The REC Market: Determining your Solar Credit Discount

(Some of the information in this article may be out of date! Please see our Solar Credits and Rebates page for updated information on Renewable Energy Certificates (RECs, also known as Small-scale Technology Certificates or STCs).)

(Request a free solar quote comparison from solar system installers in your area.)

The new Solar Credit Scheme, which operates Australia wide, is not means tested and is available for all properties including commercial premises and holiday homes. This new ‘REC rebate’ is based on a 5 times REC multiplier in order to substantially reduce the out-of-pocket cost for small renewable energy installations. People need to know that this is not a direct rebate given by the government as its value changes and is subject to the supply and demand interactions of the REC market. This article explains how this REC multiplier works and then outlines the structure of the REC market to give a good idea of how the price of RECs may change.

This multiplier applies to the RECs created by small generation units of wind, solar and hydro electricity systems. It is part of the expanded Renewable Energy Target, and is set to terminate after 2015 which means that this Solar Credit Scheme will be most powerful up until 2012. Please see below how the The Solar Credits multiplier will decrease over time according to the profile below:

Year       2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 onwards

Multiplier     5            5            3               ?              ?              ?          No Multiplier

Every small solar, wind or hydro generation system will earn a REC multiplier for the first 1.5kws of its capacity. Any size above the 1.5kw system will certainly earn the multiplier (for the first 1.5kws) and then earn the standard 1:1 rate of whatever the system is worth in RECs.

It is important to know that some solar energy installers will lower their profit margins to ensure a fixed price they can offer customers – this helps to protect customers against REC volatility. During the Mandatory Renewable Energy Target period we saw the REC price go as low as $12 and as high as $52 so selecting your solar energy system when REC prices are strong is also important.

To refresh everyone’s memory all renewable technologies that feed into the grid (interestingly Solar Hot Water included) receive a certain amount of RECs which act as a renewable energy ˜currency’ for liable parties, mainly electricity providers that have annual REC quotas. According to the original legislation, The Renewable Energy Electricity Act, a REC represents 1 MWh of ˜new renewable electricity’ generated œin excess of the power station’s 1997 eligible renewable power baseline (Section 18, Commonwealth of Australia, 2000). All that this means is that RECs are supposed to reward additional electricity produced from renewable sources upon a 1997 baseline.

As discussed before, the electricity providers or liable parties form the demand side of the REC market. Their annual quota will be continuously increased to ensure 20% of electricity is produced from renewable energy sources by 2020. The supply side of the market comes from renewable energy generators, such as any solar energy system you connect to the grid. The Office of the Renewable Energy Regulator or the ORER supports the scientific validity of the REC market by stating that renewable technology in Australia undergoes a series of scientific tests to ascertain its correct REC value (ORER 2009). These RECs can either be surrendered to the installer to bring the upfront cost down of the solar energy installation or sold to a REC agent who deals on the REC market. It is much easier to surrender your RECs to an installer because it brings the overall upfront cost down, however you could always contact a REC agent to see how much you would get for your systems RECs if you sold them on the market.

The main reason why we have RECs is to encourage new electricity production from renewable energy sources. Purchasing a REC that is recorded on an internet based registry system also circumvents the need to buy directly from intermittent renewable sources that operate only when the wind is blowing, sun is shining, or river is flowing. Though we are not far away from renewable energy becoming a significant player in the electricity mix, there is currently not enough renewable energy infrastructure to replace polluting base-load power, which means RECs importantly allow buyers to purchase from a variety of renewable energy sources, without having to physically rely on it.

If you choose to trade on the REC market beware that it may be quite volatile and difficult to predict, although waiting for a better price could make you some cash. Unfortunately the reason for this volatility is due to the long-term bilateral contracts established between large hydro and wind projects that succesfully evade the fluctuating REC market by securing a large amount of RECs at an agreed price. Too many of these large contracts could weaken the market by limiting the number of REC buyers, which then may cause the REC price to make more erratic movements than if there were more buyers and sellers playing the REC market.

Below is a graph depicting the value of RECs over a 9 year period (from the commencement of the Mandatory Renewable Energy Target). It is important to note that all liable parties met their quota in late 2006, which saw the REC price plummet as a result of the Renewable Energy Target’s (for 2010) demand already being met. This meant that all liable parties had already met their quotas and theoretically had bought enough RECs to supply 2% of Australia’s electricity generation with renewable sources by 2010. A more climate-change conscious government, state based REC trading schemes, plus a drafted expanded Renewable Energy Target for post 2010 quickly sparked the REC price to shoot up, and could do so again in 2010 when annual REC quotas for electricity companies are ramped up.

REC History
REC History

Something that may see REC prices jump in 2010 is the continual increase of liable annual quotas for liable parties. Electricity providers will have their quotas increased yearly, so that 20% of Australia’s electricity is produced by Renewable Energy sources by 202. This increase in demand will not only be met with large projects from Hydro and Wind sources but the introduction of State based Feed-In-Tariff rates will encourage more smaller scale players to feed-in to the grid to generate a healthy supply of RECs.

The fact that we have legislated an expanded renewable energy target is a huge renewable energy win for Australia. It still however doesn’t attempt to modify energy usage behavior, nor put a price on carbon. Its purpose is to essentially subsidize the renewable energy industry through imposing quotas on liable parties. It seeks to encourage renewable energy growth and thus needn’t be terminated upon the introduction of an Emissions Trading Scheme because both the renewable target and emissions trading element will better help Australia achieve a more sustainable future.

Brendan Noakes
Solar Broker
Solar Choice Pty Ltd

Matt Lasauce

Matt Lasauce is the Chief Commercial Manager for Solar Choice Pty Ltd.
Matt Lasauce

Comments

  1. Hi Brendan

    This is an informative post. What should I expect to get to be paid per REC by a solar panel system company over the next few months? I am aware of the $40 per REC proposal by the Govt for 2011, if they can get it through the senate. Who would give the best price (for 200-300 REC’s)? What might happen over the rest of 2010?

    1. You may have seen our article on the fixed REC for home solar units: http://www.solarchoice.net.au/blog/rec-prices-to-be-guaranteed-at-40.html. When you request a quote comparison through our home page, you will receive a comparison of various installers in your area, which includes a breakdown of charges and credits, including the credit that each installer offers per REC. Alternatively, you can trade your RECs on the market as discussed in our other articles on RECs.

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