SunWiz submission to RET Review 2010

SunWiz’ submission on the treatment of phantom credits, Renewable Energy Certificates (RECs) created by the solar multiplier mechanism of Australia’s expanded Renewable Energy Target. It shows that a large number of solar credits had already been created by the end of 2009.

 

SunWiz Submission on the Treatment of Solar Credits under the RET 2010

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.

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
3
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 wind3

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 consumption4. 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

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 consumption4. 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