Tag Archives: LGCs

What you need to know about the new Climate Active electricity carbon accounting rules

Are your electricity-based emissions zero because your business is based in the Australian Capital Territory, which buys 100% renewable electricity? Can you deduct the export from your 150 kW system from your electricity emissions? Can you claim the renewable energy proportion of your grid supply? Is the electricity that is being generated from your 99 kW solar system emissions-free, even though you availed yourself of the STC discount? Are your emissions from electricity zero because you just entered into a 100% renewable energy Power Purchase Agreement? Can you deduct GreenPower® purchases from your electricity emissions?

While there are no clear frameworks (other than the GHG Protocol) on how to properly account for electricity-based emissions and their reductions in some countries, we are in a much better position in Australia.

Here, we have the mandatory Renewable Energy Target, which provides the framework for Renewable Energy Certificate creation, and we have a mandatory (NGER) and voluntary (Climate Active) reporting system for emissions.

Climate Active has recently released guidance on how to account for electricity-based emissions and reduction measures, allowing you to get recognition for your renewable energy projects.

The Clean Energy Regulator, which administers the NGER system, is also consulting on the design of a new Corporate Emissions Reduction Transparency report (CERT). If you are a large emitter reporting under NGER, you will be able to show how you are meeting your emissions reduction goals.

Let’s have a look at the new Climate Active rules for accounting for electricity emissions and reduction measures.

New Climate Active rules for carbon accounting for electricity

The Climate Active team recently released a set of rules which are based on best-practice principles in the Greenhouse Gas Protocol Scope 2 Guidance and stakeholder consultation. The new framework applies to annual Climate Active reports from calendar year 2021 and financial year 2020/21 onwards.

One of the most significant changes is that you now need to report both your location and market-based electricity emissions, which is called ‘dual reporting’. If you are reporting under CDP, you will be familiar with this concept.

You must use dual reporting for Climate Active organisation, simple service, building, precinct and event certifications, while you can choose to use a dual reporting method for  product and complex service certifications. You can select either the location- or market-based approach as the primary electricity accounting method, which will determine the number of offsets required to go carbon neutral under Climate Active.

Location- and market-based approach to accounting for electricity emissions

In carbon accounting, one of the most important and largest sources of emissions is the consumption of electricity, which is accounted for under scope 2.

According to the Scope 2 Guidance of the GHG Protocol, there are two distinct methods for scope 2 accounting, which are both useful for different purposes. The methods used to calculate and report scope 2 emissions impact how a company assesses its performance and what mitigation actions are incentivised. When used together, they can provide a fuller documentation and assessment of risks, opportunities and changes to emissions from electricity consumption over time.

The location-based method

This method reflects the average emissions intensity of the grid, based on your company’s location. This method allows you to calculate emissions that you are physically emitting to the atmosphere. So, if your business is located in the ACT, which is 100% renewable, you will still have to apply the NSW grid’s emissions factor, as you are getting your electricity from NSW power plants. The location-based method does not allow for any claims of renewable electricity from grid-imported electricity use.

The only way you can reduce electricity emissions using the location-based method is to site your business in an area where the electricity from the grid has lower emissions (e.g. Tasmania, or New Zealand), to reduce your electricity consumption, or to install behind-the-meter renewable energy systems. Buying renewables will not be recognised under the location-based method.

The market-based method

The market-based method reflects the emissions that you are responsible for from the electricity you purchase, which may be different from the electricity that is generated locally. This method derives emission factors from contractual instruments, such as the purchase of GreenPower®, RECs/LGCs, or bundled renewable energy power purchase agreements. It uses a ‘residual mix factor’ (RMF) to allow for unique claims on the zero-emissions attribute of renewables without double-counting.

Under the market-based approach, you can reduce your electricity-based emissions by being more energy-efficient, by installing onsite renewables and shifting your electricity supply to renewables.

You can choose which method total – market-based, location-based or both—to use for performance tracking and must disclose this in your inventory.

The following sections go through the details of how to treat onsite generation, the export of renewables, the treatment of renewable energy certificates, the purchase of renewables and carbon-neutral electricity.

Treatment of Renewable Energy Certificates

Renewable Energy Certificates consist of Large-scale Generation Certificates (LGCs), from solar PV systems greater than 100 kW, and Small Technology Certificates (STCs), from small-scale solar PV systems of less than 100 kW.

One renewable energy certificate equates 1 MWh of renewable energy generation. You can find more information about these certificates in this blog post.

You can use LGCs to reduce reported electricity emissions under the market-based method, but not STCs.

Market-based method

  • You can use LGCs as a unique claim on the zero-emissions attribute of renewable generation within a Climate Active carbon account (meaning you can deduct retired LGCs from your electricity emissions).
  • You can only use LGCs to account for electricity-based emissions, e.g. direct grid-based electricity (scope 2) or indirect emissions sources (scope 3) consisting entirely of electricity, such as third-party operated data centres, or streetlighting.
  • You must retire LGCs on the Renewable Energy Certificate Registry, with evidence of their retirement, including serial numbers, provided to Climate Active.
  • You should directly retire LGCs in the name of the claimant, for example, ‘Retired on behalf of Company X for 2020 Climate Active carbon-neutral claim’.
  • You may retire LGCs indirectly on behalf of the claimant, for example, by GreenPower®. You should provide serial numbers to Climate Active.
  • In instances where you cannot provide discrete LGC serial numbers, Climate Active may consider accepting other evidence that LGCs have been retired, for example, certificates provided by an electricity generator or electricity bills listing accredited GreenPower® usage.
  • LGCs must have an issuance date of less than 36 months from the end of the reporting year; for example, a calendar year 2020 report (ending 31 December 2020) could use LGCs with an issuance date of no earlier than 1 January 2018.
  • You cannot use STCs to make renewable energy emission reduction claims for grid imported electricity consumption.

