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OPTIONS FOR AN EXPANDED ACT ELECTRICITY FEED-IN TARIFF SCHEME 2009

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									OPTIONS FOR AN EXPANDED ACT
ELECTRICITY FEED-IN TARIFF SCHEME 2009

ACT Greens Submission to the ACT
Government’s Discussion Paper

March 2010
   ACT Greens Submission to the ACT Government’s Paper:
   OPTIONS FOR AN EXPANDED ACT ELECTRICITY FEED-IN
                 TARIFF SCHEME 2009




Introduction

The ACT Greens welcome this opportunity to comment on the Options for an
Expanded ACT Electricity Feed-In Tariff Scheme, and look forward to the ACT
Government moving forward with the expansion of the scheme.


Feed-in Tariffs are just one of a range of options to encourage renewable energy
generation, and are being implemented all around the world, including a number of
states in the US, Europe and the UK. There are many models of Feed-in Tariffs, with
varying rates, eligibility and schemes structures, but they have the same basic aim at
their core. That is, to provide an incentive to encourage private investment into
renewable energy generation, by delivering certainty to investors in the form of a
guaranteed price over a fixed time. Upfront costs in infrastructure are covered by the
investor, who is repaid over a period of time by recouping costs through slightly
increased electricity prices across the whole consumer base.


Feed-in tariffs are designed to stimulate industry growth in renewable generation, and
have been shown to achieve this around the world where they have been introduced
on a significant scale. Should the ACT proceed with the introduction of a Fee-in Tariff
for medium and large scale generators, we will be the first Australian jurisdiction to do
so. However, we will be following in the footsteps of many countries that have done
just such a thing overseas.


The Greens would encourage the Government to move quickly to establish Stage 2
by tabling legislation before the middle of 2010.




Shane Rattenbury MLA
Greens Spokesperson on Energy, Environment, Climate Change and Water
Summary of Recommendations

  1. That Stage 2 of the Feed-in Tariff has a scheme cap that is set for a minimum
      of three years and at least 12 months in advance.
  2. Schemes under 30kW should not be included in the scheme cap, or if they
      are, capacity limits should be banded separately.
  3. That the Government commission modelling on the return on investment for
      systems over 30kW in order to help determine the premium rates for Stage 2.
      This could be undertaken by the ICRC, in consultation with industry, prior to
      the establishment of the tariff and the scheme cap.
  4. That parameters for the establishment of the percentage premium rate are
      based on assumptions of return on investment and cost to consumers, and
      take into account other subsidies and efficiency savings.
  5. That these parameters are transparent, so that all investors have a clear
      indication of the investment landscape and can predict with some certainty
      how the premium rate might change.
  6. Ensure that under the ACT Feed-in Tariff legislation that differentiated tariff
      rates are able to be set for different technologies as they became viable
      energy or heat generation options.
  7. That the ACT solar power facility is only eligible for the feed-in tariff for energy
      that is sold into the ACT.
  8. That the ACT Government investigate a power purchase arrangement with the
      proposed solar power facility.
  9. That the feed-in tariff legislation facilitates a model for community ownership of
      renewable generators.
  10. Government facilities should continue to be excluded from accessing the feed
      in tariff but the legislation should provide for roof leasing mechanisms to
      facilitate access to appropriate sites for PV
  11. That the Government negotiate a standardised interconnection agreement with
      network providers for medium and large scale generators in the ACT.
  12. That the definition of “occupier” is expanded in the legislation to facilitate
      access to the tariff by community projects, commercial installers and owner’s
      corporations.
  13. That the Unit Titles Act is amended to provide an exemption on the “prohibition
      of business” so that owner’s corporations are able to lease shared roof space
      for the purposes of renewable generation or access the feed-in tariff directly
      with their own systems.
  14. That after the tariff for each sized system (and technology) is calculated within
      a framework that equalises the acceptable return on investment, if necessary,
      the current legislation is amended to ensure that systems between10-30kW
      receive 100% of the premium tariff.
General comments about the modelling

Modelling in the discussion paper is specifically from the perspective of what the direct
price impact on electricity consumers will be of various size schemes, and while the
Greens support this information being included for the purposes of deciding the size of
the overall scheme, there is other information that has not been included.


