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Scheme compliance

We assist scheme participants to comply with their obligations and use the full suite of compliance and enforcement powers to protect the integrity, stop harm, and improve outcomes.

Compliance approach

We monitor compliance with climate change laws to determine compliance levels, identify possible non-compliance and assess whether changes to our education approach, or enforcement action are required. We take a risk-based approach to compliance monitoring, using a broad range of data and information sources, conducting audits and undertaking inspections.

Where non-compliance does occur, we may impose enforcement action ranging from administrative penalties and infringement notices to substantial civil penalties and criminal sanctions for dishonest or fraudulent behaviour.

To increase transparency and accountability of our activities, we publish annual compliance priorities on our website. These priorities are set at a point in time. We respond to observed behaviours throughout the year, and our priority is preventing harm or stopping it as soon as it is identified. As a result, we sometimes supplement our priorities with additional activities or refocus our priorities through the year. Our published priorities for 2018–19 are summarised in Compliance priorities.

Highlights for 2018-19

  • 332 audits completed across our schemes, with 90.5% returning a clean opinion
  • 100% compliance for the second Safeguard Mechanism compliance period
  • 96.9% compliance for National Greenhouse and Energy Reporting scheme reports
  • 93.3% compliance for surrendering certificates to meet Renewable Energy Target liability

Ensuring integrity of data through the Audit Framework

The National Greenhouse and Energy Reporting Audit Framework helps ensure the integrity of data reported to us under all the schemes we administer.

Audits provide confidence in National Greenhouse and Energy Reporting scheme data, and identify factors that help us prioritise report assessment, compliance, intelligence, and participant education activities. Audits also provide assurance for us to issue ACCUs under the Emissions Reduction Fundand issue exemption certificates under the Renewable Energy Target for emissions-intensive trade-exposed facilities.

During 2018–19 a total of 332 audits were completed under this framework. This included 46 audits that we initiated at our cost and selected using a risk-based approach. Participants in our schemes submitted the remaining audits, including audits of 143 Emissions Reduction Fund projects, 69 exemption certificate applications (Renewable Energy Target), 12 calculated baseline applications (Safeguard Mechanism) and 62 voluntary audits from National Greenhouse and Energy Reporting reporters.

A total of 90.5 per cent of these audits returned a clean opinion. This indicates the participant is compliant with scheme requirements (although they may have a small number of non-material findings). Just 3 per cent returned a qualified opinion. This indicates the participant is largely compliant except for a small number of material matters that are not pervasive. The remaining 6.5 per cent either returned an adverse finding, where there was at least one material issue of significant non-compliance, or the auditor was unable to form an opinion.

Checking registration and compliance of auditors

We register greenhouse and energy auditors and monitor their performance. As at 30 June 2019, there were 89 registered auditors, down from 105 registered at 30 June 2018. This reduction was mainly due to a reduction in the market for audit services combined with our more rigorous requirements to ensure auditors remain active and skilled. Most auditors who deregistered self-nominated, as they were not active and therefore not meeting ongoing registration requirements.

We assessed 13 auditors as part of our routine registration review program during 2018–19. The number of registered auditors remains sufficient to support and provide audits for our schemes and participants.

Compliance by registered auditors is an area of focus for us, given its importance to the integrity of the schemes we administer. In 2018–19 we conducted six inspections of registered Category 2 auditors, selected based on their activity across our schemes. These inspections provide us with in-depth insights into auditor performance. The inspection program also helps enhance our own procedures and improve guidance.

Where we identify non-compliance through inspections, we initiate compliance action. This ranges from specific improvements that auditors need to undertake, through to possible suspension or deregistration. The six inspected auditors in 2018–19 met our requirements to remain registered, with only minor improvements recommended.

During the year we also held auditor workshops in Melbourne, Sydney and Perth to provide continuing education to help auditors understand and comply with the Audit Framework and to provide context on our compliance focus areas.

Enhancing the Audit Framework

In response to inspection findings and regulatory decisions, we continued to enhance the Audit Framework. This program of enhancements is now nearing completion, and we expect to finalise this work during 2019–20.

Emissions Reduction Fund compliance activities

Monitoring compliance with scheme obligations

During the reporting year our compliance focus for the Emissions Reduction Fund was on identifying participants who had not met their reporting obligations. This resulted in 15 participants voluntarily revoking 21 projects. This was mainly due to non-viable projects, or inability to obtain eligible interest-holder consent.

Verifying capacity of projects

We use spatial analysis tools to assess applications for ACCUs for vegetation projects. This includes use of high-resolution geospatial imagery to check the capacity of projects to deliver carbon abatement.

Agreeing to enforceable undertakings where necessary

Enforceable undertakings are written statements from a person or organisation that they will do or stop doing certain things in order to resolve breaches or improve compliance with the legislation.

During the year we continued to manage one enforceable undertaking agreed at the end of 2017–18, but no new enforceable undertakings were created for the Emissions Reduction Fund in 2018–19.