Location-based method

  • Neither LGCs nor STCs can be used to make renewable energy emission reduction claims for grid-imported electricity consumption.

Renewable Energy Target

The Renewable Energy Target (RET) is a legislated scheme designed to reduce emissions from the electricity sector and incentivise additional electricity generation from sustainable and renewable sources. The RET consists of two different schemes: the large-scale renewable energy target (LRET) and the small-scale renewable energy scheme (SRES). Your can account for your investments in the LRET under the market-based method.

Market-based method

  • The percentage of electricity consumption attributable to the LRET, as reflected by the Renewable Power Percentage, for a given reporting year, is assigned an emission factor of zero in the carbon account. For example, a business using a total of 1,000 MWh of electricity in 2019, lists 186 MWh as zero emissions (1,000*18.6% (RPP for 2019)).
  • This deduction is not available to you if you are exempt from the LRET (i.e. Emissions Intensive Trade Exposed Industries).

Location-based method

  • There is no separate accounting treatment for the LRET as it is already included in the state emissions factors.

GreenPower®

GreenPower® is an easy way to switch your electricity supply to renewables that are additional to the Renewable Energy Target. If you need more information on how GreenPower® works, please read the GreenPower Guide for Businesses we developed for the GreenPower® program.

You can also obtain accredited GreenPower® under your renewable energy PPA. For more information, please read our GreenPower® PPA blog post.

You can account for your GreenPower® purchases using the market-based method.

Market-based method

  • Accredited GreenPower® usage is assigned an emission factor of zero in your carbon account, regardless of the state in which you are using GreenPower®.
  • GreenPower® use in excess of what is required to account for your direct electricity usage may be used to reduce your other indirect entirely electricity-based emissions (e.g., data centre usage, streetlighting).
  • GreenPower® use in excess to what is required to account for your entire electricity usage cannot be used to offset other non-electricity emission sources in your carbon account (such as, for instance, emissions from your fleet).

Location-based method

  • You cannot use GreenPower® purchases to make zero-emission electricity claims under the location-based method.

Renewable energy Power Purchase Agreements

Renewable energy Power Purchase Agreements (PPAs) are a great way to cost-effectively increase the renewables proportion of your electricity supply. They also allow you to switch your entire electricity to 100% renewables, thus bringing your electricity-based emissions to zero. However, just like with LGCs described above, you need to retire LGCs associated with your PPA to be able to claim the emissions reduction and renewable energy generation.

Market-based method

  • You need to retire LGCs above any mandatory LRET obligations to claim zero emissions for your electricity consumption.
  • Where you cannot be listed on the REC Registry, you need to supply other evidence to the Climate Active team from the retiring body, such as certificates from the electricity provider.
  • You cannot use supplier-specific emissions factors.

Location-based method

  • You cannot use retired LGCs, including under PPAs, to make zero-emissions claims under the location-based method.

Local renewable energy generation

One of the best ways to reduce electricity consumption other than reducing your consumption is to install solar panels or other renewable energy generation systems where your circumstances allow it. If you directly consume electricity from a renewable energy system, it is called a ‘behind the meter’ system.

You can account for behind-the-meter use of renewable generation systems under both the location- and the market-based method. However, you can only account for exported electricity under the market-based method.

Market-based method

  • Behind-the-meter use of electricity from large scale systems may be reported and assigned an emissions factor of zero in your carbon account, only if you retire any LGCs associated with that generation or not create any. An example of when you don’t create any LGCs is when you install a large-scale system, and you choose not to generate any LGCs.
  • If you are creating and selling LGCs, you must treat behind-the-meter usage from large-scale systems the same as electricity consumption from the grid (that is, treated as residual electricity).
  • You may report and assign behind-the-meter use of electricity from small-scale systems an emissions factor of zero in your carbon account, regardless of whether you have created, transferred or sold any STCs associated with this generation.
  • You need to convert exported electricity from renewable systems into an emissions reduction equivalent and net from gross emissions. You can achieve this by multiplying exported electricity by the national scope 2 electricity factor only (to account for transmission losses) for the year of the generation. You must retire any LGCs or not create any. You don’t need to retire any STCs associated with this generation.

Location-based method

  • You may report behind-the-meter use of electricity from large scale systems as zero emissions in your carbon account, provided you retired any LGCs associated with that generation or did not create any.
  • If you create and sell LGCs, you must treat behind-the-meter use from large scale systems the same as electricity consumption from the grid.
  • You may report behind-the-meter use of electricity from small-scale systems as zero emissions in your carbon account, regardless of whether you have created, transferred or sold any STCs associated with this generation.
  • Under the location-based method, you can’t use exported electricity as a reduction in electricity emissions.

Jurisdictional renewable energy targets

Market-based method

  • If you are operating in a jurisdiction where the government retires LGCs (such as, for instance, in the ACT), you can claim the corresponding percentage of emissions impact on your electricity consumption as zero, provided that the LGCs are retired on behalf of the jurisdictions’ citizens and the claim is auditable for the given reporting year.

Location-based method

  • There is no separate accounting treatment, as the emissions benefit is already included in the state factors used to convert electricity consumption into its emissions equivalent.

Climate Active certified carbon-neutral electricity

Market-based method

  • You can convert Climate Active certified carbon neutral electricity into its emissions equivalent and deduct it from the gross carbon account offset liability.
  • You can convert by applying the relevant emission factor for the particular brand of carbon-neutral power.

Location-based method

  • Same rules

Grid-imported (residual) electricity

Market-based method

  • You need to convert electricity usage not matched by zero-emissions electricity attribute claims (residual electricity) into t CO2-e using the RMF according to the below formula: RMF = National EF / (1 – RPP) RMF (residual mix factor), EF (emission factor), RPP (renewable power percentage), e.g. in 2019, the RMF equals: = 0.88 (national scope 2 and 3 EF)/ 0.814 (18.6% RPP) = 1.08 Financial year reports will use the average of the RMF across the relevant calendar years, reflecting the RPP of each 6-month period. While this sounds complicated, Climate Active have electricity calculators that help with calculating the associated emissions.

