Renewable electricity is electricity that is produced using a fuel source that is renewable. Wind and biomass (such as growing and burning trees) are important examples; other examples include landfill gas and solar. Further information can be obtained from the federal Office of the Renewable Energy Regulator (ORER) at:  www.orer.gov.au

As with most products, there are a variety of brands and quality levels of electricity that is sold as Renewable.

• Accredited with ORER and
• Directly connected to the consumer and 
• The consumer is not connected to any other generator not accredited by ORER, and
• The generators produce Renewable Energy Certificates (RECs) pursuant to the Renewable Energy (Electricity) Act 2000 and issued by ORER and,
• The RECs are voluntarily surrendered to ORER without generating an income from them.

RECs are deemed financial instruments created for the purpose of incentivising the development of renewable energy generators. In addition to producing electricity, a qualifying generator is also deemed to create RECs at the rate of 1 REC per MWh. A market is created for the REC by federal regulations requiring that electricity retailers procure and submit to a registry RECs equivalent to a specified percentage of their total electricity sales. The REC is given value by the imposition of a penalty on retailers that fail to comply.

For example, consider a remote farm not connected to an electricity network and supplied only by an electricity-producing windmill with no back up. The Windmill is accredited by ORER and produces RECs, which are surrendered to ORER without payment.

This is a pure supply by a renewable generator. However, when the wind isn’t blowing, there is no electricity production and electrical appliances cease to function. Or worse, when the wind is intermittent, appliances function intermittently. Even if the wind is blowing continuously but not strongly enough, electricity has to be carefully rationed across the appliances for example, the farm may have to choose between having either the lights or the kettle on.

The supply becomes less pure but more practicable, by having a connection to the local network to supplement the windmill when the wind isn’t strong enough (or to absorb surplus electricity when it is too strong and the windmill is producing more electricity than the farm us using). However, the electricity taken from the network is generally not renewable.

Alternatively, suppose the farmer decides to install a bigger windmill instead of connecting to the network. The supply is still pure, but to help pay for capacity that goes unused for most of the time, he decides to sell the RECs on the spot market. According to some definitions of “Renewable Electricity”, the supply ceases to be renewable because of the sale of the RECs (instead of retiring them via ORER). Equally, if the buyer of the RECs operates the farm next door, which is an identical situation, except instead of a windmill the farm is supplied by a diesel generator and surrenders the RECs to ORER without payment then, assuming the quantities match, the diesel-plus-RECs farm is deemed to be supplied by renewable electricity and the windmill farm is not.  

The situation gets even more complicated because of a doctrine called “additionality”. Legislators have provided financial incentives to encourage capital to be employed in building renewable capacity, but those incentives are allocated only to facilities that are additional to what would otherwise have existed anyway. Unfortunately, this doctrine impedes development because the regulations are changing dramatically and developers “wait and see” before proceeding with projects. Further, “additionality” presumes that the financial returns to pre-existing power stations are guaranteed by another mechanism, whereas the reality is often that pre-existing stations have to compete with subsidised stations in the same market. Ironically, whereas “additionality” considers development of a new station to be a benefit to the environment, it does not consider the premature closure of a renewable station as a detriment.

As an example of the inequity that this can create, consider three identical power stations as summarised in the following table. All are ORER accredited as renewable, but each became operational at different times and one was recently upgraded.

Power station 1 became operational in 1995 and produces 1,000,000 units of electricity every year. Because it was operational when the Act came into force, it can only create RECs on the production in excess of its historical “baseline” – in this case, 1,000,000 units. As it does not exceed that baseline, it does not create RECS.

Power station 2 also commissioned in 1995, was upgraded and now produces 1,250,000 units every year, being 250,000 units in excess of the baseline. The excess 250,000 units create RECs. More specifically, the 100,000 unit does not create a REC but the 100,001 unit does.

Power Station 3 is identical to Power Station 1, except it was not in operation when the Act came into force – and so has a zero baseline. All the production from this station creates RECs.
 
LGP operates each of these three types of Power Station and supplies all its renewable electricity to customers via Western Power’s electricity network. However, we are pleased to acknowledge that the state government has recognised this issue and provided financial assistance via its REPS III scheme http://www.sedo.energy.wa.gov.au/pages/renewable_energy_production_subsidy.asp

In supplying consumers via an electricity network, which is the most common situation, there are yet further complications.

Firstly, the “electricity losses” that occur between the generator and the consumer have to be accounted for – usually, more electricity has to be sent out from the generator than actually arrives at the consumer.

Secondly, the Western Australian Wholesale Electricity Market has a novel feature whereby it is based not only on an energy market (as is the National Electricity Market) but also a Capacity Market. A renewable energy product therefore has to address the issue of the nature of the “Capacity Credits” used to supply the customer and specifically, whether they should be obtained exclusively from renewable generators.

One common definition of renewable electricity requires that the total consumption in kWh (but not in capacity – kW), must be injected into the electricity network from which the customer is supplied, in a quantity that over the course of a year matches the consumption of the customer. Yet other definitions do not require that the generator be connected to the same network as the customer, such a definition may also permit “supply” from a generator in another country with no electrical connection.

Given all the complexity associated with defining a renewable electricity product, LGP has taken great care to define its renewable electricity product, so that customers understand exactly what they are buying: Renewable Electricity Product Specification. We acknowledge that our product is not considered “pure” by theorists, but observe that LGP’s “renewable credentials” were established long before concern for the environment became fashionable and governments legislated to provide financial incentives for capital to be employed in its service. We are proud to be a renewable energy company, offering what we believe is a practical best-value-for-money renewable electricity product.