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In Brief

The report of the Expert Panel established to review the Renewable Energy Target (RET) Scheme was released to the public on 28 August 2014. The Panel has recommended two options for reforming the Large-scale Renewable Energy Target (LRET).

Background

The first is to ‘grandfather’ the scheme by closing it to new entrants while allowing it to continue until 2030 for existing and committed renewable generators. In order to qualify, projects would need to demonstrate that there is full financial and contractual commitment (i.e. a final investment decision and an engineering and procurement contract) within one month of the Government’s announcement of adopting this approach.

The second option is to modify the target each year as a 50 per cent proportion of new growth in projected national electricity demand until 2020. This option contemplates a modest amount of industry subsidy in the event that electricity demand begins to grow.

The Panel has also recommended the immediate closure or accelerated phase-out of the Small-scale Renewal Energy Scheme (SRES), because of the associated cost of CO₂-e emission reduction. It found that the small-scale renewable energy industry is becoming commercially viable, having benefited from significant reductions in the cost of small-scale solar PV systems and increases in retail electricity prices.

The Panel makes these recommendations on the basis that the RET is a high cost approach to reducing emissions. The Report suggests that the RET is unjustifiable because it promotes activity in renewable energy ahead of lower cost options for reducing emissions located elsewhere in the economy.

ACIL Allen Consulting was commissioned by the Panel to model the impacts of various options for reforming the RET, including their impacts on electricity prices. The analysis suggests that under the current RET scheme wholesale electricity prices would fall slightly over the 2015 to 2020 period and then rise slowly from 2025. It concludes that retail prices over the 2020 to 2030 period would be lower with the RET in place. In making its recommendations to abolish or scale back elements of the RET the Panel weighed the results of the ACIL Allen modelling against assessments of ‘broader, economy-wide impacts’ contained in stakeholder submissions to the review.

The implementation of the Panel’s recommended changes to the LRET would require legislation that is likely to be resisted in the Senate. Labor, the Greens and the Palmer United Party have previously expressed opposition to changes of the type recommended by the Panel, and together form a majority opposition on the issue in the Upper House. The Government may take several weeks to respond to the Report.

For further information, please contact:

Gerard Pike, Partner, Herbert Smith Freehills

[email protected]

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