EXPLANATORY STATEMENT

Select Legislative Instrument 2010 No. 205

Issued by the Authority of the Minister for Defence Materiel and Science for the Minister for Climate Change, Energy Efficiency and Water

Renewable Energy (Electricity) Amendment Act 2010

Renewable Energy (Electricity) Amendment (Transitional Provision) Regulations 2010

Item 15 of Schedule 2 to the Renewable Energy (Electricity) Amendment Act 2010 (the Act) provides that the Governor‑General may make regulations prescribing matters required or permitted by Schedule 2 to the Act, or necessary or convenient to be prescribed for carrying out or giving effect to the Schedule. Item 14 of Schedule 2 provides, in part, that the regulations may deal with matters of a transitional, savings or application nature relating to any of the amendments and repeals made by the Act.

The Renewable Energy (Electricity) Act 2000 (the Principal Act) as amended by the Act, establishes a Renewable Energy Target (RET) scheme to encourage additional electricity generation from eligible renewable energy sources. The enhanced RET includes two components - the Large-scale Renewable Energy Target (LRET) and the Small-scale Renewable Energy Scheme (SRES). The RET is designed to ensure that the equivalent of 20 per cent of Australia’s electricity supply is generated from renewable sources by 2020.

Under the Principal Act, wholesale electricity purchasers (‘liable entities’) are required to contribute to the RET in proportion to their share of the national wholesale electricity market. The Principal Act provides for the creation of Renewable Energy Certificates (RECs) by renewable energy generators and in relation to the installation of small generation units and solar water heaters. One REC generally represents one megawatt-hour (MWh) of electricity from eligible energy sources.

The Renewable Energy (Electricity) Regulations 2001 (the Principal Regulations) provide an administrative framework to implement the Principal Act in relation to power station accreditation, eligibility requirements for renewable energy sources, eligibility requirements for solar water heaters and small generation units, and calculation methods for determining the number of RECs.

Installations of solar water heaters (which include air source heat pumps) are able to create RECs under deeming arrangements prescribed in the Principal Regulations. Once registered, the RECs are able to be traded and sold to liable parties who may surrender them to the Renewable Energy Regulator to demonstrate their compliance under the scheme and avoid paying the shortfall charge.

Air source heat pumps extract latent energy from the air: this renewable energy from the environment is converted into heat to heat water. RECs are awarded to air source heat pumps, as for conventional solar water heaters, for the net renewable energy deemed to be used to heat water over a 10-year operating life (after subtracting out the electricity used by these heaters).

Item 116A of Schedule 1 to the Act inserts subsection 21(4) into the Principal Act. That subsection sets out a rule that if a solar water heater is an air source heat pump, RECs may only be created for the installation of such an air source heat pump if it has a volumetric capacity of not more than 425 litres. An air source heat pump is defined by section 5 of the Principal Act.

The Regulations provide transitional arrangements which preserve the existing rules for the creation of RECs for air source heat pumps installed before the amendment commenced and for air source heat pumps installed before 1 January 2011 where a contract had been entered into before 24 June 2010. For the second circumstance to apply, written evidence of the contract would be required along with either evidence of a deposit or statutory declarations verifying that the contract was entered into before 24 June 2010.

Accordingly, the Regulations prescribe the circumstances under which the existing rules for the creation of RECs apply in relation to air source heat pumps with a volumetric capacity of more than 425 litres despite subsection 21(4) of the Principal Act.

Details on the Regulations are included in the Attachment.

Consultation

The amendments in the Act were made at the conclusion of the Senate debate and came into operation immediately after Royal Assent. As such, there was an immediate need to clarify the application of those amendments, particularly in relation to existing contractual arrangements through these regulations. The policy surrounding these regulations was communicated to stakeholders when the amendments commenced.

Authority: Items 14 and 15 of Schedule 2 to the Renewable Energy (Electricity) Amendment Act 2010

 

Attachment

Details of the Renewable Energy (Electricity) Amendment (Transitional Provision) Regulations 2010

Regulation 1 – Name of Regulations

This regulation provides that the title of the Regulations is the Renewable Energy (Electricity) Amendment (Transitional Provision) Regulations 2010.

Regulation 2 – Commencement

This regulation provides the commencement date of the Regulations as 29 June 2010. This is the date when the amendments made to section 21 of the Principal Act by item 116A of the Act commenced. As the regulations only have beneficial operation to allow for the creation of renewable energy certificates for persons who would otherwise have lost that right, they are able to have retrospective operation consistent with subsection 12(2) of the Legislative Instruments Act 2003.

