Submission Template

Department of Climate Change Discussion Paper 5 – The Treatment of ‘Solar

Credits’ Renewable Energy Certificates under the RET

Overview
This submission template should be used to provide comments on:

Department of Climate Change Discussion Paper 5 – The Treatment of ‘Solar Credits’ Renewable
Energy Certificates under the RET

The purpose of this discussion paper is to outline the key issues regarding the treatment of ‘Solar
Credits’, to encourage input on these issues from individuals, businesses and organisations to inform the
review process.

Contact Details
Name of Organisation: SunWiz
Name of Author: Warwick Johnston
Phone Number: 0413361534
Email: warwick@sunwiz.com.au
Website: www.sunwiz.com.au
Date: 20/1/10

Confidentiality
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the contrary by marking all or part of the submission as 'confidential'. Public submissions may be
published in full on the Department of Climate Change website, including any personal information of
authors and/or other third parties contained in the submission. If any part of the submission should be
treated as confidential then please provide two versions of the submission, one with the confidential
information removed for publication.

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confidential will be determined in accordance with that Act.

Do you want this submission to be treated as confidential? Yes XNo

Submission Instructions
Submissions should be made by close of business 28 January 2010. The Department reserves the
right not to consider late submissions.

Where possible, submissions should be lodged electronically, preferably in Microsoft Word or other text
based formats, via the email address - RET@climatechange.gov.au.

Submissions may alternatively be sent to the postal address below to arrive by the due date.

Renewable Energy Team

Department of Climate Change
GPO Box 854, Canberra ACT 2601

For more information phone: 02 6159 7428

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Solar Credits and RECs not backed by actual generation

Question 1: Should annual targets under the RET be increased to offset the additional RECs created by
the Solar Credits multiplier mechanism?

Yes, in order to meet policy objectives

A policy objective of 20% renewable energy by 2020 (equivalently 45,000 MWh in 2020) can only be met
if Phantom Credits are accounted for. The effect of phantom credits persists in two ways, whether they
are created in 2010 or 2014. First they reduce the total amount of renewable energy generation required
(the area under the curve, covered later). Secondly, electricity retailers “banked RECs” mean that the
ghostly imprint of phantom credits remains until the end of the scheme.

Electricity retailers typically bank RECs as a risk mitigation strategy, always ensuring a minimum buffer
of RECs. (Figure 1). Although the banked REC’s serial numbers may change over time, so long as any
RECs remain in their bank, these banked RECs displace creation of new RECs. Therefore, so long as
obligated parties continue to bank RECs against future obligations, it does not matter whether the REC
was created in 2009 or 2020 – a REC is a REC is a REC. As a consequence, 2009’s phantom credits will
undermine the ability of the RET to meet its stated objectives.
Figure 1: Banked RECs. Source: Green Energy Trading REC Quarterly Market Review 21/10/09

Yes, in order to reduce greenhouse gas emissions

One objective of the RET is to reduce greenhouse gas emissions. As the resultant emission reductions
depend upon the amount of renewable energy installed in early years, it is certain that the path to reach
the RET will be more polluting than would be the case if adjustments were made for Phantom Credits.
Installing PV results in 4x less wind farm capacity, perversely resulting in an environmentally negative
outcome. As the primary objective of the RET is to support renewable energy development, phantom
credits seem to have the opposite effect.

Yes in order to save the creditability of GreenPower and the RET

Phantom Credits lead to truly perverse outcomes on the household level too. Most solar power system
owners sell their RECs to retailers, in doing so selling the right to claim production of green energy.
Retailers may on-sell these RECs as GreenPower; equally these RECs can be used against RET
obligations but in doing so displace non-PV RECs for sale as GreenPower. In either case, the effect is
the same (a REC is a REC is a REC). Less renewable energy generation will have resulted as a result of
phantom credits, and GreenPower will be heavily compromised. As a consequence, PV customers that
don’t also purchase GreenPower will notionally be generating energy with grid-equivalent carbon
intensity AND simultaneously reducing investment in mandated renewable energy deployment. Public
understanding of such a concept could undermine the RET and threaten the PV industry.

Yes in order to develop the industry

The amount of Phantom RECs created is not unsubstantial. SunWiz performed a dump of the 2009
Small Generation Unit (Solar) category of the REC-Registry database on 18/01/10 and sectioned results

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by REC creation volumes per transaction. Overall, 45,000 PV systems had been installed of 4 kW or
less 1. 842 systems had been installed that were either 5 kW systems under SHCP or 1 kW systems
under Solar Credits. 3800 systems exceeded 134 RECs/system. A conservative estimate (3500 Solar
Credit Systems installed in 2009) would thus place the number of phantom credits created in the three
months since legislation has passed as (3500x(155-31)) = 434,000. This is a substantial amount, ,
equivalent to 5.3% of 2009’s target, whereas PV contributed only 4.3% of the RECs created in 2008’s,
also equivalent to displacement of 14,000 other 1.5 kW PV systems2, or deferral of 4 MW of wind 3.
Figure 2: 2009 REC creation by number of RECs created (for installations >100 RECs)

