Peak renewables bodies are looking to mount a campaign to highlight the troubling implications of ERM Energy’s decision to pay shortfall penalties rather than purchase and surrender the certificates for which it is liable under the Renewable Energy Target (RET).
While ERM maintains it is meeting its formal obligations, critics counter that it is acting against the spirit and intent of the legislation and fear that other electricity retailers may follow suit.
ERM’s decision, announced on Tuesday, to pay a $123 million penalty rather than surrender its required number of large scale renewable (LGC) certificates is looming as a major challenge to the Renewable Energy Target and enabling legislation.
ERM predicts that RET compliance levels from electricity retailers may fall from the current and previous levels of 99%, to something like 80% this year, indicating that other retailers are looking to follow suit and pay penalties rather than acquire LGCs.
In short, it is looking increasingly apparent that due to unintended consequences of RET legislation, money meant to go towards renewable energy projects will instead go directly into government coffers, in the form of penalty payments.
“This is a litmus test, it’s a setup,” says the Australian Solar Council’s John Grimes. “I talked in detail at the time of the efforts of the Abbott Government to abolish to the RET that this issue was the ‘Cuckoo egg’ in the nest and the trigger for the government to re-litigate and abolish the RET entirely.”
Grimes says that as a likely shortage of large scale renewable projects and then LGCs – the result of the Abbott government’s “disruption” of the RET and sector – has directly lead to the decision by ERM and others to make penalty payments.
“The [federal] government can then say that this is an expensive scheme, that it costs money but doesn’t deliver renewable energy,” says Grimes.
The ASC says that it plans to “shine a spotlight on the commercial entities looking to skirt their obligations under the RET legislation.”
Grimes notes that as ERM serves commercial customers, it does not have a large residential customer base that could potentially make a switch of retailer on the basis of this week’s decision. The company is the fourth biggest retailer and the second biggest provider of electricity to the business sector.
The ASC has named the ANZ Bank as a major ERM Energy client and is looking to build a larger list of customers on which to put pressure.
The Clean Energy Council also notes that big customers of ERM Power include the New South Wales and Queensland Governments.
“These governments and other customers should be asking why ERM has made a decision not to meet their obligations or support renewable energy projects which will deliver major economic benefits to regional parts of Queensland and New South Wales,” said the CEC’s Kane Thornton, in a statement.
Clean Energy Regulator chairwoman Chloe Munro said it viewed the “intentional failure” to surrender certificates “as a failure to comply with the spirit of the law and an undermining of the objectives of the scheme.” She said the money would be better spent as an investment in a growing industry rather than a financial penalty that has no return.
ERM claimed that it is not trying to undermine the RET, and insists it is in “full compliance” with the legislation. A spokesman for ERM said that the company was disappointed at some of the reactions to yesterday’s announcement, saying that the company could potentially make up for LGC shortfalls over a three-year period.
In a written statement, the company continued: “The scheme is designed with flexibility in mind. For the small-scale component of the RET, the Clean Energy Regulator can create and issue renewable certificates (via their clearing house) in advance of any renewable installation activities occurring (this has been the case for a number of months).
“The deficit held by the clearing house can be extinguished when installations occur in the future. Similar flexibility is afforded for large scale certificates, where entities can pay a shortfall charge today, and recover those payments by remitting LGCs up to three years in the future.”
ERM response to questions as to why it has not, to date, signed PPAs with renewable developers, is to say that there is often a “misfit” between customer demands for two and three-year supply contracts and the five-to-ten year off-take agreements required of the wind and solar developers.
It says that the flexibility built into the system, under which it has opted to make the penalty payment for its 2016 obligations, helps bridge this gap.
ERM says it has developed six low-emission gas-fired power plants, but insists it is looking to develop battery storage, and potentially wind and solar projects for its larger commercial customers. It provided no further details of those projects.