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Renewable Energy Target

The Renewable Energy Target has significantly increased the number of small-scale renewable energy systems and stimulated investment in large-scale renewable energy power stations—helping reduce Australia’s emissions and support our international climate change commitments.

Encouraging investment in renewable energy to reduce emissions

The Renewable Energy Target aims to encourage additional renewable energy and reduce greenhouse gas emissions in the electricity sector. It operates on a calendar year basis.

The scheme has two parts:

  • Large-scale Renewable Energy Target—This requires Australia to generate an additional 33,000 gigawatt hours of electricity from sustainable, renewable sources by 2020. It encourages companies to invest in new large-scale renewable energy power stations, including solar and wind farms, and hydro and biomass power stations.
  • Small-scale Renewable Energy Scheme—This creates incentives for households and businesses to install small-scale systems including solar panels, solar water heaters, small-scale wind or hydro systems and air source heat pumps.

The scheme works by creating a market for renewable energy certificates, which drives investment in the renewable energy sector. On the supply side of the market, participants create certificates for each megawatt hour of renewable energy generated or displaced (no longer required from the grid). On the demand side, liable entities (mainly electricity retailers) source certificates in proportion to the total electricity they acquire in an assessment year.

Highlights in 2018–19

  • 95% increase in accredited capacity of new renewable energy power stations compared with last year
  • 22.9 million megawatt hours of additional electricity generated by accredited renewable energy power stations
  • 43% increase in installed small-scale solar capacity compared with last year
  • 14.6 million megawatt hours electricity generated or displaced by small-scale systems

Detailed review of Renewable Energy Target progress

We publish details about the operation of the Renewable Energy (Electricity) Act 2000 in annual administrative reports, as required by the legislation. These reports present information about scheme operation and achievements from the previous calendar year as well as an annual statement on progress towards meeting the target.

We tabled The 2018 Renewable Energy Target Annual Statement—Progress towards the 2020 target in April 2019, ahead of the full annual administrative report. This informed Parliament of the certainty that the Large-scale Renewable Energy Target of 33,000 gigawatt hours will be met in 2020.The full 2018 report, The acceleration in renewables investment in 2018, was tabled on 24 July 2019 and published on our website.

Significant increase in large-scale renewable energy power stations

The number of power stations accredited under the Large-scale Renewable Energy Target has increased since 2001.

In 2018–19 we accredited 345 new power stations, 31 per cent more than 2017–18. This brings the overall total to 1233. We processed all applications for accreditation within the required six weeks.

The capacity of power stations we accredited has also increased significantly. The total capacity of renewable energy power stations accredited during 2018–19 was 3850 megawatts, nearly double that of 2017–18. The renewable energy projects committed in 2017–18 are now complete and accredited.

During 2018–19 accredited renewable energy power stations generated 22.9 million megawatt hours of additional electricity.1This is enough to power more than 4.4 million average Australian households each year.2

More power stations at both ends of the spectrum

This year saw a 96 per cent increase in the number of accredited utility-scale renewable energy power stations with a capacity of more than 5 megawatts. More than 72 per cent of the increase in capacity came from 19 power stations with capacities in excess of 100 megawatts.

At the smaller end of the spectrum, the rise in mid-scale solar power stations continued this year, with the number of accreditations increasing by 31 per cent and capacity increasing by 61 per cent. These are systems of less than 5 megawatts capacity, and are often used by businesses to reduce their electricity bills.

Table 5: Number of power stations accredited and capacity, 2016–17 to 2018–19

2016–17

2017–18

2018–19

Cumulative total since 2001

Number of power stations accredited

90

263

345

1233

Capacity (megawatts)

642.9*

1976.5**

3850.4

20,407***

*2016–17 data has been adjusted to reflect expansions to existing power stations that were processed in 2018–19.

**2017–18 data has been adjusted to reflect expansions to existing power stations that were processed in 2018–19.

***This figure does not include capacity for eight co-fired power stations but does include capacity that does not contribute additional generation (for example, power stations that have a baseline).

Solar and wind the main energy sources for power stations

There are 19 eligible renewable energy sources under the Renewable Energy Target. The most common are solar, wind, hydro, biomass, and waste coal mine gas.

Solar was the dominant renewable energy source for accredited renewable energy power stations and capacity in 2018–19, accounting for more than double the amount of wind capacity accredited.

This was the first year in the scheme’s history that more large-scale solar capacity was accredited than wind capacity, reflecting the shifting dynamics in the industry.

