Commercial renewable energy operators and electricity customers have again been jolted by changes to Australian feed-in tariff (“FiT”) rates.

In September the ACT Government announced its intention to become “Australia’s Solar Capital”, and significantly expanded its existing scheme. In contrast, the New South Wales Government announced in October that it will reduce FiTs from a healthy 60c per kW to only 20c per kW.

This newsletter outlines the changes and highlights the reforms which are needed… and which may be on their way, given the minority governing status of the Australian Labor Party following the last Federal election.

Australian fit schemes - A primer        

There are currently eight FiT schemes operating in the Australian States and Territories. Although the schemes differ in detail, they revolve around the same basic principle, which is that owners of renewable energy generators are paid FiTs for energy produced by them. This provides an incentive for the purchase, installation and maintenance of renewable energy generators which, in turn, means a higher amount of renewable energy is fed into the grid. An increased ratio of renewable to non-renewable energy in the grid will reduce the need and the demand for non-renewable energy sources.

Generally, a distinction can be drawn between “gross” FiT schemes and “net” FiT schemes. In a gross scheme, such as that currently operating in the ACT, all the energy produced by a generator attracts a premium payment. In contrast a “net” feed-in tariff scheme, which operates in NSW, attracts a premium payment only on the surplus energy produced after the residence’s own energy needs are accounted for.

ACT FiTs expanded and improved           

Under the ACT’s FiT Scheme, introduced in 2009, the owner of a renewable energy generator is paid an FiT by its electricity supplier for the total amount of energy produced by that generator. The maximum period the FiT will be paid to the owner for electricity produced by a generator is set at twenty years. The current premium is 3.88 times the retail rate, which currently equates to approximately 60c per kilowatt (“kW”). Under its initial formulation the scheme was only available to small residential and commercial renewable energy generators with a maximum capacity of 30 kW.

In September the ACT Government announced plans to expand the Scheme, to allow larger-sized generators to attract FiTs. The proposal is to create two new categories of eligible generators:

• medium scale generators with a capacity between 30 and 200 kW (to be introduced imminently); and
• large scale generators with a capacity above 200 kW (to be introduced in early 2011).

Under the initial scheme, generation capacity was uncapped, which meant that, in theory, an unlimited number of eligible generators could access the scheme. The changes announced will cap the ability of generators to attract FiTs in each category. The total capacity for the small sized generator element will be capped at 15 megawatts (“mW”), medium sized generators will similarly be capped at 15 mW, and large scale generators at 210 mW. The large scale FiTs will be allocated by way of auction, with the first release in early 2011 to be of approximately 40 mW.

The Government has also announced that groups, such as renters, low income earners, and people whose properties are unsuitable to be fitted with solar panels, will now be access the scheme by way of holding an interest in a community-owned renewable-energy generator. Community generator interest holders will share costs and receive income in proportion to the generating capacity they hold. This holds promise for an expansion of renewable energy generation into the residential apartment market.

That is the good news… now for the not-so-good news. The ACT Government has withdrawn the $30 million it had previously committed to subsidise the development of a single solar power facility. Instead the Government says that it has decided to focus its attention on increasing industry and community engagement in the FiT Scheme, thereby encouraging private investment in similar schemes rather than only encouraging one project relying on a one-off grant. The ACT’s Environment Minister, Simon Corbell, believes that this change in policy could attract 10 to 15, or potentially more, large scale projects to the ACT.

NSW puts on the FiT brakes 

The New South Wales “Solar Bonus Scheme” recently underwent a review, having reached the milestone capacity of 50 thousand mW. Having concluded that review, and suddenly, the NSW Government legislated significant cutbacks.

Effective midnight 27 October 2010, the program that had offered 60 cents per kW hour tariff was replaced by a new program which offers a tariff rate of 20 cents per kW hour of energy generated and is capped at an overall capacity of 300 mW. This scheme will operate until December 2016. As well, an interagency Commercial Scale Renewable Energy Working Group was announced, to explore opportunities for mid-scale solar systems.

The NSW Government also announced the establishment of a formal inquiry to investigate options to reduce or defer electricity network charges and to place downward pressure on electricity prices, including investigation of the potential for installing mid scale solar systems. New South Wales Fair Trading, and Industry and Investment New South Wales, have been tasked to assess whether a compliance and safety regime is required and to develop a suitable model.

SA tariffs go up, with a cap 

The South Australian Premier, Mike Rann, announced on 31 August that his government would be extending that State’s Solar Feed-In Scheme by increasing the tariff by ten cents, taking it up to 54 cents per kW hour. To address ever-increasing demand (it is estimated that 250 homes join the scheme per day) the overall capacity of the SA scheme will be capped at 60 mW which, it is estimated, will be reached in 2011.

Will the feds become fed up with fickle fits?        

State and Territory divergences in FiT policy detract from the establishment of a national energy market and frustrate the efforts of renewable energy operators to apply efficient and consistent business models across Australia.

A possible Federal response may be found in the Renewable Energy Amendment (Feed-in-Tariff for Electricity) Bill 2010. The Bill, introduced by Senator Christine Milne of the Greens in late September, proposes a scheme that will

• establish a national feed-in tariff scheme based on the gross feed-in tariff model;
• provide the owner of a “qualifying generator” a constant FiT for 20 years on all electricity produced, paid annually on the lodgement of a “return”;
• be available to generators installed after the commencement of the scheme; and
• be financed through a FiT levy (to be set annually by the Minister), which is to be paid for by all electricity retailers and direct customers of electric energy from the grid.

The idea of a Federal FiT scheme is not new. Two previous Bills proposing similar schemes have been considered by Parliament but were defeated (in 2008 and 2009). However there are a number of factors now in play that suggest this time might be different. In 2008 the idea of a Federal scheme was considered by the Senate Standing Committee on Environment, Communications and the Arts which recommended the implementation of “a FiT framework that is as far as possible nationally uniform and consistent”. With that recommendation; with the current public interest and clear support for FiT schemes more generally; with evidence of the success of such schemes in encouraging the take up of green technologies; and with a minority Government in which Greens and Independents hold the balance of power, there is certainly a stronger sense that the Federal Government may intervene.

Finding the right fit             

Moulis Legal was one of the interested parties who provided submissions to the ACT discussion paper which led to the recent changes, National Capital to Solar Capital. The comments we made on the various options available for FiT scheme structures are just as valid to any discussion of a Federal scheme:

• We feel that a “gross” FiT model, with an overall generation cap, should be preferred.
• We also consider that greater flexibility needs to be afforded to the customer in terms of the methods in which they can “receive” FiTs.

Currently, the means of payment from electricity supplier to the residential electricity generator (“customer”) is determined by the electricity supplier and is provided for in the FiT agreement entered into between the two parties. The industry practice to date has been to offer the customer reductions on electricity bills to the value of the electricity generated. Our position is that customers should be given the option, and absolute discretion, to direct how FiTs should be paid. In that way renewable energy providers will be able to further reduce equipment and infrastructure costs, thereby increasing the speed and coverage of the renewable energy rollout. We believe that this would also create efficiencies and greater accountability in FiT eligibility and payments.

For more information, please contact Christopher Hewitt on +61 7 3367 6900 or christopher.hewitt@moulislegal.com.

This memo presents an overview and commentary of the subject matter. It is not provided in the context of a solicitor-client relationship and no duty of care is assumed or accepted. It does not constitute legal advice.

© Moulis Legal 2010