Yes because the cost impact is minor

The discussion paper argued that accounting for Phantom Credits will increase the cost borne by the
customer. However, if one objective of the RET is for least-cost renewable energy deployment, then the
REC multiplier is effectively a market distortion that crowds out further lower-cost wind development.
Nonetheless, accounting for the 434,000 RECs created in 2009 would raise 2010’s target by 3.5%, but in
the context these RECs represent 0.2% of 2020’s total estimate electricity consumption 4. It seems a
trivial amount of increase in order to have an RET that functions without distortion and meets its political
objectives.

In summary, leaving Phantom Credits unaccounted for will undermine the creditability of the RET, thwart
its objectives, threaten the PV industry, reduce renewable energy investment, result in increased
greenhouse gas emissions, and cripple customers confidence in GreenPower.

Mechanism to account for Solar Credits RECs not backed by actual

generation

1 This is confirmed by 56,855 kW installed in 2009 according to SHCP statistics.

2 Assuming 31 RECs/ 1.5kW system (or equivalently 155 solar credits after adjusting for phantom credits)
3 Simplistically assuming 30% capacity factor
4 45,000,000/0.2

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Question 2: If RET targets are increased to offset the additional RECs created by the Solar Credits
multiplier, which mechanism for achieving this would be suitable? In particular, views are sought on the
appropriateness of:
- an annual review of the targets; or
- a review in 2015 once Solar Credits has phased out; or
- adjustment of targets for the period 2010 to 2015 based on current projections of Solar Credits
uptake, followed by a ‘true-up’ of targets in the period 2016 to 2020.

In light of the need to act swiftly to reduce greenhouse gas emission, support industry development, and
to reinstate consumer confidence in the RET, GreenPower and PV, SunWiz argues for an adjustment of
targets for the period 2010 to 2015 based on current projections of Solar Credits uptake, followed by a
‘true-up’ of targets in the period 2016 to 2020.

Upfront adjustments: for the climate

Action to address climate change is needed immediately, so it is vitally important to address phantom
credits up-front rather than through backwards adjustment.

Upfront adjustments: for the industry

5-7 MW of PV is now installed in Australia each month under the SHCP (Figure 3), plus the 4.5+ MW
that has been installed under Solar Credits in the past three months. Any anecdotal reduction in sales
volume since SHCP closure is countered by an increase in typical system size to 1.5 kW and NSW
government’s announcement of a gross Feed-in Tariff. Consequently, targets of 6 MW/month5 should be
set, equivalent to 72 MW/year or 5.95 million phantom RECs.

Figure 3: 2009 Grid Connected PV installations each month. Source SHCP statistics

Grid Connected kW/Month,

2009
8,000
6,000
kW/month

4,000
2,000
-
Dec
May
Mar

Jun

Oct
Jan

Apr

Jul

Nov
Feb

Sep
Aug

This approach would also act to re-stimulate the renewable energy industry, which is suffering a
depressed REC price because of federal government subsidy of solar hot water systems under the
economic stimulus plan. The following figures illustrate by the REC market will remain oversupplied well
beyond 2011, which will cripple the development of new renewable energy generation.

According to the REC registry, as of 18/1/09, 20.8 million RECs are available, against 2009’s
requirement of 8.1 million and 2010’s requirement of 12.5 million, and GreenPower requirements
of approximately 1.9 million. Thus retailers will carry 10.8 million 6 banked RECs into 2010, and if
non-deemed renewable power stations generate the same number of RECs as they did in 2009
(6.4 million), at least 4.7 million 7 excess RECs will still exist at the end of 2010 even if zero Solar

5 4000 installations per month, 57-80% of the current system installations currently occurring each month
6 20.8-8.1-1.9=10.8
7 10.8+6.4-12.5-1.9=4.7

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 Hot Water and PV installations proceed. If SHW only does 75% of 2009’s installations (7.5 million
RECs), 10.3 million 8 excess RECs will still be banked even if no PV installations proceed.

A shortage of RECs in 2010 or 2011 will not occur if the RET is raised by a proposed 5.95 million RECs
in 2010, 2011, and pro-rata in 1H2012, and 4.4 million, 2.95 million, and 1.48 million RECs in
subsequent years, as shown in the table below. In 2015 the RET would be adjusted or any greater or
fewer phantom RECs that were created. This proposed increase balances the needs of the renewable
energy industry against the likelihood of meeting the target.

SunWiz Proposed Phantom Credit

Forward Adjusted RET
50,000

40,000
RET (GWh)

30,000

20,000

10,000

0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Current RET
Phantom Credits Forward Adjustment
Proposed RET

Any other additional comments

8 4.7+0.75*7.5