What does the Renewable Energy Target (RET) means for large business?

Big business and rising LREC prices

Now that we’re in full swing after the 2015 agreement between the Australian Government and the federal opposition on the Renewable Energy Target (RET), what are the ongoing implications on large business and energy supply contracts?

For those new to the scheme; the (RET) is a Federal Government policy aimed at increasing renewable energy generation. The broad target is to generate at least 33,000 Gigawatt-hour (GWh) of electricity from renewable energy sources by 2020.

The policy aims to achieve the target through two mechanisms: the Large-scale renewable energy target (LRET)and Small-scale renewable energy scheme (SRES).

The LRET creates a financial incentive for large businesses investing in the growth of renewable energy through Large-scale Generation Certificates (LGC or LREC). These certificates are traded through the wholesale market and as with other commodities, demand and supply impact price levels.  “Liable entities” are incentivised to acquire and surrender a certain amount of LRECs in order to avoid paying a large-scale generation shortfall charge.

The target is to generate at least 33,000 Gigawatt-hour (GWh) of electricity from renewable energy sources by 2020.

Why has the price of LREC gone up so significantly over the last six months? 

The LREC price is capped at $93/MWh pre-tax equivalent price ($65/MWh post-tax penalty).1 In recent months, the level of investment required to meet the 33,000 GWh target has been a key point of discussion for market participants. Current modeling suggests that by the end of 2016, 4400 MW of new projects are required to be committed in order to avoid a deficit in the scheme by 2018.2

What can big business do to mitigate rising LREC prices? 

As with any price uncertainty, it helps to establish contracts that are flexible and provide for a level of confidence.

Flexibility in your energy contract may provide for the inclusion of renewable energy as part of your energy portfolio. Including Solar in your energy contract can reduce your RET liability. Chat to an Origin account manager to discuss how Solar energy can work for you.

Also, in a volatile market, fixed term options on certificates may help to better manage risk. Often, timing is critical and ideally, you want to be able to discuss price options and complete energy solutions at any time during your contract – not just when your contract needs to be renewed. Chat to an Origin account manager to discuss pricing options.

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Confidence in your energy supplier includes the ability to provide up-to-date data on your usage as well as market intelligence.

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  1. www.aemo.com.au/~/media/Files/Other/.../0410-0048%20pdf.pdf
  2. http://greenmarkets.com.au/news-events/report-quarterly-renewables-report-q4-2015 GEM_Renewables_Report_Q4_2015