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Jul, 2014

The RET Review – what does it mean for solar customers?

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Update 23rd September 2014:  The RET Review was delivered around 4 weeks ago now, and the industry has been expecting a response “any day now” which could be a game changer. It seems that the desire to cancel or limit the scheme has run into a high level of resistance with political opposition, bolstered by public support for solar. So, the outcome is even more uncertain. There are now TV campaigns and media campaigns to help the cause, and rallies due to kick off around the country. 

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The Renewable Energy Target is the “2020” plan – that 20% of Australia’s electricity comes from renewable sources such as wind, solar and hydro power by the year 2020.

The  simplified  version of the scheme is this: power producers such as AGL and Origin need to either produce a certain amount of power from renewables, or buy certificates from those that do. A trading scheme was created for the certificates created by installing renewable energy. These used to be called “Renewable Energy Certificates” (RECs) and were later renamed and categorised as STCs and LGCs (Small-scale Technology Certificates and Large-scale Generation Certificates).

One of the benefits of this scheme is an upfront benefit to solar system owners acknowledging the future renewable energy that they will provide. Right now, solar customers purchasing systems up to 100kW benefit from an upfront rebate called STCs (Small-scale Technology Certificates). These are paid upfront and often used a “Point of Sale” discount on a system. Often they are worth about one third of a system cost.

The RET has been reviewed before – back in 2012 it was reviewed and a “no change needed” result was returned. 

This year, with a change in government from Labour who set it up, there is a concern that things will change. The review panel has some serious climate change skeptics on board and no one is expecting a great outcome.

One of the drivers of that change is the blame placed opon renewables for driving up power prices.

So, without getting too political here, the argument against renewables is that the cost of the scheme is driving up power prices. Some of this is based on pressure from traditional power generators protecting their own interests. (Those interests being that due to 1. decreased overall demand for electricity, they are losing market 2. They have needed to invest in new infrastructure “poles and wires” to maintain their asset, and this has happened while demand has decreased – thereby over investing and 3. Most money that power producers make is from selling power at periods of peak demand as the wholesale price can vary by a factor of 100 times. Solar tends to work well at these peak times, thereby reducing the premium they command, and therefore the profits they can make. Hence, solar is the bad guy.  

The counter argument to all of this is that in fact, these things were going to happen anyway and solar is not to blame. Solar, and the existence of the RET to support it, is neutral or will encourage a downward price push in power. The independent modelling commissioned to investigate this came up with this as a result – that it was a net gain for consumers.

 

Why it matters to customers

For those that have a solar system already, removing  the RET has no impact. This is because the benefit is paid upfront. Once you’re in, you’re in. You’ve already received your STCs and you’re OK.

For those that are looking at solar, the presence of the STCs (one of the main mechanisms for encouraging investment in renewable energy) reduce the cost of a system by about one third. For example, a 50kW system might cost around $110,000 as a “full price”. The STCs reduce this by about $35,000 making the “out of pocket cost” around $75,000. So, in calculating the return on investment for this investment… it is the out of pocket cost that matters. If the STC benefit is taken away, solar may still be a good investment, but it won’t be as good as it was.

In many cases, solar can have a payback period of 4-8 years for a business, depending on the price they pay for power and their overall consumption. Without the STCs, those same businesses would have a longer payback period – say 6-10 years. This may still interest some business owners, but will certainly reduce the demand for solar power. The removal of the mechanism will certainly affect the hundreds and hundreds of solar companies and the tens of thousands of people that work in them.

(Just to clarify, if you have a system, nothing changes for you. It is only new purchasers that need to concerned).

 

What might the changes be?

Noone knows for sure. There’s several options

  • Keeping it “as is” and reviewing in another period
  • Scrapping it entirely
  • Reducing the system size for which STCs are eligible
  • Reducing the deeming period for STCs and thereby reducing the upfront benefit.

 

When could this happen? 

We’re expecting the report in July or August 2014, and the timeline for changes may be quick, or it could require legislative change. Certain people have said they’d oppose changes, and this may delay any overall scrapping of the system is that is the recommendation. Q4 is likely to see the change, if any.

 

What should you do?

We are NOT saying “the sky is falling in, buy now!” What we are saying is that changes may come. If you are looking at solar, move it up on your schedule. If you’re sitting on a decision, try and make a decision in the next few months. It is almost certain that the outcome of the review won’t make solar a better proposition.

Please call or email us for a financial projection on what solar can achieve for you.

 

Suggested other reading if you’re keen

In…

Clean Energy Council overview

Sydney Morning Herald

The Monthly

Business Spectator

Australian Financial Review

Sydney Morning Herald – power to cost less with RET

Australian Solar Council