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Renewable energy target explained

By political reporter Jane Norman

A wind farm in South Australia.
A wind farm near Burra in South Australia.(AAP: Angela Harper)

Questions are being asked about the effectiveness of Australia's renewable energy target (RET) and whether we're on track to reach it.

So what is it and what is the problem?

What is the RET?

It's a legislated target designed to ensure Australia uses more renewable energy and, in the process, reduces its emissions.

The aim is for 23.5 per cent of Australia's energy (the equivalent of 33,000 gigawatt hours) to come from clean sources such as wind, solar and hydro-electric by 2020.

How will they achieve it?

The RET creates a market where certificates are the currency.

One megawatt hour of renewable energy becomes one certificate. They are created by power stations and bought by electricity retailers.

To participate you must be an accredited renewable energy power station. Those producing power above what's called the baseline create certificates which they can sell or trade to offset the cost of generation.

The baseline year is 1997, so the scheme only covers renewable energy that has been produced after that.

How many are in Australia at the moment?

There are more than 500 accredited power stations in Australia.

Electricity retailers have to buy a certain number of certificates every year, depending on the volume of electricity they acquire. This is called their liability.

Origin, AGL and Energy Australia are the three biggest retailers and together account for about half of the market.

How much do these certificates cost?

It's a floating price. Now, one certificate is worth about $85. That's up from two years ago when it was $35.

So right now, a renewable power station that produces 1,000 "certificates" worth of electricity above their baseline (or 1000 megawatt hours) can sell those certificates to electricity retailers for about $85,000.

Solar panels on Matthew Reid's Renmark property
Some of the 720 solar modules on a Renmark property in South Australia.(Image supplied: Patrick Broughton)

Electricity retailers buy the certificates and surrender them to the Clean Energy Regulator to meet their liability each year.

If they don't, they have to pay a penalty of $65 for each renewable energy certificate that they don't surrender.

Hold on, isn't the fine less than the cost of an actual certificate?


In 2016, the price of certificates surged to about $90, making it cheaper for electricity retailers to pay the fine than meet their liability — and that's what some did.

Queensland's ERM is paying $123 million in fines, rather than surrendering the 1.9 million certificates it was liable for last year.

Why is the certificate price so high?

Like any market it is all about supply and demand, and right now there is a big supply shortage. The price is signalling to the market that there is not enough renewable energy being generated to meet the demand.

Some experts blame this shortage, in part, on former prime minister Tony Abbott, who plunged the industry into uncertainty back in 2014 when he commissioned a review of the RET.

It took months for a bipartisan solution to be found which stalled investment in renewable energy technology.

Is the Government doing anything to address this?

The regulator, which administers the RET, has vowed to investigate any companies that make the decision to deliberately pay the penalty.

It says that while it is legal, it defeats the purpose and spirit of the scheme.

Paying the fine means money isn't being invested in the renewable energy, but going into government coffers.