The modelling does not clearly outline what the various tariff options will deliver in
terms of return on investment. It is especially important to determine this in regards to
the extension of the scheme if the ACT is trying to encourage investment in large
scale systems.


The Independent Competition and Regulatory Commission’s (ICRC) Draft Report on
the Electricity Feed-in Renewable Energy Premium: Determination of Premium Rate
released in February 2010 laid out the return on investment for systems between 1.5
kW and 30kW under the various percentage premium rates included in the current
legislation, but as the current legislation does not cater for systems above 30kW,
modelling for this was not included. It would seem an imperative that information on
the return on investment is included to ascertain what the premium rates, and
therefore the scheme cap, should be.


One of the underlying assumptions of the modelling is that the feed in tariff will cause
the price of electricity to rise and that “higher retail prices will reduce disposable
incomes leading to diminished economic turnover, consumption and hence jobs.” The
modelling does not appear to have built in any assessment of the electricity savings
that might be made through other policy initiatives, such as energy efficiency
measures.


The modelling also appears to assume that employment growth will cease as the
scheme cap is reached, however it is highly likely that other policies initiatives (and
most particularly a price on carbon) will ensure that the early jobs growth in the green
energy sector will continue. This is important to recognise, as early jobs growth will
actually deliver long term benefits for the development of the sector in the ACT; a
more highly skilled and mature workforce operating in a more mature policy
environment.


The modelling also fails to factor in savings or costs associated with changes to the
electricity network that may occur as a result of moving towards a distributed energy
system.


While it may not be possible to factor in all the complexities in what will be a quickly
changing energy market and energy policy landscape, it is important to acknowledge
the limitations of this kind of modelling in predicting with any certainty what the long
term implications.
Measures such as the Feed-in Tariff might have (apparent) short term costs but they
will allow the development of technologies and economies of scale that will take these
renewable energy solutions to the level and price required to deliver large cuts in
greenhouse gas emissions. The ACT can and should play a part in this - as both a
leader in low carbon technologies and making sure that it has the experience
necessary to take advantage of the opportunities that the investment in low carbon
technologies will present.




Capping the scheme

The ACT Greens broadly support the premise on which the Government’s paper is
established, that is, that the overall impact on ACT electricity consumers should be
considered when setting an overall cap on the amount of installation in the ACT in any
one year.


Energy policy advocates generally recommend that feed-in tariff schemes are not
capped, as this can stifle investment in the renewable energy sector. In addition there
are other mechanisms that can be used to “cool off” an overheated market, such as
dropping the premium tariff rate paid to generators. However, the ACT is a small
jurisdiction with a consumer base that may not easily be able to absorb uncapped
investment in renewable generators and therefore uncapped payments. This was
especially an issue when the original feed-in tariff legislation was passed in the
Assembly as, at that stage, South Australia was the only other jurisdiction that had a
feed in tariff, meaning that the ACT was highly likely to attract high investment
interest. In many ways this situation will still apply, as no other jurisdiction in Australia
has moved towards a feed-in tariff that will attract commercial generators.


The Greens support that only larger scale installations should be included in an
annual cap, and that the cap level should be clearly set for a minimum of three years
and at least 12 months in advance. It is imperative that business are given a high level
of certainty and therefore a clear sense of the investment landscape several years
ahead so that planning can be undertaken. Larger installations take a great deal of
planning and have significant lead times, so changing the investment landscape each
year and with only three months notice, as occurs under the current legislation, is
unacceptable. If the ACT were able to lay out clearly the path for adding renewable
generation capacity to the grid, this would be of benefit to industry.


Schemes under 30kW should not be included in an annual cap, as overheating in the
residential sector is unlikely to occur at the same rates as the commercial sector. If
small scale installations were included in a cap, it’s likely that they would be crowded
out of the scheme by significant commercial investment. If schemes under 30kW are
not excluded from the cap, at a minimum the Government could consider banding the
maximum installed capacity for 10-30kW installations.
The level of the cap is clearly linked to the premium rate set for large scale
installations and the impact on consumer prices, and therefore cannot be decided in
isolation to these two parameters.


