The Role of LGCs in Australia’s Renewable Energy Target

• • Origins and evolution of the Renewable Energy Target
  • What is an LGC?
  • What system sizes are considered Large-Scale?
  • What does Ecovantage offer to estimate the return on LGC Projects?
  • What about surrendering the LGCs?
  • Future of renewable energy certificate programs.

The origins & evolution of the Renewable Energy Target.

Prior to the introduction of the Renewable Energy Target (RET) in 2001, Australia’s solar sector faced financial hurdles due to the absence of clear incentives like Large-scale Generation Certificates (LGCs), hindering investment in large-scale renewable project development.

However, with the introduction of the RET and the integration of LGCs into the scheme, a transformation began. Initially termed Renewable Energy Certificates (RECs) from 2001 to 2010, these certificates were managed by the Office of the Renewable Energy Regulator (ORER) under the Mandatory Renewable Energy Target (MRET) scheme. 

Enacted by the Howard government in 1997, the MRET mandated large electricity retailers to obtain RECs, aiming to source an additional 2% (or 9,500 GWh) of electricity from renewable sources by 2010.

As the MRET neared its end in 2007, the newly elected Australian Labor Party expanded the initiative into the RET. This revised target aimed for 20% of electricity generation to come from renewables (equivalent to 45,000 GWh) by 2020, including the introduction of a ‘solar credits’ multiplier to encourage household solar PV uptake.

However, at the time there were some limitations to the RET scheme:

• • The newly introduced ‘solar credits’ mechanism proved to be problematic since small generation units or small solar installations are awarded up to five times the certificate amount upfront, compared to their larger kin. Hence discouraging investments in large-scale projects such as wind farms and hydro plants. 
  • The effect of ‘phantom certificates’ whereby retailers are able to ‘bank’ RECs and surrender them anytime to meet their future RET, introducing the problem where the surrender of these RECs does not portray the progress of renewable energy uptake for that particular year. 

Since then, the scheme has evolved. From 1 January 2011, the RET was split into two parts:

Large Scale Renewable Target (LRES)

Small Scale Renewable Energy Target (SRES)

RECs were then reclassified into two certificate types:

Large-scale Generation Certificates (LGCs)

Small-scale Technology Certificates (STCs)

Governed by a newly appointed body, the Clean Energy Regulator (CER) formed an internet-based platform called the REC Registry, with an aim to achieve 33,000 GWh of Australia’s electricity sourced from renewables by 2020.

Under the new schemes, the separation of the targets ensured a more equal playing field to incentivise investments for both large and small-scale renewable projects. Additional expiry dates surrounding certificates, where the certificates have a 12 month claimable period (from installation date for STCs and from generation date for LGCs), helps ensure that certificates surrendered by liable parties are in line with the yearly progress of renewable energy uptake in Australia.

According to the CER, the introduction of LGCs as part of the RET significantly boosted the uptake of commercial solar installations across Australia. To the extent that in January 2021, the target of 33,000 GWh was achieved and this will remain the same yearly until 2030.

While the backstory of LGCs has evolved over time, many enquiries persist regarding the intricacies of how LGCs actually work. 

What is an LGC?

Large-scale Generation Certificates (LGCs) are a Renewable Energy Certificate (REC) that represents 1 megawatt hour (MWh) of renewable electricity produced within Australia. LGCs are created by registered renewable energy systems, known as power stations. One LGC is eligible to be created for every 1 MWh of eligible renewable electricity generated.

For instance, a system producing 365 MWh per annum will yield 365 LGCs annually.

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What system sizes are eligible for LGCs?

For solar, a system installed within a single National Meter Identifier (NMI) with a capacity ranging from 0 to 100 kW qualifies for Small-scale Technology Certificates (STCs). Conversely, an installation exceeding this capacity threshold or bringing the total capacity beyond 100 kW becomes eligible for LGCs.

	Small-scale Renewable Energy Scheme	Large-scale Renewable Energy Target
Solar PV System	No more than 100 kW rating Annual electricity output not more than 250 MWh	More than 100 kW 25 MWh or more
Wind System	No more than 10 kW rating Annual electricity output not more than 25 MWh	10 kW rating or more 25 MWh or more
Hydro System	No more than 6.4 kW rating Annual electricity output not more than 25 MWh	6.4 kW or more Annual electricity output of 25 MWh or more

(Ref: Clean Energy Regulator Website)

Ecovantage assists EPCs and system owners alike to:

1. 1. Establish eligibility
   2. Explore the potential financial return on LGCs
   3. Evaluate the environmental outcome of the LGCs
   4. Oversee the process from end-to-end of an LGC project. 

We facilitate the power station registration, followed by LGC creation, trade and surrender to ensure all stages of the LGC life cycle are considered.

What does Ecovantage offer to estimate the return on LGC Projects?

To assist with the LGC quoting stage, Ecovantage offers three pricing options:

Spot Price	Fixed Price	Upfront Payment
The Spot Price structure is where LGCs created over the calendar year are monetised at the spot rate at the beginning of the following year. This structure offers the potential benefits of market upsides, and concurrently is also exposed to market downsides.	For those adopting a low-risk approach, the fixed price option is often favoured. Participants enter a contract where annual prices are locked in for a period between contract execution and 2030. These fixed prices are determined by the LGC prices in the forward market at the time of contract execution. As these prices are fixed, the only variable participants are exposed to is the actual generation of the system each year.	For those looking to bring the financial value forward, the upfront structure estimates the total project value and applies a hedge based on factors such as performance history, credit and tenancy checks.

 

 

 

 

 

 

 

When it comes to monetising your LGCs, two primary risks are involved:

1. 1. Creation risks: this pertains to the actual amount of LGCs created.
   2. Market risks: these involve fluctuations in market prices.

How can I find out more about LGCs for a future project?

Our experienced team at Ecovantage can guide you through your eligibility, what is required and your estimated LGC financial outcome. 

To receive an LGC quote for your system, simply register your interest in the form below and one of our team will be in touch with you.If you do not currently have an eligible project but you would like to explore your options, get in touch to connect with our certificate experts.