Location-based method

  • You need to convert electricity use in each state of your operations into t CO2-e using the relevant state NGA factor (either scope 2 and scope 3; or the full fuel cycle factor).
  • The emissions factor used should correspond to the reporting year where possible, i.e. a 2018 reporting year should use the 2018 NGA factors.

If you are interested in the development of a Climate Active carbon inventory for your organisation that takes into account scope 3 emissions and properly accounts for electricity-based emissions/reductions, please consider contacting us. Two of our staff are registered consultants with Climate Active, and we can guide you through the process of achieving certification or developing a Climate Active-ready carbon inventory. If you would like more information, please download our Climate Active brochure, or contact Barbara or Patrick.

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Buying renewable energy via a Power Purchase Agreement, Part 2, PPA options [includes infographics]

In part one of this series, we introduced buying renewable energy via a Power Purchase Agreement (PPA). In this article – part two, we are looking at the main PPA options.

PPA contract models

A number of PPA models have been developed to enable the purchase of renewables in recent years, including sleeved PPAs, direct or sell-side PPA, and virtual or finance PPAs. Sleeved and direct PPA involve the physical delivery of power, whereas a virtual PPA is just a financial contract.

Sleeved PPA

A sleeved PPA is similar to a regular grid power agreement, except that a portion of the underlying electricity generation is from a specific renewable energy project.

Under this model, you will not have a direct agreement with a renewable energy project developer. Instead, your retailer has a direct agreement with a specific renewable energy project and will sleeve the PPA through your electricity retail agreement.

You will either pay a rate for all power purchased or separate rates for renewably generated electricity and regular grid power.

Your retailer will manage the risk in price fluctuation by obtaining the electricity at a fixed rate from the renewable energy project, or by using a contract for difference.

Sleeved PPA Option, Infographic
Figure 1: Sleeved PPA option, infographic

The duration for the renewable component of the sleeved PPA usually is between ten and 15 years, whereas the duration of the retail agreement (where this is separate) will usually be shorter. The retail agreement is subject to wholesale market pricing, whereas the pricing for the renewable component will reflect the developer’s costs and may be fixed or variable over the term of the PPA.

An example of a sleeved PPAs is the Melbourne Renewable Energy Project.

Direct (sell-side) PPA

A direct PPA involves an agreement between your organisation and a renewable energy project developer. The final price of the delivered energy is a combination of the offtake price of the renewables project plus transmission and distribution costs, as well as billing, reconciliation and risk management costs from your retailer.

Typically, your organisation will buy the renewable electricity at a fixed price over a term of 7, 10 or 15 years. Even though you have a direct agreement with a renewable energy project, you still require a retailer to pass through the terms of the agreement.

Your retail electricity agreement will incorporate the PPA price and most likely include a ‘firming’ clause (performance guarantee) that reduces overall risk for the retailer. The retailer needs to risk-manage any fluctuations in generation against your required amount of electricity.

Direct PPA Option, Infographic
Figure 2: Direct PPA option, infographic

In the past, retailers have agreed to this type of PPA where the volume of renewable energy is only a small portion of your overall electricity load. This is because the retailer is receiving no margin on the small amount of renewable energy but is still making a margin on most of the overall load supplied by regular grid power.

To mitigate against the risk of not finding a willing retailer, one of the PPA project requirements could be to incorporate a retailer offer.

Examples for direct PPAs are Sun Metals, Nectar Farms and Westpork.

LGC-only PPA

An LGC-only PPA is the simplest form of renewables procurement other than purchasing GreenPower®. In an LGC-only PPA, you would only purchase the LGCs and not the electricity from a renewable energy plant. Purchasing LGCS only can be compared to purchasing carbon offsets, except that LGCs are currently more expensive than carbon offsets, and they enable you to claim 100% renewable energy.

With an LGC-only PPA, you are only purchasing the green attributes of renewable energy generation, and you are not concerned with balancing energy demand with the output from a renewable energy generator. There is little risk in matching the number of LGCs purchased to the electricity consumed in any given year.

LGC-only PPA Option, Infographic
Figure 3: LGC-only PPA option, infographic

It also means that there will be little or no change to your retail electricity agreement. However, you may be able to achieve a better price through a bundled PPA and striking a deal with a renewable energy generator for LGCs-only may not be sufficient for a new renewable energy project to get off the ground.

Virtual/finance/synthetic PPA (CFD model)

Virtual PPAs are an effective hedge against rising electricity prices. Like with the Direct PPA, your organisation will have an agreement with a renewable energy project developer. However, the important difference is that no physical electricity is being delivered. A virtual PPA is a financial contract and not a contract for power.

You also you don’t need a retailer for a virtual PPA. Instead, you will enter into a contract for difference (CFD) with the renewable energy developer.

Under the CFD model, you and the developer agree on a strike price, which guarantees a fixed price return for the developer. Contracts for difference were adopted by the Australian Capital Territory and Victorian Governments in their recent renewable energy reverse auctions.

A virtual PPA is a stand-alone financial derivative agreement, which not all organisations can enter into. For instance, due to a Ministerial Order, local governments in NSW cannot directly invest in financial derivatives.

Virtual PPA Option Infographic
Figure 4: Virtual PPA option, infographic

The costs for a virtual PPA are the difference between the strike price and market price (when the strike price is above market price) multiplied by the consumption. This means that if the spot market price is low, you will lose money. On the flip slide, you will benefit financially where the strike price is below market price. In the best case, you have an income opportunity of up to the market cap of $14,200 per megawatt hour, less the strike price value.

The contract for difference approach may suit customers with large energy portfolios and sophisticated energy management teams, or who already have hedging arrangements in place (such as for vehicle fuel) or other forms of derivative contracts.