The ACT Greens recommend:
   1. That Stage 2 of the Feed-in Tariff has a scheme cap that is set for a minimum
      of three years and at least 12 months in advance.
   2. Schemes under 30kW should not be included in the scheme cap, or if they
      are, capacity limits should be banded separately.



Setting the premium rate

Feed in tariffs around the world have been introduced with differentiated tariff rates for
various technologies and installation sizes. Currently the ACT legislation specifically
caters for solar and wind renewable generation, but indicates other generation
technologies are able to be considered. The ACT legislation would be a more
sophisticated system if differentiated tariff rates were able to be set for different
technologies as they became viable energy or heat generation options into the future.


It is generally accepted that the ACT doesn’t have viable commercial wind resource in
an area that can be developed. However, with the emergence of new small scale wind
technologies, consideration should be given to determining an appropriate tariff rate
for wind in the near future.


The setting of premium prices for Stage 2 of the Feed in Tariff will be crucial to
encouraging investment in the ACT. Set the rates too high and investors will reap
huge profits at the expense of the community, set the rates too low and there will be
no investment in spite of a scheme cap that allows installation of large systems.


As mentioned above, the modelling referred to in the Discussion Paper is unclear
about what has been assumed as the return on investment (ROI) only the payback
period for the return on capital. Clearly, for commercial investors, the ROI would need
to be higher than just the return on capital to make it an attractive investment. But it is
also likely that the ROI would be different for different technologies and different sized
installations.


It would be preferable if there was a transparent way of establishing what the premium
rate should be through a clear statement of the expected ROI, as well expected
efficiency savings by industry over the life of the program should it run longer than just
a few years. This would allow industry to be able to reasonably predict the premium
rates several years in advance.


The ICRC has modelled for PV systems under 30kW that ROI for various different
premium rates, and has indicted that it will recommend a premium rate the delivers an
acceptable ROI for household systems (1.5kW). If this modelling could be replicated
for large scale PV and solar thermal systems, the ACT could decide on a premium
rate that delivered a ROI that was considered within range to attract long term
investment. It would be a better approach to decide on what is an acceptable ROI for
both household, medium scale and large scale systems, and set the percentage
premium rate accordingly, rather than assume one size fits all.


Once the cap has been set, it is important that the process for projects to proceed to
development are clear, transparent and that companies receive early feedback as to
when the quota is filled for any particular period. Page 11 of the Discussion Paper
outlines how companies could participate in a bidding process for quotas once the cap
has been established, and could then nominate a premium price. The merit of this is
that it addresses the concerns raised above about setting a reasonable ROI and that it
would encourage increasing efficiencies in the projects that are put forward by
companies.


The ACT Greens recommend:
   3. That the Government commission modelling on the return on investment for
      systems over 30kW in order to help determine the premium rates for Stage 2.
      This could be undertaken by the ICRC, in consultation with industry, prior to
      the establishment of the tariff and the scheme cap.
   4. That parameters for the establishment of the percentage premium rate are
      based on assumptions of return on investment and cost to consumers, and
      take into account other subsidies and efficiency savings.
   5. That these parameters are transparent, so that all investors have a clear
      indication of the investment landscape and can predict with some certainty
      how the premium rate might change.
   6. Ensure that under the ACT Feed-in Tariff legislation that differentiated tariff
      rates are able to be set for different technologies as they became viable
      energy or heat generation options.




Developing the clean economy

The ACT Greens support Government policies that drive the transition to a “green
economy”. The external world imperative is that significant developments are
occurring in global technology to solve the problem of carbon emissions and potential
resource pressures. The ACT is a small player in that global and national landscape,
but there may be some niche opportunities where we can play an important role. For
example, the presence of our strong research and development facilities in solar
technology makes the ACT a good place to consider locating both demonstration and
commercial solar projects.


In developing opportunities for industry, the Greens believe there are a number of
principles that need to be taken into account:
   -   Delivering certainty and consistency to industry so as to avoid boom and bust
       cycles.
   -   Ensuring that the level of support provided to industry doesn’t encourage
       artificial price settings over time or price gouging behaviour, and encourages
       industry efficiency in the long term.
   -   That industry growth is supported through the development of strong industry
       standards and support for training and education programs
   -   Ensure that auditing is a core component of all implementation of standards.


