Re Deployment Policies Flashcards
a. Discuss the benefits of renewable energy policy incentives that reward production rather than investment.
Policy incentives that reward production encourage application of renewable technologies in areas where they are most efficient, because efficient technologies will produce more output and therefore benefit more greatly from the policy. Policies that reward investment, by contrast, often attract installations of technology that is poorly planned and inefficient, because the technology does not need to be optimally producing power in order for it to benefit from the scheme.
b. What is the main challenge associated with a renewable portfolio standard (RPS) scheme (also known as a green certificate scheme)?
Setting the baseline, or target, for an RPS scheme is extremely challenging, as it is this baseline which will determine the availability of green certificates and the price of these certificates on the market. Other policy considerations, such as the quantity of banking and borrowing permitted, can also influence the pricing of the certificates. Often, these schemes are plagued with price volatility, as it is easy for there to be excess supply (if the RPS target has been met), or excess demand (if the target is not met), leading to extreme price fluctuations. The NEG is the obvious example here - the new targets are far too weak, and are extremely unlikely to promote growth.
c. Australia’s Renewable Energy Target (RET) is an example of an RPS. What does RPS stand for? Describe the basic operation of a certificate-based RPS scheme.
RPS stands for Renewable Portfolio Standard. These schemes operate using a standard market-based system in which the currency is some form of green certificate. A typical RPS scheme will set a target for renewable generation, and will distribute certificates to clean energy generators. At the end of the period (typically every year), liable entities will be required to present a quantity of certificates reflective of the target which has been set. Because these certificates are scarce, and liable entities must hold a certain quantity of them, they have value and can be traded in green markets. In theory, because this scheme is market based, it will be economically efficient; entities with the potential for least-cost renewables generation will invest in this, and earn certificates which they will trade for a profit. Entities which do not have the opportunities for the same low-cost renewables investments will instead purchase certificates from those who do. These liable entities will usually either be generators or retailers of electricity.
d. Describe the operation of the Large Scale component of the Australian Renewable Energy Target scheme. In your answer, address the following: • How does the scheme work? • Who are the liable parties? • How is compliance ensured? (3 marks)
The scheme works as described above, and applies to large-scale generation facilities. The liable parties are the retailers, as well as some large energy users (presumably those which trade on the spot market). These entities must purchase enough green certificates to meet the target. The government ensures compliance through the Clean Energy Regulator, which certifies and monitors the LGC’s, and imposes punishment (fines?) where appropriate.
e. Why are RE reverse auctions seen as a useful RE deployment policy and increasing in popularity around the world?
RE reverse auctions are beneficial because of the following
- Price competition among generators, so usually low prices
- Good transparency – the “real” costs of generation are revealed
- Can support multiple technologies
f. Describe how Contract for Differences (CfD) Reverse Auctions for renewable electricity typically work and the nature of the contract. (3 marks)
CfD schemes are nothing more than a clever way of implementing power purchase agreements in certain markets. In places like Australia, all electricity must be sold through the spot market, so the CfD mechanism is required to manufacture a constant energy price. In a CfD, the spot market price will be compared with a previously agreed-upon energy price. If the spot market price is lower than this price, the consumer will pay the generator the difference. If the spot market price is higher than the agreed-upon price, the generator will pay the consumer the difference. In this way, the price of electricity is effectively made constant.