Organisations that have entered this type of contract are UNSW and UTS.

If you intend on using a virtual PPA to meet a 100% renewable energy target, you will need to undertake an additional PPA for LGCs, which is a separate agreement that could be bundled into the virtual PPA agreement.

Conclusion

There are many different ways to enter into a PPA. If you need help with navigating these different options, please contact Barbara or Patrick.

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Buying renewable energy via a Power Purchase Agreement, Part 1, Introduction

An introduction to PPAs
An introduction to PPAs

In a previous blog post, we analysed eight ways to reach 100% renewable electricity, looking at several buy and build options. In last week’s blog post, we investigated various EPC (build) options. In today’s article, we will shed more light on buying renewables via Power Purchase Agreements (PPAs).

In next week’s blog post (Part 2), we will look at the PPA options in greater detail.

What is a Power Purchase Agreement?

A Power Purchase Agreement (PPA) is an agreement between a buyer and a generator to buy renewable energy at an agreed price for an agreed period of time.

In the ‘traditional’ electricity market only large energy retailers and a small handful of very large energy users buy power directly from generators. In the emerging renewable energy market corporates and groups of businesses are seeking to engage with specific renewable energy projects.

In the past few years, we have seen both corporations and local governments entering into long-term Power Purchase Agreements with the aim to reduce electricity costs, manage volatile electricity prices and meet carbon reduction targets.

Under a PPA, you negotiate a rate per megawatt hour that covers all costs including financing, construction and maintenance of a renewable energy asset. No capital investment is required. The renewable energy project developer owns the generation asset, and the performance risk also sits with the developer.

How can you enter into a PPA?

Currently, the corporate PPA market in Australia is still immature. However, the market is evolving rapidly partly due to the increased appetite of consumers for renewable energy and partly due to the cost differential between regular grid power and long-term PPA prices.

With more and more deals being made, there are now numerous models available that can be tailored to fit your situation. For instance, major retailers are examining corporate PPA products that integrate renewable and grid power into a single agreement – supplied from their existing portfolio of utility-scale projects. This will make it easier for you to enter into a PPA. Numerous smaller and emerging retailers are seeking to package and offer renewable energy PPAs from project portfolios, with innovative and more flexible contract terms that aim to deliver value over the contract term.

Before going to market for a PPA, you need to understand your own electricity demand profiles and how this might change over the term of a PPA contract. For instance, as you implement LED lighting, install solar PV, or acquire new assets, your demand profile may change.

It will also help if you are informed about the key risks (market, delivery, firming, intermittency of generation, duration) you want to manage. You should consider engaging advisors who are appropriately qualified to help you get the best deal for your circumstances.

Using the electricity from your PPA to offset your energy consumption

Energy efficiency and onsite solar PV installations are only able to reduce your carbon and energy footprint by a certain percentage. If you are looking to increase your renewables further, you need to look outside the box and consider either building a mid-scale plant yourself or purchasing the output from another renewable energy plant.

An advantage of offsite PPAs is that you can power multiple sites with a single project. Offsite PPAs also overcome problems such as availability of space or renewable resources at your sites’ locations and can offer economies of scale due to their size. It is up to you to choose the percentage of renewables. You could go to market for 20% of your load, or 100% of your load, or start small and progress to 100% renewables over several contracts.

If you are only purchasing the ‘black’ portion of renewable energy generation, so only the power portion (please see next section), you need to be careful about how you frame your renewable energy claim. If you are also purchasing the LGCs from the project and retiring them, then you can claim both the renewable energy as well as the carbon reduction of the renewable energy production.

Bundled versus LGC-only PPAs

Power Purchase Agreements can be undertaken for power only (the ‘black’ portion), the green attributes of the power (the ‘LGCs’), or for both (‘bundled’). Purchasing the electricity will only provide a medium to long-term hedge against volatile electricity prices but does not include the purchase of LGCs. A bundled agreement is likely to achieve a lower price for the LGCs than an LGC-only agreement.

Bundled versus LGC-only PPAs
Bundled versus LGC-only PPAs

Entering into an LGC-only PPA means that no load balancing needs to be undertaken, whereas a bundled agreement means that for ‘sleeved’ and ‘direct’ PPAs, your energy needs will have to be balanced with energy produced from renewable energy generators.

If LGCs are on-sold or used to offset the compliance obligation, a bundled contract is a more comprehensive hedge against future price volatility. A bundled contract hedges against both electricity and LGC pricing.

Should you undertake a PPA?

PPAs are a great way to achieve your carbon reduction and renewable energy goals while providing a hedge against volatile electricity prices. However, to undertake a PPA a change in thinking is required. While, typically, organisations are used to procuring electricity for between one and three years, in the current market a PPA is a long-term commitment, typically around 10 years or more.

To achieve a good price and to make your effort worthwhile, it is advantageous to have a sizeable energy consumption. Unless you are a large energy user, you should consider aggregating your energy demand with other organisations that have similar objectives to you.

The current PPA market has great opportunities for buyers of renewable energy with competition for customers, continuing low-interest rates, a large number of planned new projects and declining technology costs.

Setting up a PPA can be complex and time-consuming, so we recommend working closely with a trusted advisor to determine which option is best for your organisation. Please contact Barbara or Patrick to find out more.

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Building your own grid-connected solar farm under an EPC contract

In a previous blog post, we analysed eight ways to reach 100% renewable electricity, looking at various buy and build options. In this blog post, we will shed more light on the EPC (build) options.

The volatility of wholesale electricity prices in recent years had many organisations consider building their own mid-scale solar farm to mitigate this risk. Also, installing solar PV on facilities can have an upper limit due to available roof size or suitability, so some organisations are considering building one big solar farm instead that can supply them with renewable electricity.

What is a mid-scale solar farm?