Environmental outcomes

The ACT Greens believe that, as part of planning for Canberra’s energy future, the
development of clean renewable energy generation is essential, particularly in the
context of the 40% reduction in greenhouse emissions that has been recommended
by the Legislative Assembly’s Climate Change, Energy and Water Standing
Committee.


It should be acknowledged that the direct costs of solar energy are, by comparison to
some other abatement measures, high. However, when externalities are factored in
and other benefits are accounted for, we believe that pursuing a second stage feed-in
tariff will deliver overall benefits to the ACT. It must also be acknowledged that in
places where the solar industry has expanded significantly (due to early government
assistance) the costs of the technology have dropped, and now parts of Europe and
California are moving quickly towards grid parity. The Greens firmly believe that solar
should play a role in Australia’s energy future, and while upfront costs may be higher
than other technologies, solar provides a stable distributed emission free energy
source that should be part of our energy future.




Solar power facility

The Greens support that the electricity generated by a solar power facility should only
be eligible for the feed-in tariff if that electricity is sold into the ACT market, as is the
requirement under the current legislation. This could be mandated through ACT
retailers being required to purchase a percentage of their green energy from the solar
facility.


A requirement to sell into the ACT market might need to go hand in hand with
guaranteed preferential access to the ACT market, and may require a power purchase
agreement (PPA) that has specific terms laid out to ensure that any company
investing in the solar facility will have a guaranteed sale of electricity at a guaranteed
price over a set period of time. Another solution might be for the ACT Government to
sign a PPA with the solar generator to supply ACT Government operations.
The ACT Greens recommend:
   7. That the ACT solar power facility is only eligible for the feed-in tariff for energy
      that is sold into the ACT.
   8. That the ACT Government investigate a power purchase arrangement with the
      proposed solar power facility.



Eligibility to the scheme

Community Ownership
Community ownership of renewable generation facilities is consistent with the policy
objective to get private investment into renewable energy generation, whether it is one
family investing in their own solar panels, or a group of 100 investing in a community
solar project.


As encouraging private investment in renewable generation is one main purpose of a
feed-in tariff policy, it seems logical that only those with the capital to invest will be
able to do so. However, community ownership offers the capacity for people to invest
with less capital than would be required for a standard domestic system by pooling
their investments and receiving a proportion of the returns.


Community ownership also provides an opportunity for people to invest in renewable
generation if they do not have suitable roof capacity or are private renters or reside in
public housing where they are unable to put panels on the roof. The issue of whether
public housing tenants are able to afford to put panels up is a separate issue to that of
whether or not public housing (ie. the ACT Government) should be eligible to receive
a premium tariff for electricity generation.


Establishing models of community ownership could be complex, and the legislation for
Stage 2 should merely facilitate those models. One issue that requires resolution is in
regard to eligibility in terms of metering (an issue that needs resolution for unit titles
and commercial generators also). Community projects would require that the definition
of an “occupier” is no longer used to determine eligibility for the scheme or for
metering. It is possible that this definition could be maintained for single dwelling
household installations, but would be precluded by nearly all other types of projects


Government Facilities
The application of the feed in tariff to Government facilities was previously rejected as
it was considered it would effectively mean that taxpayer’s money (through
departmental funding) would be used to purchase the infrastructure, and then
consumers would be charged again to pay the tariff back to the government agency
that was generating the electricity.
The Greens recommend that this exclusion to eligibility is continued as it is not the
best investment of taxpayers money to invest the capital into generators and then for
consumers (effectively the same people as taxpayers) to also pay the tariff, albeit
through another pathway. By excluding government agencies from eligibility, the
question about what those agencies may spend the revenue generated on becomes
irrelevant. The Discussion Paper flags on page 28 that revenue could be allocated to
specific health or community services, however this overly complex concept of
hypothecated revenue would result in merely shuffling taxpayer’s money around and
allowing agencies to reduce spending on those areas from general revenue.


There are also other options open to the Government to contribute to a reduction in
greenhouse gas emissions. Firstly, the ACT Government could make a more effective
and cheaper contribution to the ACT’s emission profile by quickly moving to a
purchase of 100% renewable electricity generation.


