Some good news: Climate Change Minister confirms that Federal Solar Credits REC Multiplier will not be prematurely reduced

The Federal Solar Credits “REC Multiplier” will not be prematurely reduced, as had been speculated previously. Federal Climate Change Minister Greg Combet has made a public statement that the government has no plans to drop the REC Multiplier from 3x to 1x. The news gives a degree of certainty and stability to an industry that has weathered numerous, tumultuous, and sudden policy changes since its rise to prominence in Australia in 2009–including the accelerated reduction of the Multiplier from 5x to 3x in 2011.

A REC Multiplier reduction from 3x to 1x would have meant a drop in the up-front subsidy from solar power systems of between $1200 and $1600. Instead, the reduction will now be only about half of this–between $600 and $800 (depending on the REC (renewable energy certificate) price). Although the reduction will have a disproportionately large impact on smaller solar systems (1.5 kilowatts – 3 kilowatts), the subsidy drop is not expected to adversely affect the nation’s solar PV industry in a dramatic way.

John Grimes, Chief Executive of the Australian Solar Energy Society (AuSES), welcomed the news. “This will be an enormous relief to solar companies across the country, who continue to struggle with the solar coaster [the dramatic, unpredictable nature of government subsidies for solar power in Australia]. … Make no mistake, powerful forces, including utilities and other big polluters, have been calling for the solar multiplier to be abolished. We have been concerned about the uncertainty caused by this situation, and we commend the Government on this announcement.”

Solar PV system prices have fallen dramatically over the past few years, and are now more affordable than they have ever been, thanks in great part to greater panel and inverter production volume, increased competition between installers, all of which was facilitated by government subsidies both in and outside Australia. When the REC multiplier was introduced, it was intended to offer graduated support for the small-scale solar industry, and smoothing the way for its commercialisation. The solar industry has since grown dramatically and is thriving even in states such as Western Australia and to a lesser degree New South Wales, which do not currently have state-based Solar Feed-in Tariff schemes. In particular, it was meant to subsidise systems on the smaller end of the scale. Since its introduction, however, there has been a shift in interest amongst customers from 1.5 kilowatt (kW) systems to 3-5kW systems as falling prices have made systems of this size more attractive.

Following the 1 July 2012 event, the next reduction in the REC Multiplier is slated to occur on 1 July 2012. Barring any changes to the Renewable Energy Target scheme itself, the REC Multiplier will fall to 1x in 2013, meaning that there will be be no extra support for smaller systems. Instead, new solar systems will generate RECs equivalent only to their expected output over a nominal 15-year lifetime (although solar systems are generally expected to continue producing power for up to 30+ years).

Some, both within and outside the solar industry, have criticised the REC Multiplier initiative for having actually distorted the REC market, making it too easy for electricity retailers and other big polluters to meet their REC obligations using the ‘ghost’ certificates that have come into existence due to the Multiplier, and thus undermining the purpose of the scheme. RECs, which are a tradable commodity with a price that fluctuates with supply and demand, may see their value depressed with a glut of supply. REC prices have fallen to as low as $14 previously, although they have also seen highs of above $40. The price currently sits at around $25.

© 2012 Solar Choice Pty Ltd 

James Martin II