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Energy Security Target – Securing South Australia’s Energy

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The South Australian Government has announced the Energy Security Target (EST) which aims to place downward pressure on electricity prices and provide energy system stability. If passed, the scheme will require National Energy Retail Law (NERL) retailers to purchase certificates from eligible generators in order to meet the annual EST. This proposal hopes to decrease wholesale electricity prices by increasing competition from local dispatchable generation.

 

Introduction

The South Australian Government has released the draft Electricity (General) (Electricity Security Target) Variation Regulations 2017 that would, if passed, vary the Electricity (General) Regulations 2012.

The proposal enables eligible South Australian generators to create certificates which retailers will be compelled to purchase and acquit. The retailer is then able to recover the cost of the certificates from customers.

The Essential Services Commission (Commission) will be the authority in charge of ensuring compliance with the EST.

 

Certificate Scheme

The EST scheme works by allowing eligible energy generators to apply to be registered as an “accredited electricity generating plant”. Once accredited, a generator may create certificates for every megawatt hour of ‘eligible electricity’ they generate.

The certificates are purchased by retailers and submitted to the Commission at the end of each financial year to enable the Commission to calculate whether the retailers have met their annual liability. The price of the certificates is set to be capped at $50/MWh.

The EST is designed to ensure that a certain percentage of the State’s electricity demand, 36% initially and then rising annually, is met by South Australian clean and dispatchable generators.

 

Eligible Generators

To qualify as an accredited electricity generating plant, the suppliers must generate an eligible fuel source which is defined as gas or a renewable energy source (as defined in the Renewable Energy (Electricity) Act 2000).

However, the scheme only applies to those generators which provide services which are dispatchable. Accordingly, solar and wind generators are ineligible.

In addition, the draft regulations define eligible generators as those which:

  • are a scheduled generator (within the meaning of the National Electricty Rules); and
  • provide “fault current” and “real inertia” security services.

Consequently, battery storage is excluded from the scheme as it is considered to provide “synthetic” inertia rather than “real” inertia.

As such, gas generators are likely to be the only generators that stand to benefit from the scheme.

 

Conclusion

The scheme is designed to incentivise gas generation and therefore create more competition to reduce electricity prices. Some commenters doubt the effectiveness of this proposal, arguing that renewables and battery storage should be covered by the amendments. They contend that the current proposal will result in higher electricity prices as certificate prices are passed onto consumers.

 

Consultation

The Government is encouraging stakeholders to provide feedback through written submissions. The deadline for providing submissions is 26 May 2017.

Submissions can be sent to: DPC.ESTRegulations@sa.gov.au

 

This Alert is intended as an alert only. It does not purport to be comprehensive advice. Readers should seek professional advice before acting in relation to these matters.

 

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