Reforming Australia's Large-Scale Renewable Energy Target: Lessons from the United Kingdom and Germany

Summary

ABSTRACT

Australia's large-scale Renewable Energy Target (RET) was designed and implemented against a backdrop of expected growth in electricity demand. However, since the introduction of the policy in 2009, electricity demand has declined, almost continuously. Australian wholesale electricity markets have also experienced a coincident structural oversupply of thermal generation capacity. In an environment of declining (or stagnant) demand for electricity, the impact of any form of subsidy becomes more acutely felt. Renewable subsidies become an easy scapegoat for escalating retail energy bills, even where the contribution of support schemes to such bills may be relatively minor. This article investigates the capacity of Australia's current regulatory framework to encourage the cost-effective deployment of large-scale renewable energy assets over the long term. In particular, it focuses on how two offshore jurisdictions (Germany and the United Kingdom) have been able to utilise their legal and regulatory frameworks to encourage the long-term and cost-effective deployment of large-scale renewable energy assets. A functional approach to comparative legal analysis is adopted, comparing and contrasting key functionalities of large-scale renewable energy regulation in Australia with that which exists in Germany and in the United Kingdom. These two jurisdictions have responded to the challenges of large- scale renewable energy regulation by relying on similar regulatory tools – these include establishing RETs, which prescribe the quantum of renewable capacity to be deployed in the wholesale energy market at a given (future) point in time. However, the means by which each jurisdiction has elected to implement its target to encourage the deployment of large-scale renewable energy at lowest possible cost differs. This article argues that the optimal approach to providing cost-effective support over the long term is to offer Contracts-for-Difference – style arrangements for power produced by large-scale renewable energy projects – something Germany and the UK have begun experimenting with and which the Australian Capital Terrirory has begun in earnest. A new approach to supporting large-scale renewable energy in Australia builds on the policy and regulatory lessons learnt from Germany and the UK – this has far reaching implications for the evolution of Australia's RET over the next decade.

INTRODUCTION

Australia's Renewable Energy Target (RET) is a quota-based scheme designed to encourage investment in renewable energy technologies, thereby reducing greenhouse gas emissions from the electricity sector.