There is no official definition of the size of such a system, but it typically ranges between 0.5 MW and 10 MW (as opposed to utility-scale systems, which are much larger). Mid-scale systems usually connect to the distribution rather than the transmission network, which makes them cheaper to implement than utility-scale plants. They are NOT serving any behind-the-meter loads.

How can you build your own mid-scale solar farm?

You will need to invest capital and directly or indirectly manage the construction of a renewable energy asset, typically through an Engineer, Procure, Construct (EPC) Contract. Given that you are constructing a new generation asset, your contractual arrangements must cover site preparation, approvals, construction and maintenance.

Upon commissioning or after an agreed period of operation the ownership of the plant is transferred to you. At this stage, you take on the management and risk of the ongoing performance. Your greatest interest will be the technical aspects of your solar farm.

Using the electricity from your solar farm to offset your energy consumption

When you install solar PV behind your meter, every kWh that your system produces displaces energy consumption from the grid. There is no need to ‘sell’ the produced energy to yourself. The situation is different when you run a grid-connected solar farm that does not serve any behind-the-meter load and instead is connected to the grid. If your renewable energy project is in front of the meter, you must sell the generated electricity into the market, like any other generator.

Under National Energy Market (NEM) rules, all energy projects must have a retailer to sell the energy to the market. The retailer will balance your load when your renewable energy plant is not generating or not generating at full capacity and will provide other risk management services for you.

Classification of solar farms under AEMO rules

Under Australian Energy Market Operator (AEMO) rules, your solar farm will likely be classified as either exempt, non-scheduled, or semi-scheduled depending on the extent to which it will be participating in central dispatch.

  • Exempt – Plant size is less than 5 MW
  • Scheduled – The generating unit participates in central dispatch. Plant size is greater than 30 MW.
  • Non-Scheduled – The generating unit does not participate in central dispatch. Between 5 MW and 30 MW if some or all energy is sold in the NEM. Less than 30 MW if energy output is purchased by a local retailer or a customer located at the same connection point. However, ‘local use’ means that no more than 50% of the electricity supplied can be exported to the network.
  • Semi-Scheduled – The generating unit will participate in central dispatch in specified circumstances. Greater than 30 MW. However, AEMO can – at its discretion – classify the renewable energy plant as a scheduled generator.
Types of energy generators under AEMO rules
Types of energy generators under AEMO rules

Common ways to sell renewable electricity from your solar farm

Given that you need to sell the electricity into the market, it is worthwhile investigating different ways you can do this. In this blog post, we will focus on the most likely models, being a fixed price and spot market EPC.

EPC and sell fixed-price offtake

Under this model, you undertake an EPC construction agreement and sell the generation at an agreed fixed price per MWh (typically at a discount to market) to an offtaker. The offtaker can be a third party or your own organisation if you wish to balance your energy consumption with the renewable energy generation from your solar farm. As per NEM rules, a retailer needs to pass through or ‘sleeve’ this agreement.

Depending on your objectives, you can sell or purchase the Large-Scale Generation Certificates (LGCs) from your solar farm. For implications of selling or retiring the LGCs, please read our blog post on What you need to know about accounting for LGCs.

If your solar farm is bigger than 5 MW AC, your project will likely need to be registered as a semi-scheduled generator with AEMO. This means that AEMO can curtail your energy output or ask you to stop generating when there is network congestion (see picture at the top of this blog post). This won’t be the case if your project is smaller than 5 MW – you will receive an automatic exemption from AEMO.

EPC and receive spot market revenue

Under this model, you will register your solar farm as a generator which will likely be a semi-scheduled market generator (less than 30 MW generation) market participant under AEMO rules. Your renewable energy generation will be sent to the market via an export meter, and you will receive spot market revenue from AEMO.

Like with the option above, AEMO may curtail your energy output, which will affect the business case of your solar farm (unless your solar farm is smaller than 5 MW in size).

Should you build your own solar farm?

Building your own solar farm is a long-term investment that requires management of the construction process with significant up-front costs before any benefit can be realised. In addition, the underlying technology costs are on a downward trajectory which reduces your asset value over time.

However, if you have access to cheap, suitable land and if your cost of capital is low, this will improve your business case. Adding a shadow carbon price into your business case further improves it.

Your benefits depend on what price you can sell (and purchase) your generated electricity for, whether you will sell your LGCs which will generate additional income and the difference between this and your regular grid cost for electricity. Each situation is different, and if you are interested in evaluating your options further, you should consider asking specialists like 100% Renewables for help – please contact Barbara or Patrick.

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What you need to know about accounting for LGCs, STCs, ESCs, VEECs, ACCUs

This blog post has been updated in Dec 19 to reflect the re-branding of NCOS to ‘Climate Active’.

For many sustainability managers, navigating the many acronyms that exist for renewable energy certificates like LGCs and state-based certificate schemes like ESCs for carbon reduction activities can be confusing. Some schemes are federal; others are state-based. Some relate to energy, others to carbon. Some can be used for carbon reduction; others can’t. To make sense of these three and four-letter acronyms, we thought it was time to publish a blog post on this topic.

Renewable Energy Certificates (RECs)

Description

Once electricity from renewable sources enters the grid, it mixes with electrons from multiple sources, like coal-fired power plants, and becomes indistinguishable. To track renewable energy, Renewable Energy Certificates (RECs) are assigned for every megawatt hour created from renewables. Each REC is assigned its own unique number to track the ownership of the environmental (and social) benefits of the renewable energy. They can be traded separately from the underlying electricity.

Renewable Energy Certificates (RECs)
Renewable Energy Certificates (RECs)

Renewable Energy Certificates (RECs) were created to spur the development of renewable energy generation through a market-based mechanism of supply and demand. A REC has a financial value attached to it, which fluctuates depending on prevailing market conditions.

In Australia, RECs are supported by Australia’s Renewable Energy Target, which states that by 2020, 33,000 GWh must be generated from renewable sources (this equates to about 23.5% of the overall total). The scheme ends in 2030.

