Renewable energy - why all the hype?

The renewable energy sector is one of the fastest growing industries in Australia and there has been a major boost in interest from investors looking to get involved in related projects.

But it is a complex, heavily-regulated area. 

In the first of a three-part series, we take a look at the legislative background concerning renewable energy, particularly for solar, looking at what is happening internationally – and how Australia compares.

What is renewable energy? 

Renewable energy is energy that is collected from renewable resources such as sunlight, wind, rain, tides, waves, and geothermal heat. Rapid deployment of renewable energy and energy efficiency is resulting in significant benefits globally relating to energy security, climate change mitigation, and economic development.

International perspective

Worldwide investments in renewable technologies amounted to more than US$286 billion in 2015. After hydro and wind power, solar photovoltaics (another name for solar power) is the third most utilised renewable energy source globally. At the end of 2016, worldwide installed solar photovoltaics capacity increased to more than 300 gigawatts (GW), covering approximately two per cent of global electricity demand. China, followed by Japan and the United States, is the fastest growing market, while Germany remains the world's largest producer, with solar photovoltaics providing seven per cent of annual domestic electricity consumption.

Globally, there are an estimated 7.7 million jobs associated with renewable energy industries, with solar power being the largest renewable employer. 

As of 2015, worldwide, more than half of all new electricity capacity installed was renewable. At least 30 nations around the world already have renewable energy contributing more than 20 per cent of energy supply. 

International renewable energy markets are projected to continue to grow strongly in the coming decade and beyond. At least two countries, Iceland and Norway generate all their electricity using renewable energy already, and many other countries have set a goal to reach 100 per cent renewable energy in the future. For example, in Denmark the government aims to switch the total energy supply (electricity, mobility and heating/cooling) to 100 per cent renewable energy by 2050.

Australian perspective

In Australia, the Federal Government has designed a policy called the Renewable Energy Target Scheme (RET) which has been operational since 2011. The policy is divided into the Large-scale Renewable Energy Target (LRET) and the Small-scale Renewable Energy Scheme (SRES). 

Large-scale Renewable Energy Target

The LRET effectively created a financial incentive for the establishment or expansion of renewable energy power stations such as wind and solar farms or hydro-electric power stations. 

Large-scale generation certificates (LGCs) are issued in return. One LGC is issued for each megawatt-hour of eligible renewable electricity produced by an accredited renewable power station. 

LGCs can be sold to entities (mainly electricity retailers) who surrender them annually to an industry Energy Regulator to demonstrate their compliance with RET’s scheme’s annual targets. 

The revenue earned by the power station for the sale of LGCs is additional to that received for the sale of the electricity generated. 

The LRET includes legislated annual targets which will require significant investment in new renewable energy generation capacity in coming years. 

The legislative targets aim to ensure that at least 33,000 GW of Australia’s electricity comes from renewable sources by 2020.

Small-scale Renewable Energy Scheme 

The SRES creates a financial incentive for domestic households, small businesses and community groups by encouraging the installation of small-scale renewable energy systems such as solar water heaters, heat pumps, solar power panel systems, small-scale wind systems or small scale hydro systems. 

It does this by legislating demand for SRES Certificates (STCs). Like LGCs, the STCs are created for these systems at the time of installation according to the amount of electricity they are expected to produce or displace in the future. For example, the SRES allows eligible solar power systems to create, at the time of installation, STCs equivalent to the expected system output between the time of installation and the end of the RET Scheme in 2030. 

While it is possible for owners of renewable energy systems to create and sell the STCs themselves, in practice, installers of these systems usually offer a discount on the price of an installation or a cash payment in return for the right to create STCs. 

Regulation

In addition, Australia has implemented legislation as a result of the Renewable Energy Target Scheme. The following Acts, in particular, are administered by the Australian Government’s clean energy regulator (as per the Clean Energy Regulator Act 2011), which is a body responsible for administering legislation that will reduce carbon emissions and increase the use of clean energy within Australia.

What does this mean for investors?

Renewable energy projects often appeal to entities that see potential in entering into the renewable energy market within Australia, whether they are:

• entities established in other countries or within Australia, or
• entities currently within the research and development phase with existing or new concepts in the renewable energy space.

It is important to understand the crucial framework of both large and small scale renewable energy projects. In our experience, we have found there to be particular issues when assisting clients in this space.

Key issues:

We assist clients in understanding how these key issues will impact their successful involvement in renewable energy projects in Australia. 

Stay tuned for our next two pieces in this series where we will focus on the farm side of negotiating with energy companies, predominantly solar and wind farm, and also look at inbound investment issues for energy companies.

Disclaimer
The information in this publication is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, we do not guarantee that the information in this publication is accurate at the date it is received or that it will continue to be accurate in the future. We are not responsible for the information of any source to which a link is provided or reference is made and exclude all liability in connection with use of these sources. 

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