Achieving full compliance with Safeguard Mechanism

The Safeguard Mechanism requires all facilities that exceed their baselines in a financial year to take steps to manage their emissions by 1 March in the following year.

Most facilities that exceeded their baselines in 2017–18 took steps this year using one of the options described in Safeguard Mechanism requires facilities to manage and report emissions section.

However, 13 safeguard entities were required to surrender a total of 259,528 ACCUs to manage their emissions below their baselines, including 108,221 ACCUs that were a deemed surrender. All ACCUs were surrendered before 1 March 2019 and the Safeguard Mechanism therefore achieved 100 per cent compliance for the second compliance period.

National Greenhouse and Energy Reporting scheme compliance activities

This year our compliance focus was on enhancing data integrity, aided by analytics to inform our processes.

Encouraging scheme compliance

We engage with reporting corporations—through general communication, in targeted campaigns and on an individual basis—to provide ongoing education and address quantitative and qualitative data issues.

Analysing the reported data helps us develop a picture of highest risk areas that need the most focus. We have tightened our resubmission policy, and strengthened our regulatory responses to instances of late reporting and where a reporter has a history of submitting inaccurate data.

Our aim is to bring corporations back into voluntary compliance with the scheme, while taking stronger action to discourage non-compliance.

Large-scale Renewable Energy Target compliance activities

Identifying issues with certificate claims

Our audit program for 2018–19 included a focus on nominated persons responsible for multiple power stations in the commercial and industrial solar sector. The audits sought to provide confidence over the business practices and record keeping of nominated persons, ensuring they continue to meet their administrative requirements under the Act. The audit program identified a number of areas for improvement, but did not find any instances of material non-compliance.

In 2018–19, we initiated checks on data supplied directly from Meter Data Providers to accredited power stations, in support of their claims on large-scale generation certificates. Our assessment of the data identified no discrepancies with reported generation.

We analysed electricity generation returns and identified a small number of power stations with ineligible large-scale generation certificates validated for 2018 generation. The errors were typically due to rounding in carry over generation from month-to-month. In all cases, nominated persons for these power stations agreed to make a large-scale generation certificate adjustment in 2019 to rebalance their entitlement. With no net impact on large-scale generation certificate creations, no further action was required.

Managing power station accreditations

We suspended the accreditation of 11 inactive power stations during the reporting period. Power stations were suspended under provisions set out in the Act, including not producing electricity from an eligible energy source (nine power stations), and failure to submit an electricity generation return (two power stations).

Small-scale Renewable Energy Scheme compliance activities

Monitoring certificate claims

This year our compliance focus for the Small-scale Renewable Energy Scheme was on installation of unapproved panels, misuse of installer details, and claims for certificates for systems that were not installed.

To check installations, we used automated solar panel validation and data matching with electricity metering data from the Australian Energy Market Operator. This year we also introduced a self-assessment check for registered agents who create certificates, to lower the risk of accidental non-compliance.

Two agents were the subject of enforcement action this year for improperly creating certificates. One was suspended and the other entered into an enforceable undertaking. See details in the Feature – Focus on compliance.

Inspecting installed units

Each year, we inspect a statistically significant sample of solar panel systems to check conformance with the relevant Australian standards, including relevant state and territory electrical safety standards, and requirements under the Small-scale Renewable Energy Scheme.

To be eligible to create small-scale technology certificates, the small generation unit’s solar panels and inverter must be on the Clean Energy Council list of approved components, and the system must be installed by a Clean Energy Council accredited electrician.

In 2018–19, a total of 3670 systems were inspected. Of these:

  • 2893 (78.8 per cent) were assessed as compliant
  • 702 (19.1 per cent) were assessed as substandard. This rating does not mean the whole system is substandard. Typically, such a rating is because one or two defects are found in the installation that do not affect performance, and
  • 75 systems (2 per cent) were assessed as unsafe. The most common issue is associated with water ingress into DC isolators (a switch), particularly the isolator on the roof.
    • This assessment means these systems were potentially unsafe. For example, some moisture in a switch in an exposed location can be normal. However, excessive moisture, possibly due to poor installation, could result in a potential risk. Where anything is assessed as potentially unsafe, our inspectors take immediate action to render the system safe and notify relevant parties.

There has been an overall downward trend in the level of potentially unsafe systems installed since the inspection program started. This is likely a result of the Clean Energy Council strengthening guidelines, including the requirement for a shroud over the top of DC isolators, as well as ongoing associated actions to improve installer training.

State and territory electrical safety regulators are responsible for electrical safety. As part of our role, we provide reports to state and territory electrical safety regulators and the Clean Energy Council, and we publish inspection results on our website. We also share the results of the inspection program with peak industry bodies, electrical safety regulators, inspection service providers and industry more generally through our education and outreach activities. We have no direct powers to deal with electrical safety matters. To date, the evidence and trends from inspection program data have contributed to improvements in Clean Energy Council installer training and guidelines, changes to the Australian standards and improved consistency of inspections.

