HGO legislation and any subsidiary guidelines. Additionally, assurance requirements should be designed to be as efficient as possible without compromising the integrity of the scheme. Proposals to align with the assurance requirements of similar schemes such as NGER and LRET are an appropriate way to support prompt implementation as they are familiar processes.
ENGIE strongly supports the use of large-scale generation certificates (LGCs) and the new REGOs (see below for our advice on designing the REGO scheme) to evidence the use of zero emissions electricity - other than self-generation – for the purposes of HGO certification. ENGIE notes that these are effectively offset mechanisms, given that the physics of the electricity grid and market design both inhibit direct matching of renewable generation to grid consumption. Refinements such as time-matching renewable energy certificates to the time of use should remain optional.
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ENGIE cautions that the proposed provenance approach may introduce unnecessary rigidities into the clean hydrogen market as it develops, and more sophisticated contracting and trading activity takes place. While
ENGIE does not wish to delay implementation of a scheme that is workable for this nascent industry, we consider the Department should also begin work on considering how more flexible HGO certificate trading arrangements can be introduced.
While ENGIE agrees that periodic review of a scheme can help identify issues and improve scheme operation, there are pros and cons in setting up a fixed schedule of review dates rather than responding to circumstance. In any case, the 2025 review will be so soon after the initial implementation that it should be scoped to only fix evident problems rather than considering major changes.
REGO scheme should be designed with liquidity and fungibility in mind
ENGIE considers that many of the features of the existing LGC scheme can be replicated in the REGO scheme. A key goal is to keep the scheme broad and fungible to foster liquidity in the secondary market.
The secondary market for LGCs has been a key tool for liable entities, allowing small retailers to buy from the spot market where their demand is insufficient to support a specific project, and affording larger retailers such as Simply Energy the flexibility to efficiently meet their liabilities. While the REGO scheme will be a voluntary scheme rather than a compliance scheme, these features remain important.
Accordingly, ENGIE supports the maintenance of the existing publicly visible attributes, as LGC market participants are familiar with these requirements. We further support the position that addition of further attributes be on an opt-in basis only. Making these new attributes mandatory would make the creation of certificates unnecessarily onerous and risk splitting the secondary market into multiple small, illiquid markets. We do not consider views supporting scheme furcation are in the long term interests of consumers or abatement.
Some considerations for the proposed additional voluntary attributes are as follows:
Time stamp – the Department should consider the appropriate time unit that would meet the needs of buyers desiring the ability to attribute match against their load profile. This may not be the one-hour time unit proposed. Market dispatch is typically every 5 minutes and settlement every 5 minutes (NEM) or 30 minutes in smaller wholesale markets.
Power station age – this seems superfluous when there is already a power station ID attribute and commissioning dates can easily be found. It is also overly simplistic as plant can be upgraded, expanded and refurbished during its lifetime.
Grid location – some users may value knowing which region of the NEM a certificate originates from if they are looking to attribute match against their consumption.
As these are proposed to be voluntary information attributes, noting ENGIE does not support them as being mandatory or necessarily of significant value, it is not necessary that all of these issues are resolved in time for the start of the scheme and thus they should not hold up implementation.
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ENGIE is broadly supportive of most the proposed eligibility requirements, such as the inclusion of offshore and export facilities, the avoidance of double-dipping into both LGC and REGO creation, and to maintain the definition of renewable energy sources.
We agree that retaining pre-1997 baselines is arbitrary in the context of REGOs and need not be maintained but consider that the Department needs to be clear that this is because the purpose of the REGO is only to support information about electricity sources. REGOs will not support additionality. There will also be an impact on the market dynamics of renewable energy certificates as a large new source of supply (primarily in the hands of Hydro Tasmania and Commonwealth- owned Snowy Hydro) of REGOs from hydropower that was not eligible to create LGCs.
Supply expansion will likely drive the REGO price lower and will in turn impact LGCs as price differentials are largely arbitraged away because buyers of certificates for voluntary surrender will be able to use either instrument. Since the Large-Scale Renewable Energy Target (LRET) is no longer increasing and does not require new qualifying investment, this is not a public policy problem. In fact, it should contribute modestly to mitigating retail price rises since the cost of LRET compliance is a component of the retail cost stacks used by regulators in setting retail price caps. Given these issues, a key issue is a clearly communicated implementation timeline.
ENGIE considers that the department needs to investigate options for small scale renewables participation further. The existing Small Scale Renewable Energy Scheme is based on deeming several years of output and awarding all the certificates on installation and was deliberately decoupled from LRET to avoid distorting the large-scale market. Substantial falls in the cost of rooftop PV means the case for a new up- front subsidy are not compelling. But in principle owners of small-scale renewables should have some opportunity to benefit from demand for renewable energy certificates. Validating their output to the degree necessary to maintain scheme integrity without imposing major costs on owners of small-scale systems may need further consideration and should not delay implementation of the REGO scheme in the first instance.
The inclusion of small scale, or mass market participants, also creates a range of additional challenges they made require further consideration. Residential prosumers may wish to participant in the REGO market, but this would not be possible if they were required to hold an Australian Financial Services License, or be subject to “the most stringent registration requirements”, and fractional REGO’s could not be created.
Additional metering challenges would exist with gross metering, if not consistent with AEMO rules, and time mapping would appear of even less value for this sector. Finally, proposal 16 raises a number of privacy concerns, as well as seeming potentially impractical given the sheer volume of affected customers.
Proxy surrender is not a problem, and thus does not require a solution. There are many valid reasons why proxy surrender takes place and there are better ways to assure claims by particular parties that they have procured sufficient REGOs to match their consumption.
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Should you have any queries in relation to this submission please do not hesitate to contact me on, telephone, 0477 299 287.
Yours sincerely,
Jamie Lowe
Head of Regulation,
Compliance and Sustainability
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