Extending the LRET to a ‘real 30 per cent’

Some environmental groups, community groups and individuals expressed support for ambitious and increasing renewable targets that would achieve a greater share of renewables beyond 2020 than the current RET scheme. For example, 350.org submitted:

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Alternatively, some stakeholders suggested reducing the 2020 LRET, but continuing to increase it beyond 2020 as a means of providing long-term support for renewables, while reducing the current impacts of the RET on the electricity market. For example, Snowy Hydro submitted:

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In a similar approach, the New South Wales Government supported retaining the 41,000 GWh LRET target, but extending the timeframe to the stage where 41,000 GWh matches 20 per cent of demand:

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incremental  increase  in  renewable  energy  capacity  over  a  period  that  may  be  more  in   line  with  forecast  requirements  for  new  capacity.  The  timeframe  for  the  target  should  give   consideration  to  providing  industry  certainty  and  a  sensible  investment  period  for  attracting  

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In a slightly different approach, renewable energy developers, operators and financiers supported the current legislated target of 41,000 GWh by 2020, but proposed retaining the 41,000 GWh target to 2035 or 2040 (rather than 2030) to allow projects to secure PPAs, finance and earn a greater return on investment.

For example Infigen Energy’s submission stated:

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The submission from the Investor Group on Climate Change expressed a similar view:

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opportunities  by  extending  the  life  of  revenue  supports  for  these  assets.  The  effect  of  such   DFKDQJHZRXOGEHWRLPSURYHLQYHVWRUFRQ¿GHQFHLQPDNLQJJHQHUDWLRQLQYHVWPHQWVLQWKH

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Generation mix

ACIL Allen modelled a scenario of extending the LRET to achieve a 30 per cent share of generation by 2030 (‘real 30 per cent’). Under this scenario, the target profiles were set in a straight line from 2014 to 2030. The modelling shows generation supported by the LRET in 2020 is greater than that achieved in the ‘real 20 per cent’ scenario discussed in Section 6.1.2. Generation rises to meet the 2030 target.

Figure 26 shows that renewable generation declines between 2014 and 2020 in the ‘real

30 per cent’ scenario relative to current RET settings. However, from the late 2020s, strong deployment of renewables (mostly wind) leads to an additional 9,000 GWh of renewable generation by 2030.

Increased generation from renewables displaces generation from black coal and baseload gas.

Figure 26 Change in generation mix: ‘Real 30 per cent’ – Reference case, 2015 - 2040

Source: ACIL Allen

Electricity prices

Figure 27 shows the ACIL Allen modelling results of the impact of a ‘real 30 per cent’ scenario on retail electricity prices compared with the current RET policy. The modelling forecasts average retail prices to fall for the period 2015 to 2040 for all electricity consumers. Average residential and commercial customers will experience similar price reductions of around two per cent while industrial retail prices will fall by an average of five per cent.

The modelling indicates that average cumulative household electricity bills would be $17 lower between 2015 and 2020 in NPV terms. Between 2015 and 2030 the additional renewable generation lowers wholesale electricity prices, resulting in a cumulative saving of $233 in NPV terms for the average household electricity bill over this period.

Figure 27 Change in average retail electricity prices: ‘Real 30 per cent’ – Reference case, 2015 - 2040

Source: ACIL Allen

The reduction in wholesale electricity prices is in part due to the RET contributing to an oversupply of generation capacity in the market over the period 2015 to 2040. While this may contribute to marginally lower wholesale electricity prices in the short-run, ultimately, renewable generators must recover their long-run marginal costs, which are greater than that of fossil fuel generators. As discussed in Section 5.4, wholesale electricity prices must be high enough in the long-term to allow generators to cover long run marginal costs.

Resource costs

Adjusting the LRET to achieve a ‘real 30 per cent’ share of generation from renewables would decrease the resource cost to the electricity sector by $1.3 billion in NPV terms from 2015 to 2030 relative to the current RET.

Certificate costs

ACIL Allen estimates that the NPV of cumulative certificate costs for large-scale renewable generation would represent around $6.5 billion between 2015 and 2020 and $15 billion between 2015 and 2030, which is approximately $2 billion and $4 billion lower than continuing with the current policy, respectively. However, as the targets continue to 2040 under this scenario, additional certificate costs would be incurred over the period 2030 to 2040, leading to a total cross-subsidy to renewable generators of $18 billion in NPV terms over the period 2015 to 2040.

CO₂-e emissions⁴⁴

Lower targets from 2015 to 2020 are estimated to result in an increase in cumulative emissions of 28 Mt CO₂-e compared to current settings over this period. However, strong growth in renewables from the mid 2020s leads to higher emissions reductions by 2030 and 2040. Cumulative emissions reductions are estimated to increase by 69 Mt CO₂-e by 2040, compared to the current policy.

44 Emissions results presented under each scenario arise from the modelled changes to both the LRET and the SRES; the former accounts for almost all of the impact.