RECs are divided into Small Scale Technology Certificates (STCs) and Large-Scale Generation Certificates (LGCs).

Treatment

The party that owns the REC owns the claim to that megawatt hour of renewable energy. Renewable energy certificates are used to offset electricity consumption. They cannot be used to offset other emission sources like fuel consumption or Scope 3 emissions like waste or business travel.

Small-scale Technology Certificates (STCs)

Description

STCs are like an upfront subsidy for renewable energy systems that are under 100kW. They are deemed upfront and come with your renewable energy installation.

Treatment

Under previous Australian carbon accounting rules (Climate Active) selling the STCs (i.e., claiming the subsidy) meant that you were not allowed to account for the emission reduction. However, under revised Climate Active’s rules, behind-the-meter energy usage originating from small-scale onsite generation systems can now be treated as zero-emissions energy, regardless of whether any STCs have been created, sold or transferred to any other party. This applies to systems installed in the past as well as future installations.

As such, you can add the self-consumption of electricity from your solar PV systems to your total demand for electricity, and this generation is treated as zero-emissions electricity for your carbon footprint. You can also use the generated renewable electricity against your renewable energy target.

Large-scale Generation Certificates (LGCs) from onsite renewable energy generation

Description

If your renewable energy system is larger than 100kW, you are eligible for one LGC for every megawatt hour your solar PV system generates. As opposed to STCs, the LGCs are not deemed upfront. You need to keep track of your renewable energy generation on an annual basis to be able to create and then sell LGCs. While LGCs currently have a much higher market value than STCs, this can change in line with the supply and demand for certificates by liable entities (like electricity retailers).

Treatment

If you sell the LGCs, you will generate income. However, if you sell your LGCs, the carbon reduction and renewable energy generation associated with the energy generated cannot be claimed.

According to the Climate Active, behind-the-meter energy usage originating from large-scale onsite generation systems that have created LGCs can be treated as zero-emissions energy only if the equivalent amount of LGCs are voluntarily retired. Behind-the-meter energy usage that is not matched by an equivalent amount of voluntarily retired LGCs must be accounted for in the same way as grid-based energy, and offset accordingly if a carbon neutral strategy is pursued.

Large-scale Generation Certificates (LGCs) from offsite renewable energy generation

Description

Rather than having a system onsite, you can purchase LGCs from a renewable energy project that is grid-connected, or offsite. There are principally two options to purchase offsite LGCs – either through a Power Purchase Agreement (PPA) or through a broker.

Treatment

Large-scale Generation Certificates (LGCs) are treated the same as the purchase of GreenPower® provided the certificates are retired. If you have entered into a PPA without obtaining and retiring the LGCs (purchasing the black portion only), then you cannot claim the emissions reduction/renewable energy attributes from the project.

 

A note on surplus electricity

The treatment of surplus electricity from renewable energy and batteries from the perspective of renewable energy and carbon abatement claims is complex. You can read more about this topic in our blog post at  https://100percentrenewables.com.au/how-to-account-for-exported-solar-electricity/.

GreenPower®

Description

The GreenPower® program is an independent government accreditation scheme and is recognised as the most highly regarded standard for offsite renewables in Australia. GreenPower® purchases are additional to Australia’s Renewable Energy Target, and an extensive two-tier auditing process ensures that no double counting can occur. To purchase GreenPower®, you can approach your electricity retailer, buy from an independent provider, decoupled from your electricity agreement or through a GreenPower® PPA.

Treatment

The purchase of GreenPower® is considered to be equivalent to the direct use of renewable energy. This means that you can claim the emissions reduction associated with this action. You can also use purchased GreenPower® towards your renewable energy claims.

Australian Carbon Credit Units (ACCUs)

Description

The Emission Reduction Fund (ERF) is a voluntary scheme that provides incentives for organisations and individuals to adopt new practices and technologies to reduce their emissions. Participants can earn ACCUs for emissions reductions. The ACCUs can be sold to the Commonwealth under a carbon abatement contract with the Clean Energy Regulator, or they can be sold on the voluntary market and are eligible as offset units under the Climate Active.

Treatment

If you generate ACCUs from emissions reduction projects occurring within your boundary, you can claim the reduction as part of your carbon account only if the ACCUs from your projects are voluntarily retired. If the ACCUs are not retired, you are required to account for your emissions without the reductions associated with the projects (i.e. as though the projects had never occurred).

Carbon offsets

Description

One carbon offset represents one tonne of carbon emissions that are not released into the atmosphere, that occur as a result of a discrete project. The emissions reductions from a particular carbon offset project can be sold to enable the purchaser to claim those carbon reductions as their own. Renewable energy is one type of offset activity, but there are many others like energy efficiency or forestry projects.

Treatment

Carbon offsets can be used to offset any emission source, including ones that are not electricity related. You cannot use carbon offset for any renewable energy claims.

State-based white certificate schemes

Description

Several jurisdictions have energy efficiency schemes that require energy retailers to achieve energy efficiency in their customer portfolio. The NSW Energy Savings Scheme and the Victorian Energy Efficiency Target Scheme are the biggest in terms of number of certificates. The ACT and South Australia operate similar, but smaller schemes mainly targeting households and small business.

Energy Savings Certificates (ESCs) – New South Wales only

ESCs created under the Energy Savings Scheme (ESS) reward energy-saving projects through a financial value on every tonne of carbon that is abated by an organisation. The objective of the scheme is to reward companies that undertake projects that either reduce electricity consumption or improve the efficiency of energy use. The ESS began on the 1st July 2009 and is part of the NSW Government’s plan to cut greenhouse gas emissions. The scheme is legislated to run until 2025 or until there is an equivalent national energy efficiency scheme.

