The Australian wind and solar industry is in uproar after state-owned Hydro Tasmania this week pushed for changes that could deliver windfall profits to it and the federal government owned Snowy Hydro for their decades-old hydro assets.
The new controversy centres over the design of Renewable Energy Guarantee of Origin certificates (REGOs), which will be used to certify that electricity has been sourced from green sources, and will be particularly important for newly emerging industries such as green hydrogen, ammonia and green iron and steel.
The REGO scheme is also seen as a replacement for the current LGC (large scale generation certificates) that will effectively expire when the renewable energy target officially comes to an end in 2030.
But the wind and solar industry got sideswiped this week when Hydro Tasmania, appearing before a Senate select committee, argued that the REGOs should not just apply to “below-baseline” generation – meaning hydro plants built decades ago – but be available for trading when the scheme is due to commence in July next year.
The Tasmania and Snowy hydro assets were excluded from the RET – and deemed below baseline – because many of them were built more than half a century ago, and the RET scheme was designed to encourage new investment.
The federal government’s current proposal for the REGO scheme allows a restricted number of companies – including energy-intensive trade exposed industries – to surrender below baseline REGOs over the next six years. It is a key part of its Future Made in Australia policy.
But the wind and solar industry argues that opening the market further to below-baseline REGOs as Hydro Tasmania is suggesting could “crash” the market for LGCs and deliver unnecessary windfall profits to the state owned generators.
“If those restrictions aren’t implemented by legislation, which is preferable, or by regulation, you’re going to have 10 million or 12 million REGOs flood the LGC market,” Jonathon Upson, the head of regulatory affairs for Tilt Renewables, told the Senate environmental and communications committee this week.
“They’ll be indistinguishable, the LGC price will then crash because the people buying LGCs for voluntary surrender today will just go, ‘I can buy REGOs instead,’ and that’s going to hurt investment in future renewable energy projects. These restrictions are very, very important.”
The industry also fears it could deliver windfall profits to Hydro Tasmania – of between $50 million and $150 million a year – depending on the price that Regos were sold – and similar windfalls to the federal government owned Snowy Hydro, although Snowy does not appear to be openly pushing for the change.
The LGC market is currently being propped up by a level of corporate interest unanticipated several years ago in the voluntary market, and certificate prices are currently around $40 a megawatt hour. The industry fears that lower priced Regos could be priced at around $10 to $20/MWh, and undermine the LGC market.
Joel Gilmore, the head of regulation and industry policy at Iberdrola Australia, told the Senate committee that allowing new loads – effectively new industries such as green hydrogen – to use the REGOs certificates now made sense. But not to open it up for the whole market.
“For us, it’s an issue of timing. If you were to bring those certificates into the market today – acknowledging that they are labelled and people have that information – it would create that supply-demand balance,” Gilmore said.
“We’re really thinking about some of those businesses who’ve signed contracts for 100 per cent renewables and who’ve done that on the basis that there’s a value in that renewable energy, and they’ve invested on that basis – from the demand side.
“I think the balance, the proposal from the department to bring those certificates in on day one but with a restricted purpose and then to transition that to being an unrestricted purpose after 2030, seems like a reasonable balance – that we bring this into the market and hopefully allow some extra demand to come on over that period.”
In its submission, the Clean Energy Investor Group CEIG said it is important to ensure that the introduction of below-baseline certificates does not interfere with investment signals in the Australian market.
“We recognise that below-baseline REGO certificates could impact investment signals for new renewable capacity and believe that flexibility should be built into the REGO legislation, allowing for the Government to sequence measures and respond to market dynamics to minimise risks.”
Hydro Tasmania acting CEO Erin van Maanen argued that the restrictions on REGOs for below baseline hydro assets was perverse and, given the Capacity Investment Scheme that is being rolled out by the federal government, would make little difference to the market by opening them up six years early.
“Obviously, I’m speaking from the perspective of Hydro Tasmania to an extent, but largely what we’re talking about are perverse outcomes in Tasmania that we feel are unfair to Tasmanian consumers,” van Maanen said.
“We disagree with restrictions generally, but we very strongly feel that a Tasmanian business consuming electricity in Tasmania from a grid that is on average 100 per cent renewable should be able to buy that certificate and make that claim from certified renewables from the generation source in the state, which is largely from below-baseline hydro.
“That’s really the key point that we’re making there.”
It’s position is supported by the state energy minister Nick Duigan, who wrote in the government’s submission that calls to protect the LGC market are “self-serving”, and limiting the purposes for which below-baseline REGOs can be used will be at the expense of households, businesses and producers.
“Compromising the Guarantee of Origin scheme to support a higher LGC price is likely to be a particularly inefficient way to support new investment given that much of the benefit will be captured by existing (post-1997 but pre-2025) generation,” Duigan wrote.
Please listen to the latest episode of the weekly Energy Insiders podcast where Ric Brazzale, from Green Energy Markets, discusses REGOs, LGCs, ACCUs, and the energy efficiency and electrification markets.
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