Investigations

We actively investigate breaches and potential breaches of the legislation we administer.

Our investigations work leverages off our compliance, detection and intelligence activities. We undertake a preliminary assessment of anomalies. Where there appears to be a substantive non-compliance, our investigators, officers and lawyers work together to collect evidence and determine the most appropriate course of action. These actions can range from administrative responses (including warning letters, suspension of registration, and Fit and Proper Person processes), to use of information gathering powers (including notices to produce and warrants), and enforcement responses (including commencing civil penalty proceedings, referring matters to other agencies for prosecution or providing briefs to the Commonwealth Director of Public Prosecutions). Investigations form an integral part of our efforts to protect the integrity of the schemes we administer, as well as the relevant industries and consumers.

Investigations are undertaken in accordance with our Compliance policy for education, monitoring and enforcement activities and the Australian Government Investigations Standards.

In 2018–19, our compliance and investigation sections received 37 referrals, leading to 32 new investigations being opened. All these cases related to potential fraud in the Small-scale Renewable energy scheme. Allegations included recording false information in the REC Registry, claiming certificates for solar PV systems that were never installed or over-claiming certificates based on system size, submitting false information or documents, and non-compliance with an enforceable undertaking. We use sophisticated detection methods to determine whether systems have been installed and we pursue actions against those in the supply chain involved in any unlawful activity.

Also during 2018–19, we closed 43 investigations. These include matters that have been resolved by non-court action, including accepting enforceable undertakings or suspending registration (therefore removing non-compliant parties from participation in our schemes).

As at 30 June 2019, a total of 26 investigations remained open.

During the year we also referred one brief of evidence to the Commonwealth Director of Public Prosecution to consider criminal action. This case related to alleged fraudulent conduct by an accredited installer. We issued a further five warning or advisory letters and made two formal referrals to state regulators in 2018–19.

During the year we also continued to liaise with the external agencies such as the state offices of fair trading, Australian Taxation Office, Australian Federal Police and Australian Criminal Intelligence Commission—strengthening cross-agency connections, and leveraging capabilities and experience to detect, disrupt and respond to non-compliance and fraud.

Agreeing to enforceable undertakings where necessary

In 2018–19, we accepted one enforceable undertaking with a Small-scale Renewable Energy Scheme participant who improperly created 3115 small-scale technology certificates. After consulting with the participant, we agreed they would surrender the certificates and establish and maintain a Compliance Program for two years. Details are in Table 11 below and also published on our website.

Table 11: Enforceable undertakings in 2018–19

Entity

Date accepted

Allegation summary

RETA (WA) Pty Ltd

12 March 2019

Improperly created 3115 small-scale technology certificates in contravention of section 24A of the Renewable Energy (Electricity) Act 2000.

Feature – Focus on compliance

A focus of our compliance and enforcement action during 2018–19 was the Small-scale Renewable Energy Scheme, in particular making sure only eligible small-scale systems received the right number of small-scale technology certificates.

Following a successful pilot, the automated Solar Panel Validation initiative is in full industry roll-out. At the end of 2018–19, 70 per cent of solar panels installed and reported under the Small-scale Renewable Energy Scheme were able to be verified this way. Industry participants using this initiative are saving money and time compared with their old business systems. We are processing small-scale technology certificates submitted with Solar Panel Validation within 24 hours. This initiative is also allowing us to focus our compliance efforts more sharply on parts of the industry where there may be quality problems.

In addition to using automated Solar Panel Validation and data checking to validate claims, this year we also introduced compulsory knowledge checks and self-assessment for registered agents who create certificates. This online initiative, SRES Smart, ensures agents demonstrate they understand their expected capability, standards of practice and responsibilities in maintaining the integrity of the scheme, including lowering their own risk of accidental non-compliance and fraud by third parties.

During the reporting year, two agents were the subject of enforcement action. Both had improperly created certificates for rooftop solar PV installations claimed by third parties that had not actually occurred. However, because the conduct and compliance history of the two agents differed markedly, we took different enforcement action.

One agent was permanently suspended. Our investigation found the agent’s own compliance processes were inadequate to the point of negligence, and they were therefore not a fit and proper person to operate within our schemes.

The other agent entered into an enforceable undertaking. This agent self-reported to us after detecting that the installations had not occurred. This was significant factor in determining the appropriate enforcement action.

This year we also strengthened our compliance capability with changes to our operating model that enabled greater and more effective internal collaboration on compliance for all the schemes. This is in part reflected in the exercise of statutory powers, such as site visits by authorised officers, as well as statutory requests for information from scheme participants to inform assessment of compliance.

Our various activities during the year reinforced our approach to compliance. That is, we support those who want to do the right thing and apply regulatory responses proportionate to the risk posed by any non-compliance. We also consider the conduct of scheme participants, including their compliance history, and we are now more prepared than ever to examine and test the information provided, rather than simply accepting it on face value.