Victorian Energy Efficiency Certificates (VEECs) -Victoria only

The VEET scheme was established under the Victorian Energy Efficiency Target Act 2007 and commenced on 1 January 2009. Each VEEC represents one tonne of carbon dioxide equivalent (CO2-e) abated by specified energy saving activities known as prescribed activities. The abatement is calculated by comparing the difference between the energy use after the completion of an upgrade or project and the ‘baseline’ energy use, which refers to the amount of energy that would have been used if the energy efficient installation/project had not taken place. VEECs are bought by large energy retailers with a liability under the scheme.

Treatment of white certificate schemes

You are not required to account for state or territory-based energy efficiency schemes. Emissions reductions resulting from activities supported by these schemes can be counted towards your carbon account regardless of whether any associated certificates have been created, sold or transferred to any other party. So, in short, you can claim the ESCs/VEECs/other white certificates and the carbon reduction.

 

Carbon accounting for all these different federal and state schemes can be confusing, as may be accounting for your Scope 3 emissions. If you need an expert to help you with putting your carbon inventory together, please contact Barbara or Patrick.

Feel free to use an excerpt of this blog on your own site, newsletter, blog, etc. Just send us a copy or link and include the following text at the end of the excerpt: “This content is reprinted from 100% Renewables Pty Ltd’s blog. 

Allowable ‘offset mechanisms’ for 100% renewable energy and carbon neutral goals

This blog post has been updated in Dec 19 to reflect the re-branding of NCOS to ‘Climate Active’.

In an earlier blog post, we analysed two different targets, carbon neutrality and 100% renewable energy. In this blog post, we answer two customer questions about ways to offset typical emission sources, as well as displaying a summary table.

Can you offset your entire carbon footprint by purchasing renewable energy?

The short answer is no. It is possible for 100% of your electricity demand to be met by renewable energy. However, it won’t be possible to reach carbon neutrality solely based on an efficiency and renewables strategy.

This is because renewable electricity purchases can only be used to offset your electricity consumption and not to offset other emission sources like natural gas, diesel or petrol emissions, or supply chain emissions like paper consumption. For these emission sources, carbon offsets may need to be purchased until renewable energy alternatives are widely available.

You can read more about the differences between the energy and carbon footprint in this blog post.

Can you use LGCS to offset the electricity consumption from assets over which you don’t have operational control?

LGCs, or Large-Scale Generation Certificates are Renewable Energy Certificates, which certify that renewable energy has been produced. Every 1 MWh of eligible renewable energy generation creates 1 LGC. You can use LGCs to offset your electricity consumption and claim the renewable energy. You can buy LGCs indirectly by purchasing GreenPower®, by entering into a corporate PPA or buying LGCs through a broker.

LGCs can be used against your electricity consumption, but they can also be used to offset the downstream electricity consumption from assets over which you don’t have operational control. Examples of this would be the energy consumption of street lights in the case of councils or the energy consumption of an outsourced data centre.

Allowable offset mechanisms per emission scope
Figure 1: Allowable offset mechanisms per emission scope

You can purchase LGCs to cover your own electricity consumption plus additional ones for your outsourced assets and retire them on behalf of your outsourced provider. This decision is particularly important for the size of a potential Power Purchase Agreement.

Offsetting mechanisms for your typical emission sources

The following table helps to clarify which offset mechanism can be used against which emission source using the example of a Climate Active-compliant inventory. It also shows what emissions sources carbon neutrality and achieving 100% renewable energy relate to.

Allowable offset mechanisms for carbon neutrality and 100% renewable energy

Emission SourceUsing carbon offsets to ‘offset’Using LGCs (RECs) to ‘offset’Achieve carbon neutralityAchieve 100% renewable energy?
RefrigerantsYesNoYesN/A
Natural GasYesNoYesAchievable only with renewable fuels
Fleet Vehicles DieselYesNoYesAchievable only with renewable fuels
Fleet Vehicles PetrolYesNoYesAchievable only with renewable fuels
Fleet Vehicles EthanolYesNoYesAlready renewable
Fleet Vehicles BiodieselYesNoYesAlready renewable
Fleet Vehicles LPGYesNoYesAchievable only with renewable fuels
ElectricityYesYesYesYes
Electricity (Street Lighting)YesYesYesYes
Electricity consumption base buildingYesYesYesYes
Outsourced electricity consumption (e.g. data centres)YesYesYesYes
Water and sewerYesNoYesOnly if water/sewer provider is powered by renewables
PaperYesNoYesN/A
EquipmentYesNoYesN/A
Food and CateringYesNoYesN/A
PostageYesNoYesN/A
Taxis, Uber and other servicesYesNoYesOnly if third-party organisation has fleet powered by renewables
Employee commuteYesNoYesOnly if all employees’ commute is powered by renewables
Waste to landfillYesNoYesN/A
Green wasteYesNoYesN/A
Air travelYesNoYesOnly if planes are powered by renewables

If you would like to know more about the best strategy for your organisation to offset your emission sources given your unique circumstances, why not have an informal chat with Barbara or Patrick.

Feel free to use an excerpt of this blog on your own site, newsletter, blog, etc. Just send us a copy or link and include the following text at the end of the excerpt: “This content is reprinted from 100% Renewables Pty Ltd’s blog.”

Breaking through the 100 kW ceiling

In this article, we are looking at the reasons you should consider installing greater than 100 kW solar PV systems and who is leading in this field.

Australia has the highest number of solar PV systems per-capita in the world, with over 1.7 million systems installed since 2001. The total installed capacity surpassed 5,000 MW in early 2016, and just 20 months later it passed the 6,500 MW level[i].

Solar PV installations have increased in both number and size

Households have driven the total number of installations and have provided most of the installed capacity. However, utility and commercial-scale solar have become more prominent in recent years, and have helped to increase the average size of all installed solar PV systems from 1.77 kW in 2010 to almost 4 kW by the end of 2017.

