Posts Tagged ‘REC’

The government released details on the 20 per cent Renewable Energy Target today. One of the main impacts for households are the solar credits. The media release highlights the impact of these:

• “Solar credits worth 5 times the value of REC’s”
• “Up to $7,500 in value to someone putting in Solar”
• “The means test scrapped”

Sounds great at first glance, but what does it really mean?

Solar Credits Worth 5 Times the Value of REC’s

One REC (renewable energy certificate) is the equivalent of producing 1 MWh of renewable energy. A standard solar electric system (1kW) received 21 REC’s to offset 15 years of energy production. All of a sudden, the same system would now receive 105 REC’s.

Without producing any more renewable energy!

Electricity retailers have to purchase REC’s to achieve the renewable energy targets set by legislation. The government release today touted a 4-fold increase of this target. At the same time, they are in effect devalueing the REC’s by four fifth.

The result: we are going backwards with regards to reducing energy emissions.

Up to $7,500 in Value to Someone Putting in Solar

REC prices are market driven. If more are created than needed by the energy retailers, they drop in price. Or they might increase if more are needed than available.

Currently, the market price sits around $45. The highest was $49. But they have been as low as $16 in the last 2 years.

If you take your 105 REC’s and sell them, you will get $4,725 currently. A far cry from the promised $7,500. And if it goes bad, it might be as little as $1,680. So unless I am missing something, they’ve got it wrong.

PS: I figured out where the $7,500 come from. See my post on the Renewable Energy Target Legislation.

The Means Test Scrapped

Currently the federal rebate for solar is $8,000. However, that is only for people whose combined household income is under $100,000. It was the Rudd government who introduced the means test, making it impossible for many middle income earners to go solar. When did they do that? On May 18th of this year - a mere 7 months ago.

Now they introduce solar credits and congratulate themselves for scrapping the means test.

So they are going back and forth, making it harder and harder for the industry to keep up with the changes and to plan with any certainty.

The other unanswered question (and no one in the Department of Climate Change had an answer for us when probing today) was what is going to happen to the $8,000 federal rebate?

If these solar credits are an additional incentive, great. But if it means that the federal solar rebate gets scrapped, everyone is worse off. We also do not know whether they will be any impact on solar hot water. The draft legislation is not available yet, but it might shed some more light on that in the next few days.

Conclusion

For anyone who is eligible for the federal solar rebate, I would grab it while it is there. With the pre-application process for solar electricity, you can be certain that you get the rebate before comitting to any purchase. Once you have that pre-approval, you have 9 months to install your system. Or you can change your mind, if legislation changes to your advantage. Without the pre-approval, they might scrap it from one day to the next (as we have seen with the waterwise program in Queensland).

And once the solar credits are a certainty, you can still benefit from them.

Find Out Whether You Can Benefit From Solar Hot Water.

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According to The Australian, there is discussion about the exclusion of solar hot water heaters from the REC (Renewable Energy Certificates) Scheme.

Anyone currently installing a solar hot water system, receives payment (usually as a point of sale discount) for REC’s. The quantity varies depending on the system and location, but price reductions are substantial (between $1,200 and $2,000).

So if the government really goes ahead with this decision, solar hot water will become much more expensive to purchase and take much longer to pay for itself.

No decision until October

However, I just talked to a very friendly and helpful officer from the Office of the Renewable Energy Regulator. He pointed me to the Department of Climate Change, where a short report outlines the review process of the mandatory renewable energy target which is currently happening.

The conclusion: nothing is decided yet (recommendations will not be finalised until October) and the earliest that new regulations come into force is mid 2009.

One of the biggest changes is that the mandatory renewable energy target is supposed to be extended to 2020 and reach 45,000 GWh. That represents 20% of Australia’s energy consumption and would be a good start.

Not quite like the challenge Al Gore put to America: 100% renewable in 10 years, but another step forward.

Prices for Renewable Energy Certificates are falling again.

It was only 4 days ago that the Renewable Energy Certificate price dropped from $49 to $47. Today, we got notice that the going price is going to be $43.

What that means is that the cost for a standard roof mounted system is $186 more than it was last week.

Good or Bad?

Of course is is bad that the you have to pay more for a solar hot water system. However, compared to what the prices were like in the past, $43 is still a huge rebate ($1,333 for the standard system and $1,935 for the 400 Litre split system). And that is in addition to the $1,000 federal rebate you might be eligible for.

The other good thing is that the price drop shows that there are more REC’s being offered than companies wanting to purchase them. That means we are well on the way to increasing the renewable energy production.

The Decision

Naturally, you want to get the best price for your REC’s. So the question is whether to wait and hope that the price will increase again (with the risk that it might fall further).

Or to purchase now to get what you can before prices for REC’s fall even further.

Unfortunately, I do not know what the future will bring. So I cannot advice on the best course of action. But looking at the volatility of the REC prices in the past, I would not be surprised if they continue to fall. On the other hand, significant rises are unlikely.

And when you look at the lifetime benefit from a solar hot water heater, the significance of the REC payment pales in comparison.

On 1 July, I wrote about the all-time high in the Renewable Energy Certificate (REC) Payments. Back then I said that the prices can fall.

Today, we had that drop in price.

Payment is still high: $47 per REC. So for an on-roof system which has 31 REC’s, you still get a payment of $1,457 (which we take off the price). For a split system it can be up to $2,115.

Still excellent value (far better than when I bought my system. We only got $26 per REC.)

If you want to know exactly what REC’s are and how they work, see What are Renewable Energy Certificates (REC)?

Payment for renewable energy certificates have fluctuated between $10 as recently as 18 months ago and a current high of $49.

Every owner of a solar hot water system can generate a certain number of renewable energy certificates (REC’s) and sell them. We look after all the organisation and paperwork for you, so all you will notice is a reduction of the purchase price.

Why does the renewable energy certificate price fluctuate?

Simply because of the demand. Energy retailers have to purchase a certain number of REC’s to reach the mandatory renewable energy target. Other offsetting companies use them to offset greenhouse gas emissions. As more people are demanding these services, the price goes up.

You benefit, because you are paid the value of the renewable energy certificates that are created for your solar hot water system.

Can the prices fall again?

Yes most definitely. They can and have done so in the past.

Can they rise higher?

In theory yes. It just needs more buyers who are willing purchase at higher prices.

However, the mandatory renewable energy target stipulates a penalty rate of $40 (plus 30% company tax). This means that when prices rise above $52, it becomes cheaper to pay the penalty.