Commonwealth Numbered Regulations - Explanatory Statements

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RENEWABLE ENERGY (ELECTRICITY) AMENDMENT REGULATIONS 2010 (NO. 4) (SLI NO 204 OF 2010)

EXPLANATORY STATEMENT

Select Legislative Instrument 2010 No. 204

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) Act 2000

Renewable Energy (Electricity) Amendment Regulations 2010 (No. 4)

Section 161 of the Renewable Energy (Electricity) Act 2000 (the Act) provides, in part, that the Governor‑General may make regulations prescribing matters required or permitted by the Act, or necessary or convenient to be prescribed for carrying out or giving effect to the Act.

The regulations amend the Renewable Energy (Electricity) Regulations 2001 (the Principal Regulations) to implement amendments made, by the Renewable Energy (Electricity) Amendment Act 2010 (the Amendment Act), to section 23 of the Act, which require regulations to be made dealing with the number of Renewable Energy Certificates (RECs) that may be created under the Act for installations of small generation units (SGUs). The Regulations also add alumina refining to the list of activities that are defined as emissions‑intensive trade‑exposed (EITE) activities for the purposes of the definition in section 5 of the Act and are therefore partially exempt from certain provisions in the Act in respect of the electricity acquired for use in carrying out those activities.

The Act establishes a Renewable Energy Target (RET) scheme to encourage additional electricity generation from eligible energy sources. The 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 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 Act provides for the creation of RECs by renewable energy generators and in relation to the installation of SGUs and solar water heaters. One REC generally represents one megawatt-hour (MWh) of electricity from eligible energy sources.

The Principal Regulations provide an administrative framework to implement the 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.

The Principal Regulations also provide that owners of prescribed SGUs, including solar photovoltaic (PV) panels, small wind turbines and micro-hydro systems, may create and trade RECs under prescribed deeming arrangements for energy produced or displaced by these systems.


 

SGU owners may apply, after installation, to the Renewable Energy Regulator, who administers the Act and Principal Regulations, to create RECs equivalent to the amount of energy that is deemed to be generated over a future period that can vary with technology type. These tradeable RECs can then be sold on the RECs market. Alternatively, the owner may assign the right to create the RECs to another party.

The Act also provides that under circumstances prescribed in the Principal Regulations, the number of RECs able to be created in respect of eligible SGUs may be multiplied by a factor that varies over time. This is referred to as the ‘Solar Credits’ mechanism.

The Amendment Act altered the operation of section 23B of the Act in relation to off-grid SGUs. These are defined in subsection 23B(3B) of the Act. Subsection 23B(3A) now requires that off-grid SGUs be allowed to create multiplied RECs for the first 20 kilowatts (kW) of their rated power output. However, subsection 23B(3C) provides a cap on the additional RECs created by this special treatment for the off‑grid SGUs installed in each financial year to which the multiplier applies.

The Regulations prescribe the manner in which the number of RECs created for an SGU installation is to be multiplied for the first 20 kW of an SGU’s output power consistent with the requirements of section 23B.

The Act provides for partial exemptions from liability in respect of acquisitions of electricity used in carrying on activities defined in the Principal Regulations as EITE activities. It is the policy intent that these partial exemptions be provided for all activities that would qualify for the EITE assistance under the proposed Carbon Pollution Reduction Scheme (CPRS). The activity ‘alumina refining’ has recently been defined as an EITE activity under the proposed CPRS. Accordingly, the Regulations also define a new EITE activity, alumina refining, for the purposes of paragraph (b) of the definition of ‘emissions-intensive trade-exposed activity’ in section 5 of the Act and prescribe its baselines for the purposes of the method provided for by subsection 46B(1) of the Act.

Details on the Regulations are included in the Attachment.

Consultation

The amendments in the Act concerning off-grid SGUs were made at the conclusion of the Senate debate and came into operation immediately after Royal Assent. They require the Principal Regulations to prescribe that off-grid SGUs be allowed to create multiplied RECs for the first 20 kilowatts (kW) of their rated power output. As such, there was an immediate need to amend the Principal Regulations to comply with the requirements in the Act.

The Regulations concerning off-grid SGUs go no further than prescribing that the number of RECs created for an SGU installation is to be multiplied for the first 20 kW of an SGU’s rated power output up to the annual cap in a manner consistent with the requirements of Act. Accordingly, consistent with section 18 of the Legislative Instruments Act 2003, consultation was unnecessary because of both the urgency and limited ability for the regulations to vary from the requirements set out in the Act.