Regulation 3 – Transitional

Regulation 3 sets out transitional arrangements whereby the existing rules for the creation of RECs apply in relation to air source heat pumps with a volumetric capacity of more than 425 litres in two circumstances. The first circumstance occurs where the air source heat pump is installed before 29 June 2010 (the date that the Regulations commenced and the date when item 116A of the Act commenced). The second occurs where the air source heat pump is installed before 1 January 2011; and, before 24 June 2010, the acquirer of the air source heat pump entered into a contract for its acquisition or installation and particular evidentiary requirements are met.

The first circumstance provides clarity over the implications of the commencement of subsection 21(4) of the Act. Consistent with section 8 of the Acts Interpretation Act 1901, subsection 21(4) would not ordinarily apply to installations of air source heat pumps which were installed before that subsection commenced. Paragraph 3(1)(a) removes any doubt about that matter. However, the ordinary operation of the amendment means that installations on or after 29 June 2010 are ineligible to create RECs.

The second circumstance is referred to in paragraph 3(1)(b). It is a limited transitional arrangement in relation to the application of the amendment for the circumstances where, before the Parliament had agreed to the amendments, the acquirer of an air source heat pump had entered into a contract for its acquisition or installation. It is intended that the word ‘contract’ has its legal meaning such that all of the requirements necessary for the formation of a contract between two or more parties must be satisfied for a contract to exist, and be entered into, before 24 June 2010.The Senate passed the amendments on 23 June 2010 and this is the last day relevant for this condition to be satisfied.

The contract may also be for either the acquisition or installation of the air source heat pump. It is recognised that an acquirer may have separate legal relationships for each of these and only one needs to have been entered into before 24 June 2010 for paragraph 3(1)(b) to operate.

Subparagraph 3(1)(b)(ii) requires written evidence of the contract to be given to the Renewable Energy Regulator. Written evidence may include a signed contract or signed order form exchanged between the parties.

The requirement for a deposit to have been paid serves an evidentiary purpose such that if there is independent evidence of money being transferred, there is no need to seek statutory declarations as to the date of the contract. The evidence specified should be a record from a bank or other financial institution that indicates that money was transferred before 24 June 2010. For example, a credit card statement may itemise the deposit. The bracketed text in sub‑subparagraph 3(1)(b)(iii)(A) makes clear that any refund of all or part of a deposit should not exclude an air source heat pump from the provision.

If the necessary evidence of a deposit is not available or no deposit was paid, both the acquirer and any other party to the contract must verify by statutory declaration that the date of the contract relied upon for the purposes of subparagraph 3(1)(b)(i) was before 24 June 2010. If one or more of these is a body corporate, it would be expected that the declarations would be made by a person competent to make such a declaration on behalf of the body corporate.

The evidence required by paragraph 3(1)(b) would be expected to be provided to the Renewable Energy Regulator on REC creation. If sufficient evidence is not provided, the RECs would be ineligible for validation and registration.

Paragraph 3(1)(b) requires that installations are completed before 1 January 2011. This recognises that the regulation is only for a transitional period to allow for an orderly transition to the policy provided in the amendments that air source heat pumps with a volumetric capacity of 425 litres or more should no longer be eligible to create RECs.

Subregulation 3(2) provides a definition of an ‘acquirer’ of a solar water heater. This is the person referred to in subsection 23(1) of the Principal Act: the owner of the solar water heater at the time that it is installed (whether or not the owner assigns the right to create RECs to another person pursuant to subsection 23(2)). It also includes an ‘agent’ of an owner. This covers situations where the contractual arrangements to acquire a solar water heater have been delegated to someone else (such as a person contracted to renovate a premises). The word agent has its ordinary meaning of a person with an authority or capacity to create or affect legal relations between a principal and third parties. It is also possible that paragraph 3(b) may be satisfied if an agent had entered the contract and the owner had paid the deposit before 24 June 2010 (or vice versa).

The concept of an ‘acquirer’ ensures that simply because there are contracts in the production chain (e.g. to purchase a large number of solar water heaters from a manufacturer) before 24 June 2010, it does not mean that the final installation of the air source heat pump is one where RECs may still be created. Accordingly, it is the retail contractual relationship with the end-use customer that is the focus of the regulation.