Explaining the Renewable Energy Target (RET)

7th March 2014

Here is a summary of the Renewable Energy Target from ABC News Fact Check (7/3/14):

“The Federal Government has announced a review into the Renewable Energy Target that aims for 20 per cent of power drawn from renewables - like wind and solar - by 2020. … There are two distinct groups who produce renewable energy. Large producers include wind farms, hydro-electric projects and solar power plants. There are also small-scale producers, like households with solar panels. … Energy retailers - the companies that deliver power to consumers - are required by law to purchase renewable energy certificates generated by renewable energy producers. The number of certificates the retailers are required to buy is set annually by the Clean Energy Regulator. … Energy retailers pass the cost of the RET on to consumers through retail pricing. Some of Australia's energy regulators - some states have their own, others are solely monitored by the national body - estimate the cost of the RET to consumers makes up between 1 and 5 per cent of power bills.”

The article goes onto to discuss the Large-scale Renewable Energy Target (LRet) and the full article can be found at:  http://www.abc.net.au/news/2014-03-07/how-does-the-renewable-energy-target-affect-your-power-bill/5253136 It concludes: “The RET can lower wholesale electricity prices, because creating renewable energy once the infrastructure is in place is relatively cheap …[but]  … that benefit [of LRet] does not necessarily extend to the consumer.”

Of more interest to Going Solar and our customers are the Small-scale Technology Certificates (STCs) generated by households, community buildings, etc where photovoltaic and/or solar hot water systems are installed and the STCs claimed. This is effectively a subsidy to the value of about 25% of the system cost, or if you like a discount provided to the customer at the ‘point of sale’ – which they seem to like.

The cost of this subsidy is passed onto other energy consumers and is said to add 1 to 3% onto everyone’s energy bills. Not necessarily a great amount but such a cost penalty should have the effect of encouraging energy efficiency so it can be argued it is a good thing. Certainly acting on those energy efficiency measures will produce savings for the customer (at the expense of the profits of the electrical utilities) many times the cost of the penalty.

It has been said that the STCs mean that some people are subsidising others by the installation of their solar systems and surprise surprise that is exactly what is happening – and what was intended to happen. This does not necessarily mean that the rich are subsidising the poor – it may well be the other way around. You may hear a lot of belly-aching around this point but this is how our system works: a childless couple for example may, through taxation, be subsidising some other person’s child’s schooling.

So what are the benefits of a Renewable Energy Target? Primarily it assists in the transition to sourcing our energy from more sustainable and less polluting sources. STC’s in particular encourage ‘distributed energy’ where power is produced close to the point of consumption, thus reducing the need for importing power from the Snowy Mountains, the Latrobe Valley or even across the Bass Strait from Tasmania with consequential line losses – said to be around 17%.

Most STC’s are generated by solar systems (photovoltaics or solar hot water) and in Victoria these tend to work best in summer when the utilities need the power the most (to counter air-conditioning loads, etc) – so it is win-win situation.

STCs encourage investment by the clients of around three times the value of the subsidy. This in turn helps create a critical mass of demand for solar products that in turn drives the purchase cost down – to the benefit of the less well-off, as solar systems become more affordable. So pollution and system costs are reduced and a good deal of employment is created in the process.

The losers are the utilities (which in Victoria are foreign owned) but they compensate by raising their prices which in turn encourages more solar sales and more energy efficiency, which will lead to less pollution and more utility price rises. You’ve probably read about dinosaurs.

Stephen Ingrouille, Principal, Going Solar Pty Ltd 

PS See the blog: Consequences of any negative changes to the RET