Energy retailers get $70 million tax break on refunds for LGC shortfalls

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The federal government has granted big retailers and other obligated parties a $70 million tax break by removing the tax on refunds of large scale certificate shortfall charges.

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The federal government has granted big retailers and other obligated parties a $70 million tax break by removing the tax on refunds of large scale certificate shortfall charges.

The move was announced in the details of the Mid Year Economic and Financial Outlook (MYEFO) released by the federal government on Monday.

The shortfall charge is a controversial part of the renewable energy target legislation that essentially allows retailers to pay a shortfall penalty, rather than secure their share of the legislated large scale certificate requirements in any particular year, in the hope that they can buy them at a cheaper price some time in the future.

Retailers and other obligated parties have a three year grace in which to make up the shortfall. The practise was initially frowned upon by the Clean Energy Regulator, before it changed its mind and then actively encouraged parties to delay purchases on the assumption that the price of LGCs would fall in the future.

That decision was largely driven by an expected over-shoot of at least 1GW in the government’s legislated renewable energy target for 2020.

Now, the government has decided that the shortfall refunds should not be subjected to tax.

That will deliver an extra $5 million to those companies in the current financial year, and another $65 million over the next three years.

“The Government will amend the law to ensure that no tax is payable on the refund of large-scale generation certificate (LGC) shortfall charges,” it says.

“This measure will apply to refunds relating to all LGC shortfall charges including those charges already paid. This measure is estimated to have a cost to revenue of $70.0 million over the forward estimates period.

“Under the Renewable Energy (Electricity) Act 2000, liable entities (generally energy retailers) must surrender LGCs to meet their legal obligations or pay a non-deductible shortfall charge. Liable entities which pay the shortfall charge may apply to have the shortfall charge refunded if they surrender the outstanding certificates within the allowable refund period.

“Legislating to ensure that no tax is payable when companies receive a refund of their shortfall charge will enable the market for renewable energy certificates to work as intended, meeting targets for clean energy while ensuring affordable electricity for consumers.”

The CER said in a statement that “the use of shortfall is a commercial decision that allows liable entities to shift demand and take advantage of lower forward LGC prices in times of tight liquidity.”

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2 Comments
  1. Ian Mclaughlin 1 week ago

    So it looks as if, to me anyway, the retailers have acted against the intent of the scheme in order thwart renewables and now the COALition is giving them $70 million over the next 4 years for doing so!

  2. Tom 1 week ago

    It’s a recoupment of a fine, not revenue. Tax should not apply.

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