Many parts of Australia's electricity market are decades old. Both the market rules and the generators themselves
Many parts of Australia's electricity market are decades old. Both the market rules and the generators themselves. Image Credit: RenewReporter

Electricity retailer ERM Power has notified the market today that it will not meet its obligations under the Renewable Energy Target by means of surrendering Renewable Energy Certificates, but will instead pay the short-fall penalty charge to the Clean Energy Regulator.

The purchasing and surrender of renewable energy certificates to the Clean Energy Regulator is the core compliance mechanism that underpins the Renewable Energy Target.

ERM Power is one of Australia’s largest electricity retailers, serving industrial and commercial users, and attracts a significant proportion of overall liabilities under the RET.

In today’s announcement, ERM stated that it would pay the short-fall charge in lieu of the 1.9 million Large-scale Generation Certificates (LGCs) it is otherwise obliged to surrender to the Clean Energy Regulator. ERM cited “market and pricing conditions” for the reasons behind the shortfall.

The Clean Energy Regulator expressed disappointment in the intentional failure of an electricity retailer to comply with the annual renewables targets.

“We view the intentional failure to surrender certificates as a failure to comply with the spirit of the law and an undermining of the objectives of the scheme. Prices charged to customers include a component to pay for additional renewable energy generation. We believe many customers would be disappointed to know that this money has not been used for the intended purpose,” Clean Energy Regulator Chair Chloe Munro said.

“It’s hugely disappointing that a major company has deliberately chosen to pay a large shortfall charge. It’s our view that an investment in a growing industry is money better spent than a financial penalty that has no return.”

With LGCs currently trading in the realm of $90 per certificate, the decision will have minimal impact on ERM’s bottom line with the LGC shortfall charge currently set at $65 per certificate of shortfall (and a tax effective penalty of approximately $93 per certificate). The total charges to be paid by ERM Power will total $123 million for the 2016 RET liability.

Chief Executive of the Clean Energy Council, Kane Thornton, responded to the announcement by suggesting that ERM customers would be disappointed with the decision.

“All electricity retailers have a range of obligations when selling electricity in Australia. Ultimately failure to meet obligations under the RET is like deciding to demolish a heritage-listed building and then paying the resulting fine,” Mr Thornton said.

“While it might be in the private interest of the developer, it is at distinct odds with the law and the public interest. Other major retailers are taking steps to ensure they purchase certificates from the spot market or enter into long term contracts with renewable energy project developers.”

“There are no excuses for this decision and I expect ERM Power customers will be surprised and disappointed to learn of it,” Mr Thornton said.

However, the decision will deprive renewable energy power stations of demand for certificates held, with the 2016 Large-scale Renewable Energy Target set to approximately 21.5 million LGCs, ERM Power’s failure to meet its compliance obligations through the surrender of certificates represents a loss of almost 9 per cent of the total market for LGCs.

ERM will seek opportunities to ‘make-good’ the LGC shortfall within the three year window made available to electricity retailers under the RET.

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