Environment minister Robert Hill says the 2% quota will be phased in from January 2001. He claims it should be a major boost for renewables over the next ten years. "They will be able to invest in new technologies with greater confidence that they will have a market for their product," says Hill. "This investment will lead to a reduction in the costs of generating electricity from renewable sources, as cost has been a major barrier to increased market penetration in the past."
Hill says the design allows the market to find the least cost response to meeting the target and to develop in an innovative way that would not be as likely to occur under a centrally administered scheme. The minister adds that the market framework is a win-win outcome, providing industry with the lowest cost option for increasing renewables, while at the same time ensuring Australia will be "one of the world's leading nations in terms of renewable energy generation."
The 2% obligation will apply to electricity retailers and large power purchasers, while private generators and grid operators under 100 MW feeding into the electricity network will be exempt. Although legislation will not be presented to parliament until later this year, the government has accepted the recommendation of an industry/government advisory group to use a support system based on tradable green power certificates along with a power purchase obligation of 9500 GWh. Trade in certificates will top-up income from sales of green power at market price. The measure will be phased in gradually, starting with 400 GWh in 2001 and ramping up to 9500 GWh by 2010. Generators will also have to ensure that the full 9500 GWh of new renewables operates until the year 2020.
Importantly, penalties for retailers and generators who fail to meet their obligation is set at a maximum of A$40/MWh. The size of the penalty effectively awards green power an additional value of A$0.04/kWh in recognition of the additional costs of producing clean electricity. David Abba of the Sustainable Energy Industries Association says the penalty cap was a good outcome of the agreement, considering the intensive lobbying by industry against such a measure. ESAA had lobbied hard for a 1% levy on all electricity consumers to pay for the new renewable capacity, instead of allowing market forces to set a price on the additional costs. While ESAA charges that a switch to renewables is prohibitively expensive, Abba says studies have shown the actual increases to be only minor until economies of scale come into play.
The 2% target is one of several measures announced by Australia after the global Kyoto climate change meeting in 1998, which allowed the country to increase its greenhouse gas emissions by 8% above its 1990 levels. While the renewables sector is relieved with the new measure, Abba notes that the UK has set a similar target at 10%, and hopes Australia will ramp up the commitment in the future.