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CER issues warning on RET after ERM chooses penalties over projects

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Australia’s Clean Energy Regulator has again appealed to the country’s electricity retailers to meet their 2016 Renewable Energy Target obligations in time for the February 14 deadline, or face investigation and possible audits, and risk reputational damage.

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In a media statement released on Monday, the CER reminded “liable entitles” of their obligations under the national RET, and warned that “intentional failure” to surrender large-scale renewable energy certificates would be viewed as “a failure to comply with the spirit of the law” and an undermining of entire scheme.

Under the terms of the scheme, the failure of liable parties to surrender the right amount of LGCs results in them paying a penalty of $65 for every megawatt-hour of renewable energy short of the target, which, not being tax deductible, actually works out to more than $92/MWh.

But it has long been a concern of the industry and the regulator that companies would opt for the penalty, as the cheapest course of action in the current renewables market. This would particularly apply to companies that could deploy tax losses.

Sure enough, this concern was validated less than two weeks ago, when ERM Power, a major electricity retailer representing 10 per cent of the market, opted to pay $123 million in penalties rather than build or contract new renewables and surrender 1.9 million large scale certificates.

As reported here, ERM’s decision to pay the penalty price was based around its own financial position, and its extensive tax losses, but was broadly received as a worrying sign for the scheme, being the first time a major retailer has chosen penalties over supporting new wind or solar.

The CER, which responded to ERM’s decision with a promise to take action, is keen to avert any further failures to comply as the deadline looms.

“We take shortfall of any amount very seriously, particularly large-scale generation shortfall of 10 per cent or more,” the Regulator said on Monday. “We understand from brokers that there are sufficient certificates available in the market and that orders from very small to very large can be serviced.”

The CER said it would also name and shame each liable entity that has a shortfall on its website, and warned that all cases of intentional failure would be investigated and, if necessary, audits would be conducted.

“Paying a shortfall charge does not support new generation to meet the 2020 target,” the Regulator said. “Shortfall charges are paid into consolidated revenue rather than boosting a growing Australian industry.”

Back in October, CER’s head of scheme entry and entitlements, Mark Williamson delivered a similar warning at the All-Energy Australia conference in Melbourne.

“If some decide that the $65, if they’re not paying much tax, is the cheapest way out compared to paying the spot price, we do have the ability to name and shame, and we’ll name and shame in a way that makes sure their shareholders and customers hear exactly about it. And we’ll use social media if we need to,” Williamson said.

“So, liable parties, do not try it. Your obligation is to find certificates, that brings on the new build, it’s absolutely non-compliance with the scheme to take the penalty option. And it’s not on as far as we’re concerned.”

In its statement today, the CER reminded retailers to lodge their energy acquisition statements, surrender certificates through the REC registry, or to lodge a shortfall statement and ensure the shortfall penalty payment has been paid to the government.

“There are serious consequences for entities that fail to meet these obligations, including significant additional financial penalty charges and interest charges,” the CER warns.

“Failure to lodge statements on time is also a criminal offence that may attract criminal penalties. Where a debt is incurred, the Regulator will pursue that debt in accordance with the law, up to and including applications to wind up companies in appropriate cases,” it said.  

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  • solarguy

    We will see how recalcitrant the smart arses are! Sic em CER.

  • Leigh Flitter

    It is absurd. The knowledgeable designers of the “competitive market” for trading RECs, set in place limits in the form of penalties, if liable entities did not surrender sufficient certificates. What was their original intention? It is a “competitve market” and so players are going to respond to their market’s signals – namely, if the price of RECs goes so high, then it will be less expensive to pay the penalty, than to buy and surrender RECs!

    Didn’t the market designer’s consider this could happen? Why blame the liable entities – they didn’t design this market, nor have any input into it. What did they expect?
    If you don’t design the playing field well enough, don’t be surprised if the players go out-of-bounds when they think they aren’t.

    • Rod

      Sadly, I have to agree with you.
      “Spirit of the law” be damned. Individuals and companies will do what they can legally get away with in their own interest.
      Hopefully Labor have learned from their past mistakes like the mining tax and pink batts scheme. Both well intentioned but poorly implemented.

    • Rod

      Sadly, I have to agree with you.
      “Spirit of the law” be damned. Individuals and companies will do what they can legally get away with in their own interest.
      Hopefully Labor have learned from their past mistakes like the mining tax and pink batts scheme. Both well intentioned but poorly implemented.

    • Andy Saunders

      Yes, agreed. ERM is simply making an economic decision (it’s cheaper for them to pay the penalty). Forcing them (or anyone else) to make an economically inferior decision isn’t sensible.

      Instead, the cap should be raised…

  • Kevan Daly

    Hell hath no fury like a regulator scorned.

  • trackdaze

    So i inderstand ERMs biggest customers if im not correct are in contracts held with the:

    Nsw government and Qld government? Followed by 1 of the big banks?

    • Yep, and now that i back at work intend to ask them what they think of it.

  • Ian

    I wonder if there any legal grounds for local governments to cancel a contract with ERM, based on poor corporate behaviour, and not fulfilling RET obligations etc, especially if they have strong carbon emissions reduction targets? There would be more than a few Councils, and same goes for at least some NSW TAFEs.
    Any advice on this?

  • Malcolm M

    Also a report from CER that Alinta may be paying a penalty. I’ve just switched away from Alinta, and they offered $150 as compensation for billing errors.

    http://www.cleanenergyregulator.gov.au/About/Pages/News%20and%20updates/NewsItem.aspx?ListId=19b4efbb-6f5d-4637-94c4-121c1f96fcfe&ItemId=339