Table 6: Accredited power stations by energy source and capacity, 2018–19

Energy source

Number

Capacity (megawatts)

Solar

326

2597.1

Wind

10

1244.2

Biomass

7

8.9

Hydro

2

0.2

Total

345

3850

Increase in electricity from renewable energy power stations leads to more large-scale generation certificates

Large-scale generation certificates are created based on the amount of electricity generated by accredited power stations using renewable energy sources. Each certificate represents 1 megawatt hour of renewable energy generation.

In 2018–19 we validated 26,250,722 large-scale generation certificates compared with 20,023,012 validated in 2017–18.3

More than 65 per cent of the certificates validated in 2018–19 were from power stations using wind as the energy source, 14 per cent were from biomass and solar, and the remaining were from hydro and waste coal mine gas energy sources.

Ongoing increase in small-scale systems

Momentum in the Small-scale Renewable Energy Scheme also continued in 2018–19, with Australian businesses and households installing 290,447 small-scale systems, an 11 per cent increase compared with 2017–18. The majority were solar photovoltaic (PV) systems, with a total installed capacity of more than 1700 megawatts.

In total, small generation units now have a cumulative capacity of more than 8970 megawatts.

During 2018–19 small-scale systems generated or displaced 14.6 million megawatt hours of electricity.

Table 7: Validated small-scale systems as at 30 June4

Solar PV system

Solar water heater

Air source heat pump

Wind system

Hydro system

Annual total

2018–19

235,383

36,318

18,746

0

0

290,447

2017–18

196,240

45,706

19,789

4

0

261,739

2016–17

149,564

45,059

18,314

9

0

212,946

2015–16

130,349

47,704

12,626

16

0

190,695

2014–15

165,844

49,564

9018

10

0

224,436

Cumulative total (since 2001)

2,151,444

923,578

259,518

423

18

3,334,981

Increased capacity of small-scale systems leads to more small-scale technology certificates

Renewable energy certificates created under the Small-scale Renewable Energy Scheme are called small-scale technology certificates. Under the scheme, participants can create small-scale technology certificates following the installation of an eligible system. The number of certificates is based on the amount of electricity the system is estimated to produce or displace over its lifetime, depending on the technology.

Small-scale technology certificates can be created up to 12 months after the system is installed. This means that during 2018–19, we validated small-scale technology certificates created for systems installed in both 2017–18 and 2018–19.

We validated 33,265,332 small-scale technology certificates during 2018–19, a significant increase from the 25,567,897 certificates validated in 2017–18. This was due to a higher number of solar PV systems installed and an increase in the average capacity of these systems. This increase is despite a reduction in the deeming period for solar PV systems, which is reducing the number of certificates that can be created for an eligible system by one year, every year until 2030.

Certificate prices

Large-scale generation certificate spot price on a downward trend

The large-scale generation certificate spot price started the financial year at $77.80 and dropped to a low of $31.00 in March 2019.6 This fall is likely due to the market recognising that the 2020 target will be exceeded, and our updated stance on deferral of certificate liability published in October 2018.

The large-scale generation certificate spot price increased again towards the end of the financial year, finishing at $42.50. This increase is likely due to the release of updated marginal loss factors that impacted a number of projects.

Large-scale generation certificate forward contract trading volumes increased during 2018–19. Contracts for delivery in 2020 traded at $23.75 at the end of June 2019. Contracts for delivery in 2021 traded at $14.60 at the end of June 2019, down from $27.00 at the start of the financial year.

Figure 9: Large-scale generation certificate spot price 1 July 2018 – 30 June 2019Line chart graph showing spot price rate from July 2018 to June 2019. In June 2018 spot price was around $80, dropping to about $30 in March 2019, and increasing again slightly to $40 in June 2019.

Small-scale technology certificate spot price relatively stable despite large growing surplus

Despite the increased number of small-scale technology certificates in 2018–19, the spot price remained relatively stable, starting the financial year at $37.95 and ending the financial year at $36.90. This is below the capped price of $40 available for certificates bought and sold through the small-scale technology certificate clearing house.

The small-scale technology certificate clearing house was in surplus throughout 2018–19. We operate the clearing house to provide a mechanism when liquidity is low, enabling trade of small-scale technology certificates at the capped price of $40. The certificate spot price in the market typically trades below $40 during periods of oversupply, resulting in a low rate of purchase through the clearing house.

