On Friday the 27th of February the Minister for Climate Change announced some very positive changes to the prices of Renewable Energy Certificates (RECs). The changes will simplify and gaurantee the Solar Credits rebate which significantly lowers the cost of installing solar PV cells.
REC’s are a special financial instrument created to boost the amount of renewable energy being generated in Australia to 20% by 2020. They work by providing a subsidy for the clean energy generated from renewable sources, making it more economical to build and install green power. Initially the scheme was designed for the big end up town – large wind farms, hydro electric power and industrial scale solar plants. When domestic solar hot water and solar PV were later included in the scheme with additional incentives a flood of certificates washed into the market, depressing the price of REC’s and thus reducing the subsidy. The recent announcement should fix this problem by separating large and small scale generation.
What are the changes?
From 1 January 2011 the Renewable Energy Target will divided into two parts - the Small-scale Renewable Energy Scheme (SRES) and the Large-scale Renewable Energy Target (LRET). The Small-scale Renewable Energy Scheme is the part of interest to households and small business as it covers technologies such as solar PV panels under 100kW. The scheme will provide a fixed price of $40 per megawatt hour of electricity produced, providing direct support for households that take action to reduce emissions.
Under this fixed price, a Sydney household that installs a 1.5 kilowatt solar panel system in 2011 will benefit from an upfront subsidy of $6200. If the same household decides to install a typical solar water heater they will receive $1200 in support under the SRES.
The revised scheme will operate exactly as before, and all of the eligibility criteria are the same as in the Solar Credits program.
For more information on the proposed scheme, see the Department of Climate Change Enhanced Renewable Energy Target fact sheet here.
What are the benefits?
Currently all REC’s are market instruments with prices that fluctuate regularly, making it difficult for consumers to understand how much discount they will receive. In addition, the spot price (current market price) of REC’s has fallen below expectations to around $36 at the time this blog was posted, and as little as $23 in late 2009. With a gauranteed price of $40 from January 2011 customers will know how much they get and be protected from fluctuations in the market. This provides certainty for the industry and consumers in the future.
This also levels the playing field up between installers. Currently the REC market favours large installers who have the customer volumes to be able to negotiate REC prices directly with buyers and secure above market values. Smaller installers are forced to go through an agent, and hence can often not match the price of the larger players. With a guaranteed price of $40 from 2011, all installers should be able to offer this good rate.
The biggest beneficiary of these changes though is the environment. The current problems in the scheme have depressed the price of RECs to a point where large renewable energy projects are no longer feasible and have been put on ice. This was harming the development of clean industries in Austrlia and undermining the 20% target. The new changes should work to remove these design flaws for large players and get things back on track.
The additionality of the scheme has also been improved. With separation of the two parts, householders action will no longer be an excuse for the big end of town to sit on their hands and take little action. The installation of small scale generators like rooftop solar will now act to boost not supplant large scale renewable energy generation, meaning if many householders and business install solar cells, we will exceed the 20% 2020 target.
Who is eligible?
The scheme has been proposed to come into effect on the 1st of January 2011, so the scheme will not apply to anyone yet.
The proposed changes will operate within the existing Solar Credits scheme, so all the usual rules apply. All solar PV systems with no more than 100 kW of installed capacity (massively more then any normal house would consume) and a total annual electricity output less than 250 MWh will receive RECs guaranteed at $40 under the Solar Credits scheme. The first 1.5kW of installed capacity will receive 5 times the usual number of REC’s allocated, to encourage every house to install solar cells. The number of systems receiving support under the SRES will also be uncapped to ensure small-scale installers have certainty.
Should I wait till next year?
These changes to the REC market are proposed to only come into effect on the 1st of January 2011. Although waiting till this time will guarantee you a REC price of $40 per certificate, prices of this magnitude are available now from many of the larger installers who have used their market power to secure better prices.
In addition, there is the considerable risk that by that time changes will have been made to the generous Feed In-Tariffs currently available. The NSW scheme is due for review after installed capacity reaches 50MW, and much of this capacity has already been booked for installation. The Victorian scheme has a cap of 100MW, and our best sources indicate that half of this has already been taken up. Hence, customers run the risk of missing out on the most attractive Feed In-Tariff subsidies.
Another possible strategy is to install your system now and either not create or not cash the REC certificates for your system. The Solar Credits scheme allows you up to one year from the date of install to create your certificates, and certificates have no requirment to be sold immediately. However, this is a complex task that most householders would not want to be burdened with, and would also mean you would have to wait almost a full year to receive the several thousand dollar subsidy, leaving you out of pocket in the meantime. This also carres the addition risk that the proposed scheme will only be valid for credits or systems installed after January 2010. These details have not been released yet.
Kobad Bhavnagri
Solar Energy Consultant
Solar Choice Pty Ltd
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