How will the Renewable Energy Target legislation affect energy retailers?

The Renewable Energy Target (RET) is a Federal Government policy which requires that 20 per cent of Australia’s electricity will be produced from renewable energy sources by 2020. To meet this objective, the Government has set annual targets for electricity retailers and wholesale buyers. Compliance is demonstrated by surrendering renewable energy certificates (REC’s), where one REC is equivalent to one additional megawatt-hour (MWh) of electricity generated of general energy sources. Failure to surrender adequate REC’s to the Clean Energy Regulator results in a shortage charge of $65 per MWh.

What does this mean for energy retailers?

Liable entities thus have three options: either generate the electricity from renewable energy sources themselves, purchase certificates from accredited power stations or pay the penalty. Either way, this legislative change will have an impact on the price charged to the customer as all the options stated above require investments from energy retailers. Australia’s energy regulators estimate the cost of the RET will take between 1 to 5 per cent of the client’s power bills which can damage customer relations if not handled appropriately.

Creating renewable energy requires new and expensive infrastructure. Buying REC’s from power stations creates a new market where certificates are the currency and prices are floating according to the law of supply and demand.

Checklist of the requirements

The RET consists of two main schemes and electricity retailers have obligations with regards to both. The first one is the Large-scale Renewable Energy Target (LRET) which requires high-energy users to acquire a fixed proportion of their electricity from renewable sources. This creates a financial incentive for the establishment or expansion of renewable energy power stations, such as wind and solar farms.

Additionally, there is the Small-scale Renewable Energy Scheme (SRES) which has to be taken into account. The SRES provides a financial incentive for individuals and businesses to install small-scale renewable energy systems such as heat pumps and solar water heaters. Energy retailers are thus required to purchase large-scale generation certification (LREC’s) as well as small-scale generation certificates (SREC’s) to equate to their overall liability.

Transparency is key

Choosing the right channels to communicate effectively with clients as well as with regulatory bodies is of big importance for energy retailers. As it concerns a fair amount of clients, using direct mail can be useful to get the message across. Furthermore, live webinars hosted by the retailer could be beneficial as it allows visitors to connect with live representatives on demand so they get answers to their queries and concerns instantly.

It is important to communicate the short-term price increase to promote transparency. Highlighting the following long-term advantages could be beneficial to assist customers with accepting the short-term price hike:

  • The rate that wholesale prices are increasing by are reduced by the RET
  • The cost of the RET will be largely offset by reductions in wholesale prices
  • Repealing the RET would increase retail electricity bills

It is important to be prepared for the coming changes relating the Government’s Renewable Energy Target. Throughout this process, communication will be key to promote the benefits of these changes to customers in order to prevent outrage.

If you require any assistance in preparing for these legislation changes contact Utility Software Services today to discuss the appropriate actions your energy retail business must take.