The increase in small-scale technology certificates created in 2017–18 continued throughout 2018–19. If this trend continues, we expect a material surplus of small-scale technology certificates to grow and remain into 2019–20.

Large-scale generation certificate and small-scale technology certificate prices change based on supply and demand, and no future trends should be assumed from prices published in this report.

Looking forward

Australia will have enough renewable energy capacity to exceed the 2020 Large-scale Renewable Energy Target.

We accredited a record 3850 megawatts of large-scale renewable energy capacity in 2018–19, bringing the capacity already built or under construction to more than 11,400 megawatts. This is considerably more than the 6400 megawatts we said would be required to meet the 2020 target.

We expect similar levels of large-scale renewable energy capacity will be accredited in 2019–20 and 2020–21.

We also expect Australian households and businesses to continue investing in small-scale renewables, with the commercial attractiveness of small-scale solar PV likely to continue in 2019–20, as electricity prices remain high and technology costs reduce.

As we approach 2020, the drivers for the continued investment in renewables are shifting from the Renewable Energy Target to commercial factors and state-based incentives and processes.

The accelerated and continued deployment of renewables, both rooftop and utility-scale, highlights the importance of planning for the integration of a much higher penetration of renewables into the electricity grid as the next phase of Australia’s transition to a clean energy future (see Feature below).

We will continue to administer the schemes until 2030, accrediting large-scale power stations, assessing small-scale renewable energy system eligibility, ensuring liable entities meet their obligations, and ensuring the required amount of large-scale renewable energy generation is maintained throughout that decade.

Feature – Rapid transformation of Australia's electricity sector

Australia is installing solar and wind renewables much faster per capita than other countries.7

This year there was a 31 per cent increase in the number of new large-scale renewable energy power stations and an 11 per cent increase in the number of new small-scale systems, mainly rooftop solar.

This represents another record-breaking year, increasing the total renewable capacity installed under the Renewable Energy Target from 3300 megawatts in 2017–18 to 5600 megawatts in 2018–19.

The current pipeline of large-scale projects suggests similar levels of capacity will be commissioned over the next two years.

This strong level of investment means there is now enough capacity built or under construction to exceed the 2020 Large-scale Renewable Energy Target.

This indicates commercial factors are becoming a stronger driver for investing in renewables. In turn, the renewables rollout across the nation is contributing to economic growth. For example, in 2018 a record $26 billion was invested in large-scale renewables projects, creating some 13,000 jobs, many in regional Australia.8

In other signs the market is maturing, the strong growth in renewables is attracting international investors, while innovation and new technologies are also contributing to sustainability and growth.

Households and businesses are also likely to continue investing in small-scale renewables as the technology costs keep coming down.

At the same time, the level of coal fired generation capacity is reducing.

While these changes are reducing emissions from the electricity sector to the lowest on record in 2018,9 they also pose challenges to the stability of electricity grids.

Managing this transition is a key challenge for Australia’s electricity market. With the scale of transition unprecedented and the pace of change accelerating, planning for the integration of a much higher penetration of renewables into the national electricity grid is the next key phase in Australia’s transition to a clean energy future.

Footnotes

  1. Certificates can be created up to 12 months after renewable energy generation, which means generation figures will continue to rise.
  2. 2016 Residential Electricity Price Trends, Australian Energy Market Commission.
  3. Note, large-scale generation certificates can be validated for generation that has occurred in previous years.
  4. Certificates can be created up to 12 months after small-scale systems are installed and certificate validation times may also vary, which means installation figures will continue to increase.
  5. As the Renewable Energy Target operates on a calendar year basis, liabilities discharged are presented in calendar years. Note, figures are correct as at 14 February 2019, and percentages are subject to change throughout the year as compliance and assessment activities are undertaken.
  6. We source wholesale prices from TFS Green.
  7. Blakers, A, Stocks, M, Lu, B, The Conversation, ‘Australia: the renewable energy superstar’, 8 February 2019, p. 1, available at: http://re100.eng.anu.edu.au/publications/assets/100renewables.pdf.
  8. Clean Energy Council, ‘Clean energy project investment doubles in 2018 to top record $20 billion’, 11 December 2018, available at: https://www.cleanenergycouncil.org.au/news/clean-energy-project-investme....
  9. Australian Energy Market Operator, Quarterly Energy Dynamics—Q4 2018, February 2019, p. 14 available at: https://www.aemo.com.au/Media-Centre/AEMO-publishes-Quarterly-Energy-Dyn....