The VRET is intended to remove barriers to the development of renewable energy, accelerate the transition to clean energy and provide incentives to the private sector to invest in renewable energy projects. How this state based policy impacts the national energy market, works alongside the national RET and influences the development of future federal energy policies will be closely observed by participants in the energy sector.
Energetics will follow the implementation of the VRET and discuss the implications for business – both in Victoria and more broadly. This article provides an overview of the VRET’s objectives and features.
What is the VRET?
The Victorian State government recently announced the Victorian Renewable Energy Target (VRET) which will come into effect in 2017. Victorian Energy Minister Lily D’Ambrosio identified “restoring the confidence needed to invest” as the main motivation behind the VRET1.
The key elements of the Scheme are:
- 25% renewable energy share of the generation mix by 2020, rising to 40% by 2025
- 5,400 megawatts (MW) of capacity over the next decade, roughly equivalent to the current total installed renewable energy capacity across Australia. This would require about 1,800MW to be built by 2020, an amount similar to what Victoria presently has in large-scale wind and small-scale solar projects combined2
- A reverse auction will drive the scheme
- Technology neutral but with a minimum 20% allocated to large-scale solar.
How will the VRET be achieved?
The key mechanism underwriting the VRET is the proposed Victorian Renewable Energy Auction scheme, which is a process modelled on the successful ACT scheme, to which Energetics provided technical and commercial due diligence services. The reverse auction mechanism allows renewable energy developers to bid for long-term contracts at a price that makes their large-scale renewable energy project viable. The process enables projects to be put forward that offer the greatest value for money to the State. Funding is then awarded in the form of long-term contracts between the scheme administrator and successful applicants. The specific details of these awarded contracts are yet to be released, including the exact contract structure, the counter-party and the contract term. Also yet to be clarified is whether the auctions will seek to bundle the purchase of clean energy and the associated renewable energy certificates, LGCs (Large-scale Generation Certificates).
Auctions will be held over the duration of the scheme in order to draw the required investment needed to achieve the renewable energy generation targets for 2020 and 2025.
A stakeholder consultation process was recently undertaken to aid the design of the scheme, with particular focus on payment structure, how the auction rounds will be decided, interaction with Federal policies, cost recovery mechanisms and the contracting arrangement. The consultation process combined with lessons from the ACT example – a scheme successful enough to motivate the ACT government to increase its renewable energy target3 - presents the opportunity for sound design.
How does the VRET interact with the RET?
The VRET design is intended to complement the national RET in its initial stages. In the Department of Environment, Land, Water and Planning’s consultation sessions it was indicated that the following was being considered:
- between now and 2020, any renewable energy certificates (LGCs) generated by scheme participants will go towards the RET. They can be traded into the REC market by the proponent or included in the auction process and used for the off-takers4 RET obligation.
- between 2020 and 2025, all LGCs will be surrendered to the Victorian government, that is, the VRET will be additional to the RET.
“We have seen about 450 megawatts of projects committed nationally in the past three months alone, so this move by Victoria is smart timing – and should see Victoria claim a big share of the renewable energy pie out to 2025 and beyond”5
Kane Thornton, CEC CEO June 16.
Energetics can assist your business with its renewable energy strategy
Energetics has more than 30 years’ experience advising large energy users across all sectors of the Australian economy. Specifically we have worked on the ACT Government's reverse auctions, the implementation of on-site renewable energy strategies for a large Federal Government Agency and numerous corporate clients, and are supporting the Sydney Metro North West renewable energy procurement process and the Melbourne Renewable Energy Purchasing Group. We follow developments in the National Electricity Market and Western Australian Electricity Market on a daily basis, and have an in depth understanding of the federal and state regulatory environments that are shaping the energy mix.
For further insights and to help your business assess and manage its risks, please contact the author or any one of our experts.
References
[1] RenewEconomy | Victoria aims for 40% renewables by 2025, to add 5,400MW wind and solar
[2] Current VIC capacity 1200MW large-sale wind and 930MW small-scale solar – reference above
[3] ACT Government | ACT to be powered by 100% renewable energy by 2020
[4] The off-taker party may potentially be the State, a statutory agency, an electricity distribution business, or an electricity transmission business. This condition of the scheme is yet to be finalised. Herbert Smith Freehills | Update: Victoria's Renewable Energy Auction Scheme Consultation Paper Released
[5] RenewEconomy | Victoria aims for 40% renewables by 2025, to add 5,400MW wind and solar