 

The definition of alumina refining was developed in consultation with the alumina industry during 2009. The Department released for consultation draft Regulations which defined alumina refining as an EITE activity in December 2009. No comments were made on the proposed definition and it remains in the form which was consulted upon.

 

Authority: Section 161 of the Renewable Energy (Electricity) Act 2000


 

Attachment

 

Details of the Renewable Energy (Electricity) Amendment Regulations 2010 (No. 4)

Regulation 1 – Name of Regulations

This regulation provides that the title of the Regulations is the Renewable Energy (Electricity) Amendment Regulations 2010 (No. 4).

Regulation 2 – Commencement

This regulation provides for the Regulations to commence on the day after they are registered on the Federal Register of Legislative Instruments.

Regulation 3 – Amendment of Renewable Energy (Electricity) Regulations 2001

This regulation provides for Schedule 1 to the Regulations to amend the Renewable Energy (Electricity) Regulations 2001 (the Principal Regulations).

 

SCHEDULE 1 - AMENDMENTS

Items 1 and 2 – Subregulations 20(2A) and (2B) respectively

Subregulations 20(2A) and 20(2B) of the Principal Regulations clarify the rules for rounding in the methodology for calculation of the certificates entitlement for SGUs where multiplied in accordance with regulation 20AA. These subregulations are made for the purposes of subsections 23B(2) and (3) of the Act which allows for a multiplier to be applied to REC entitlements for SGUs in circumstances specified by the Principal Regulations but for only up to the first 3 kW of the rated power output of the SGUs. For the purposes of subsection 23B(3), the Principal Regulations prescribe 1.5kW as the general limit on the rated power output for which the number of RECs may be multiplied.

Subregulation 20(2A) currently stipulates that if an SGU has a rated power output of more than 1.5 kW, the number of RECs created for the SGU is to be rounded down to the nearest whole number after adding together the number of RECs created for the first 1.5 kW of the SGU’s rated power output (as multiplied in accordance with regulation 20AA) and the number of RECs created for the remainder of the SGU’s rated power output. This gives effect to the restriction in subsection 23B(3) of the Act.

Subregulation 20(2B) stipulates that if the SGU has a rated power output of 1.5 kW or less, the number of RECs created for the SGU is to be rounded down to the nearest whole number after the number of RECs is multiplied in accordance with regulation 20AA. This calculation is simpler because the restriction in subsection 23B(3) of the Act does not apply.

To give effect to the requirements of subsections 23B(3A) to (3C) of the Act, items 1 and 2 make minor amendments to subregulations 20(2A) and 20(2B) to make clear that the special rules for off-grid SGUs in new subregulations 20(2C) to (2J) apply until the cap for a particular financial year is reached. However, once the off-grid cap is reached (as specified in the table in regulation 20(2G)), off-grid SGUs over 1.5 kW revert back to the general rule in subregulation 20(2A) and off-grid SGUs that are 1.5 kW or less revert to the general rule in subregulation 20(2B).

This ensures that off-grid SGUs receive at least the same level of assistance as equivalent on-grid SGUs if the off-grid cap is met. In addition, these amendments do not change circumstances specified by subregulation 20AA(3) for when the multiplier may apply to both off-grid SGUs and other SGUs.

Off-grid SGUs are defined by subsection 23B(3B) of the Act as an SGU installed at least 1 kilometre from the nearest main-grid line or an SGU less than 1 kilometre from a main-grid line where the owner has provided written evidence from the local network service provider that the total cost of connecting the SGU to the main-grid is more than $30,000. It is expected that main‑grids would include the electricity system included in the National Electricity Market, the Darwin-Katherine grid, the Alice Springs grid, the Mt Isa grid, the North-West and South-West grids in Western Australia and any other similar grid.

Item 3 – After subregulation 20(2B)

Item 3 inserts subregulations 20(2C) to (2J) into the Principal Regulations to comply with the requirements of subsections 23B(3A) to (3C) of the Act. These subregulations provide for the multiplier in regulation 20AA to apply to the first 20 kW (rather than 1.5 kW) of an off-grid SGU, installed after 28 June 2010 and before 1 July 2015, until the relevant cap on the additional RECs for off-grid SGUs in subsection 23B(3C) of the Act is met. The application of the subregulations to off-grid SGU’s installed between 28 June 2010 and the date these regulations commence is appropriate because the changes are beneficial in nature and reflect the Parliamentary intent of the amendments to the Act.