One downside of not allowing Government agencies to access the feed in tariff is that
roof space sites that are highly suitable for solar PV generation may not be utilised.
This problem could be avoided by ensuring that the legislation facilitates leasing
arrangements so that building owners can lease roof space to solar generators, who
will then be able to claim the feed-in tariff. This would provide extra income to the
government department (if they were the building owner), but the initial capital
investment would be private rather than from the public purse. Again, this would
require a change in the legislation to ensure eligibility to entities that are not
“occupiers”.


The ACT Greens recommend:
   9. That the feed-in tariff legislation facilitates a model for community ownership of
       renewable generators.
   10. Government facilities should continue to be excluded from accessing the feed
       in tariff but the legislation should provide for roof leasing mechanisms to
       facilitate access to appropriate sites for PV



Interconnection Agreements
Interconnection Agreements between generators and the distribution group are the
technical terms and conditions under which generators connect to the grid. Larger
installations are generally required to meet tailored performance standards.


The ACT Government could facilitate the access of renewable generators in the ACT
by ensuring that they have developed a standardised interconnection agreement
which outlines those performance standards that must be met by generators. The
Government should negotiate these agreements with the network providers so that it
is clear to all generators what the standards are that must be met, and so network
providers are obliged to operate within the terms of that agreement.
Providing this for generators will serve to increase industry certainty while also
reducing legal costs and complexity for renewable generators.


The ACT Greens recommend:
   11. That the Government negotiate a standardised interconnection agreement with
       network providers for medium and large scale generators in the ACT.




Changes to current Feed in Tariff legislation

A model for multi-unit developments
Living in a multi-unit development is another obstacle to being able to access the
feed-in tariff under the current legislation, due to either objections by owners’
corporations or more particularly due to multi-unit dwellers sharing their roof space
with other residents.


Once again, a simple way to facilitate multi-unit dwellers access to the feed-in tariff
would be to amend the current legislation to change the eligibility requirements to
include owners’ corporations. These organisations could then either be given the right
to access the feed in tariff directly or could lease out their roof space to a commercial
generator who would be able to claim the feed-in tariff.


This may require an amendment to the Unit Titles Act to facilitate owners’
corporations being able to earn income from either leasing space for the purposes of
renewable energy generation or installing their own facilities and being paid the tariff
directly.


The ACT Greens recommend:
   12. That the definition of “occupier” is expanded in the legislation to facilitate
       access to the tariff by community projects, commercial installers and owner’s
       corporations.
   13. Consider amendments to the Unit Titles Act so that owners’ corporations are
       able to lease shared roof space for the purposes of renewable generation or
       access the feed-in tariff directly with their own systems.
Equalise the return on investment for medium and small scale systems


In its February 4th 2010 paper on the Feed-in Tariff, the ICRC undertook modelling of
the return on investment for various size systems under the current legislative
framework of 100% of the premium tariff for systems sized 0-10kW and 80% of the
premium tariff for systems sized 10-30kW.


Modelling indicated that small scale systems are currently disproportionately
subsidised by the Federal Government, due to the fact that systems of 1.5kW can
access five times the current REC price, and that this amount is a significantly higher
proportion of the capital cost than it is of a larger system. Therefore small scale
systems currently require a proportionately lower feed-in tariff to achieve the same
level of return on investment as a larger system. However, the current legislative
framework is currently such that larger systems receive a lower tariff.


The consequence of this is that should the premium rate be lowered to bring the rate
of return to an acceptable level for small scale systems, investment in systems
between 10-30kW will be discouraged as in some cases there is no return on
investment at all.


It is not within the power of the ICRC to set different premium rates for different sized
systems, however, the Greens recommend that the Government request modelling
from the ICRC that makes clear the return on investment and proposes rates for
different sized systems that attempts to equalise this return. Under the current model,
if it was decided that a 7% return on investment is acceptable for a 1.5kW system,
30kW systems would not deliver any positive return on investment, and in fact would
run at a loss. This would be an unacceptable outcome for the implementation of the
current legislation.


The ACT Greens recommend:


   14. That after the tariff for each sized system (and technology) is calculated within
       a framework that equalises the acceptable return on investment, if necessary,
       the current legislation is amended to ensure that systems between10-30kW
       receive 100% of the premium tariff.
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