Sunday, October 4, 2009

Take advantage of government assistance to Green your home. Part 3: The new Renewable Energy Credits (REC) scheme

Actually known as “Solar Credits” (a great piece of bureaucratic bumbling since it actually applies to many small scale renewable generation methods) this Renewable Energy Credits (REC) scheme has replaced the old $8000 rebate. So how does it work and how does it effect people who want to install renewable energy systems at their homes or businesses?

Compared to the old rebate the new system is more complicated, but as I explain below, it doesn't make much difference to buying a renewable energy generation system for your house/business. I have also taken a stab at explaining how the Solar Credits scheme fits into the larger REC situation in Australia see: RET, REC, RPP and SC, how does it all work? Otherwise go straight too “What does it mean for me?”

RET, REC, RPP and SC, how does it all work? (Click to expand)

Firstly a disclaimer, I give no guarantees this explanation is 100% accurate. Information was sourced from the Department of Climate Change and the Office of the Renewable Energy Regulator (ORER)

The federal government has legislated a Renewable Energy Target (RET), recently this was increased to mandate 20% of energy generation be from renewables by 2020. To spur this along, the government sets a Renewable Power Percentage (RPP) every year that will increase to 20% by 2020. Every year power wholesalers must prove they have bought the percentage of renewable power mandated by the RPP. Ie: by 2020 they will need to show the government that 20% of the power they sell is from renewables. So how is this done? As far as I can see this is where Renewable energy credits (REC) come in.

Renewable power generation allows the creation of REC, (which are a type of currency) that can be traded/sold, every year over the life of the power station. In order to meet the RPP, wholesalers must buy and then surrender to the government REC to the level of the RPP. Ie: If the RPP is 3.5%, wholesalers must buy and surrender REC equivalent to 3.5% of the total power they sell. In this way demand for REC is stimulated and new renewable power generation is promoted in order to meet the ever increasing RPP of the RET.

This means generators of renewable power can sell both the power and the REC.
This holds true for small-scale renewable power generation. Small systems such as solar hot water, solar PV, wind turbines and small-scale hydro also generate REC which can be sold. Usually all the REC that will be generated over the lifetime of the systems are given to the system installer to allow a more affordable upfront price (although they don’t have to be).

The Solar credits scheme decreases the price of a small-scale renewable energy by increasing the number of REC the systems generate, with more REC available to be traded the upfront price of the systems is lowered. The Solar credits scheme only applies to small scale systems though so doesn’t effect the creation of large renewable power plants.

It is also worth noting that as the number of REC allocated is determined by how much power is generated, the location of the system can be important. For example areas with more sunshine receive more REC for the same solar PV system than area with less sunshine. Happily Brisbane (with a lot of sunshine) gets the maximum number of REC per kw.

What does it mean for me?

There are three major differences in the new scheme

1) REC multiplier instead of rebate
When a new renewable system is installed it creates Renewable Energy Credits (REC), a type of currency which can be sold/traded. The more power generated, the more REC created. This occurred under the old scheme.
Instead of a straight subsidy/rebate Solar Credits multiplies the number of REC the systems create. Since REC can be sold, multiplying the number of REC generated allows owners to get more money back afterwards, decreasing the “net” cost of the system.
Specifically the new scheme creates 5x more REC on the first 1.5kW of power the systems generate. Overall this will have an effect similar to the rebate as most people normally give the REC to the seller of the renewable system to decrease the upfront price of the system. Now instead of pocketing 1X REC and the rebate, sellers will pocket 5x REC and most customers will notice little difference in the sale process.
One difference though is that the amount of a subsidy created by the extra REC will be affected by the market price of REC. This could mean the price of a system fluctuates depending on how much money the sellers can get for the REC.

2) Eligible Systems
Solar hot water, solar PV, wind turbines and small-scale hydro are all eligible under the new scheme for the REC multiplier. This means households and businesses with a poor solar profile can install wind or hydro generation instead and receive the same benefits.

3) Who can access the REC scheme
Both individual households and businesses can access the solar credits scheme. This makes putting solar PV panels on the roof of a business just as affordable as on the roof of a home. Furthermore there is no means test for the solar credits scheme.

Overall this is a positive scheme that makes small-scale renewable systems affordable for both households and businesses, promoting renewable energy and helping individuals to lower their carbon footprint .

NbL For further info on the Solar credits see the Dept of Climate Change FAQ.
Nb: Part one and two of this series can be found here and here

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