Subregulations 20(2C) and (2D) provide for the multiplication of RECs for off-grid SGUs of more than 20 kW rated power capacity before the RECs cap set out in subregulation 20(2G) is met. It gives effect to the rule in subsection 23B(3A) of the Act, which provides that the multiplier must only apply to the first 20 kW of systems which exceed 20 kW rated power capacity. Paragraph 20(2C)(b) provides that once the cap is met, subregulation 20(2C) will not apply such that the SGU would then be considered under subregulation 20(2A) or 20(2B) as appropriate. New paragraph 20(2C)(c) provides that the RECs that may be created by the SGU must not cause the cap to be exceeded, but subregulation 20(2H) ensures that the SGU in question may receive additional RECs up to the level of the cap. Subregulation 20(2D) operates with the same structure as subregulation 20(2A) and thus picks up the conditions in subregulation 20AA(3) which must be met for the multiplier to apply.

Subregulations 20(2E) and (2F) provide an equivalent rule to subregulations 20(2C) and (2D) for when an off-grid SGU has a rated power output of 20 kW of less. The only difference is that as the 20 kW threshold is not met, the multiplier is applied to the whole power output of the off-grid SGU. It is equivalent to the structure of subregulation 20(2B).

Subregulation 20(2G) sets out the REC cap required by subsection 23B(3C) of the Act. It relies on the definition of ‘multiplier certificates’ set out in subregulation 20(2J) and the rule in subregulation 20(2I).

 

For off-grid SGUs installed in a particular financial year, the application of the cap in subregulations 20(2C) and (2E) will be determined by adding up the RECs created for off‑grid SGUs installed in a financial year that are additional to the RECs which would have been created if the system size remained at 1.5 kW and excluding from this calculation RECs which are created but not validated. This could be done by:

                adding up the number of RECs created in respect of ‘off-grid’ SGUs installed in the relevant period, worked out under subregulation 20(2D) or 20(2F);

                subtracting the number of RECs which would have been validly created if subregulation 20(2A) or (2B) had applied to those SGUs; and

                subtracting the number of certificates which were created under subregulation 20(2D) or 20(2F) in respect of those SGUs but which were not registered by the Renewable Energy Regulator under section 26 of the Act (to give effect to subregulation 20(2J)).

Example

It is assumed that during the first 10 months of the financial year ending on 30 June 2011, 800 off-grid 5kW solar (PV) systems are installed in solar zone 3, and applications are made (online in the REC Registry) to create RECs for all of these SGUs.

Under the new arrangements, a total of 414,400 (800 x 518) RECs would be created compared to 182,400 (800 x 228) RECs which would be created if the multiplier only applied to the first 1.5kW.

The total of 232,000 (414,400 – 182,400) additional RECs created for these SGUs is 18,000 RECs less than the cap of 250,000 RECs.  This means that new subregulations 20(2C) and (2E) would continue to apply to further off-grid SGUs installed before 30 June 2011.  

If 10 of the 800 systems were found by the Renewable Energy Regulator not to comply with the conditions of subregulation 20AA(3) before the RECs were registered as valid RECs, the 2,900 additional RECs applied for in relation to these 10 SGUs would not be included in the cap calculation through the operation of new subregulation 20(2I).

The result would be that 229,100 (232,000 – 2,900) RECs would count towards the cap and 20,900 additional certificates could be created for off-grid SGUs installed by 30 June 2011, where applications to create RECs are made before the cap is reached.

Subregulation 20(2H) allows for the last off-grid SGU installed in a particular financial year before the cap is reached to receive the ordinary multiplier in subregulation 20(2A) or 20(2B) plus the amount of the cap which has not been allocated.


 

Example

For example, if 249,500 certificates have been created for the financial year ending 30 June 2011 and a 20 kW solar (PV) system is installed off-grid in solar zone 3 (which would be eligible for 2,073 RECs under subregulation 20(2F)) the cap would be exceeded by the installation, and subregulation 20(2H) would operate. This would mean that the off‑grid SGU would receive the ordinary 538 RECs through the operation of subregulation 20(2B) and another 500 RECs to reach the cap. This would result in a total allocation of 1,038 RECs.

It is expected that the Renewable Energy Regulator’s website (www.orer.gov.au) or the REC Registry will provide a running total of the cap so that persons who are creating RECs can determine when it is likely to be met.

