Policy Briefing: The LRET and the Australian Carbon Price

This brief, prepared by RepuTex and commissioned by WWF-Australia, examines the relationship between the Australian carbon price trajectory and renewable energy generation. The examination is based on modelling the impact on renewable energy generation should a price and limit on carbon pollution, referred to here as the Australian Carbon Price Mechanism (CPM), be repealed.

Key findings include:

  • The Carbon Pricing Mechanism (CPM) and the Large-scale Renewable Energy Target (LRET) are complementary market mechanisms that together support Australia’s transition to a low carbon economy.
  • With the CPM in place, the long-run cost of wind energy in the National Electricity Market (NEM) has become lower than fossil fuel-fired generation.
  • Higher carbon prices, which lead to higher wholesale electricity prices, reduce the price of Large-scale Generation Certificates (LGCs). Conversely, should carbon prices fall, the price of LGCs would have to rise to ensure there are enough renewable credits available to cover the LRET liability of energy companies.
  • To meet the legislated Large-scale Renewable Energy Target (LRET) of 41,000 GWh by 2020, around 7 GW in new wind build would be required from 2013, or around 1 GW of new capacity added each year. Repealing the carbon price would limit investment in additional onshore wind energy, resulting in a capacity shortfall. Large-scale renewable energy development is not currently supported by the alternative Direct Action policy.
  • With carbon pricing in place, even at low prices, we anticipate that the LGC market will continue to support the development of onshore wind energy.
  • While wholesale electricity prices would be lower if the carbon price is repealed, retail customers would be unlikely to receive the benefit of these lower prices, as electric providers would continue to pay for the LRET scheme. The outcome of this dynamic would likely be higher retail electricity prices, without the additional competition from wind energy.
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