At the utility level, we have seen projects such as the Nyngan 102 MW, Moree 56 MW and Broken Hill 53 MW systems completed, with many of the projects supported by ARENA’s large-scale solar photovoltaics round to come online soon.

At the commercial scale, the Clean Energy Council reported that the 75-100 kW market is the fastest growing sector in the solar market[ii]. This includes businesses who are keen to invest in solar but wish to avail of the upfront discount from Small-scale Technology Certificates (STCs).

Solar PV systems are now breaking through the 100 kW ceiling

Customer-level implementation of solar PV systems greater than 100 kW is also rapidly growing. Let’s analyse solar installations under 4 MW but greater than 100 kW:

  • In 2016 and 2017, almost the same number of installations (96) were installed as those between 2001 and 2015 (103).
  • In terms of capacity, over 37 MW was added in 2016 and 2017 by systems in the 100-4,000 kW range, compared with 38 MW in the preceding 15 years.

Why is this trend occurring?

This trend is significant as it means that accessing the STC as an upfront discount is becoming less important as a driver of the business case for solar. When talking to our customers, the reasons why they are installing or considering installing larger solar PV systems are numerous.

6 reasons why you should install solar PV systems greater than 100 kW
6 reasons why you should install solar PV systems greater than 100 kW

Here are the six reasons why you should go larger than 100 kW:

  1. Wholesale electricity prices – many businesses have seen their contestable electricity costs increase steeply in recent months, in some cases by as much as 250%. In response, business is re-taking control where they can. Solar, as well as efficiency initiatives such as LED lighting, are tangible measures that offer certainty of savings and a long-term hedge against some of the volatility in the market.
  2. Declining costs of solar means it is becoming cost effective without subsidies – Solar Choice’s November 2017 index of solar PV prices[iii] reports that 100 kW systems now have a median price of just $1.12/Watt inclusive of STCs, which equates to around $1.80/watt total cost. This median price continues a downward trend in commercial-scale solar PV prices of close to 20% over the past four years.
  3. Others are doing it – increasingly businesses see competitors and peers in their region and sector installing solar PV systems and reap rewards through recognition and better reputation. More and more businesses are responding by acting themselves to ensure they remain competitive.
  4. Meeting corporate goals/targets – many businesses, particularly large corporates, have sustainability targets which often include ambitious goals for renewable energy and/or carbon emissions, and many businesses also face supply-chain pressure to improve their sustainability performance. Maximising behind-the-meter solar PV on their facilities is a prominent way to achieve sustainability goals, save costs, improve reputation, motivate staff and demonstrate to customers and supply-chain partners how they are ‘walking the talk’.
  5. Large-scale Generation Certificates – while renewable energy incentives are not as ‘critical’ to the business case as they were a few years ago, the availability of LGCs at today’s spot prices, even for a few years, remains an important financial incentive. Conversely for some businesses, retiring their LGCs is a tangible step they take to validate the carbon abatement they achieve from their solar investment.
  6. Battery storage – it’s not front-of-mind, but most businesses are aware of it and know that in a few years’ time storage will be much cheaper and will offer them the ability to derive greater value from their solar investments, through higher self-consumption, load shifting, reduced peak demand and potentially network support. In the meantime, improved feed-in rates for exported electricity helps the business case.

Who is implementing solar PV systems over 100 kW?

Just 18 solar PV systems greater than 100 kW were built before 2012. The Singleton PV power station led the way, originally built for the Sydney Olympic Games in 2000. This system then led the way again in 2015, showing how a generator could contract directly with an end user (University of Technology Sydney) to supply power.

Some of the other ‘early adopters’ of greater than 100 kW systems were local councils such as Coffs Harbour City Council’s Rigby House (136.5 kW) and airports in both Adelaide and Alice Springs. The Northern Territory was the most active region, implementing nearly half of the systems completed by 2011.

Since 2011 the range of sectors and the locations of solar PV systems greater than 100 kW has increased significantly. Most prominent among adopters of these systems are aged care providers, retail properties, wineries, education facilities and mining & manufacturing firms. These tend to be facilities with large roof or land space and large continuous daytime load that can be part-met by on-site solar power.

In terms of scale, many of the largest systems are being installed by the retail property sector and by Universities. CSU’s Wagga Wagga campus 1,769 kW system and Stockland Shellharbour’s 1,218 kW system are prominent examples.

What are our clients planning?

Many of our clients are planning solar PV projects that will well and truly exceed 100 kW.

  • More and more aged care providers are looking at solar PV and embedded network strategies, extending beyond their main buildings to include residential care homes that will enable them to provide lower cost sustainable energy to their residents.
  • We are seeing many local councils and water authorities recognise the potential for solar on water and wastewater treatment facilities, including land, buildings, reservoirs, ponds and dams. Lismore City Council’s 100 kW floating solar plant will undoubtedly see others replicate this approach, benefit from Lismore’s lead and scale up to larger systems.
  • Several Universities are planning systems that will follow UQ’s and CSU’s leadership, and we expect more mining and manufacturing facilities to do likewise.

Your next steps

The business case for maximising your solar PV potential based on your load and available space has become very attractive in the last two years.

As Patrick, technical director at 100% Renewables puts it, ‘We know that energy prices are going up. We know that costs for solar panels are going down. Staff and customers want you to power your organisation with renewable energy. The business case is clear, and organisations with the capacity to install solar can ‘walk the talk’, take back control of their energy costs and improve their triple bottom line.

For more information, contact or Patrick or Barbara.

Feel free to use an excerpt of this blog on your own site, newsletter, blog, etc. Just send us a copy or link and include the following text at the end of the excerpt: “This content is reprinted from 100% Renewables Pty Ltd’s blog.

[i] Source: http://pv-map.apvi.org.au/analyses

[ii] https://www.cleanenergycouncil.org.au/technologies/solar-pv.html

[iii] https://www.solarchoice.net.au/blog/commercial-solar-pv-price-index-for-november-2017/