Item 4 – Paragraph 20AA(3)(c)

This item clarifies that the RECs for off-grid SGUs may be multiplied for the first 20 kW if subregulation 20(2C) or 20(2E) applies. Otherwise, the standard 1.5kW limit would apply consistent with subregulations 20(2A) and (2B).

Item 5 – Regulation 22D, note 2

This item makes a minor amendment to correct a typographical error.

Item 6 - Schedule 6, after Part 17

Part 18 Alumina refining

This item inserts a new Part 18, Alumina refining, comprising three divisions, into the Principal Regulations.

Division 1 defines the transformation of input(s) to output(s) which constitutes the emissions‑intensive trade-exposed (EITE) activity ‘alumina refining' for the purposes of the Act.

Division 2 provides the emissions-intensity classification of the activity. This is relevant to the level of the partial exemption set out in regulation 22ZA of the Principal Regulations.

Division 3 sets out the electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of the activity.

Division 1 ‘Alumina refining’

Clause 650 Alumina refining

This clause defines the physical and chemical transformations involved, and clarifies that alumina refining is specified as an emissions-intensive trade-exposed activity.

Alumina refining is the physical and chemical transformation of bauxite (which is an ore containing mineralised aluminium compounds) into alumina (aluminium oxide (Al2O3)) with a concentration of aluminium oxide equal to or greater than 95 per cent.

The activity, as conducted during the period used to assess the eligibility of the activity, involved the Bayer process where bauxite is digested with a hot solution of caustic soda (NaOH) to dissolve the alumina content of the bauxite. The solution is further clarified by filtration where the insoluble particles are removed. The alumina is precipitated out from the caustic soda solution and is calcined to produce dry alumina. Emissions associated with the production of specialty aluminas and hydrate (alumina trihydrate, Al(OH)3) were also considered part of this activity.

It is intended that both high temperature and low temperature alumina refining processes fit within the activity description.

The activity description is not satisfied through the calcination of uncalcined alumina, specialty aluminas, or hydrate to produce alumina with purity equal to or greater than 95 per cent without commencing the transformation from bauxite. However, the fact that a batch of alumina does not have purity equal to or greater than 95 per cent does not mean that the activity is not conducted at times when the purity is equal to or greater than 95 per cent in other batches. The activity may also be conducted across multiple sites; such as, where bauxite is transformed to uncalcined alumina at one site and transported to another site for calcining to produce saleable alumina a purity equal to or greater than 95 per cent.

The inputs of the activity have been defined to include any grade of bauxite.

The output of the activity is saleable alumina (aluminium oxide, Al2O3) with purity equal to or greater than 95 per cent.

The activity does not include the upstream extraction and pre-processing of bauxite ore and the production of feedstocks such as lime and caustic soda; or the downstream production of aluminium metal. As such, the relevant site for the application is that where the alumina is actually produced and does not extend to separate sites which may conduct upstream or downstream processing but not the activity as described. Generally, it is expected that where these processes are carried out at separate sites those sites would not be regarded as carrying out the emissions-intensive trade-exposed activity for the purposes of subregulation 22A(9).

Division 2 Classification of activity

Clause 651 Classification of activity

This clause provides that alumina refining is classified as a highly emissions-intensive activity.

Division 3 Electricity baseline for calculating partial exemption

Clause 652 Electricity baseline for product

This clause provides that the electricity baseline for calculating the amount of a liable entity’s partial exemption in respect of alumina refining is 0.228 MWh per tonne of saleable alumina (aluminium oxide, Al203) with purity equal to or greater than 95 per cent by mass.

The tonnage of the relevant alumina should be measured accordingly to ordinary measurement rules applicable in the industry.

To be eligible as a relevant product, the alumina (aluminium oxide, Al203) must:

(a) have a concentration of aluminium oxide equal to or greater than 95 per cent; and

(b) be produced by carrying on the emissions-intensive trade-exposed activity; and

(c) be of saleable quality.

The alumina must have been produced by carrying on the activity as defined by clause 650 to be eligible as a relevant product. For instance, imported alumina blended with the product produced from the activity would not be included in the tonnes of the relevant product.

The alumina must be of saleable quality. This is defined by regulation 22C. In particular, the tonnes of alumina which are scrapped, lost or discarded are not to be included in the tonnes of relevant product. Additionally, if inputs are transformed into saleable alumina with purity equal to or greater than 95 per cent, but that alumina is further calcined, the tonnage should be counted only once for the definition of relevant product.

 

 


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