Renewable Energy Certificates

Generators of electricity from renewable sources may register with the Office of the Renewable Energy Regulator, and receive Renewable Energy Certificates (RECs) for the renewable energy that they generate. These certificates can be traded with liable entities (eg electricity retailers), which are required to obtain and surrender a certain number of certificates per year. The Renewable Energy (Electricity) (Charge) Act 2000 sets a non tax-deductible penalty of $40 per megawatt-hour (MWh) for retailers who fail to surrender the correct number of certificates. This price is anticipated to encourage new renewable generation projects.

In September 2003, the MRET Review Panel was established and their report recommends that after 2010 the $40 penalty should be indexed and that the RECs should have a 15 year period applicable to all projects commenced after 2005. The Panel also recommended that the target increase in renewable energy should be increased to 20,000 GWh by 2020.

National Electricity Market

In late 1998, the National Electricity Market (NEM) commenced operating. The aim of the NEM is to promote competition throughout the electricity supply chain. The NEM provides power to 7.7 million customers through an interconnected grid that takes in Queensland, NSW, the ACT, South Australia and Victoria. Tasmania is set to join in 2005 with the completion of BASSLINK. Approximately $8 billion worth of electricity is traded annually through the NEM.

The National Electricity Market Management Company Limited (NEMMCO) operates a wholesale market for trading electricity between generators and electricity retailers in the NEM. All electricity output is pooled and then scheduled to meet electricity demand.

Pool price varies according to electricity demand and available generating capacity. To minimise the risk of volatile pool prices, market participants buy and sell electricity hedge contracts, which provide price certainty for fixed quantities of electricity. Contracts can be sold between generators and retailers. There are also some intermediaries, such as brokers and banks, who trade with the market participants.