Environmental Certificates: How they impact your energy costs and support Australia's renewable future

Did you know your electricity bill could be a key driver in Australia’s transition to a greener future?

For many commercial and industrial businesses, understanding the environmental charges on your energy invoice isn’t just about ticking boxes; it’s about contributing to a sustainable future while managing costs effectively. These charges, driven by Federal and State schemes, are crucial in reducing greenhouse gas emissions and supporting Australia's development of renewable energy. But what do these charges mean for your business, and why should you care?

Understanding Federal Environmental Charges

Federal schemes like the Large-scale Renewable Energy Target (LRET) and the Small-scale Renewable Energy Scheme (SRES) are at the heart of Australia's push towards renewable energy. These programs require energy retailers, like SmartestEnergy, to purchase and surrender certificates proportionally to their customers' energy demand. These certificates directly support renewable energy generation projects in Australia.

• Large-scale Renewable Energy Target (LRET): This scheme incentivises the generation of renewable electricity by wind, solar, and certain other These generators are issued large-scale Generation Certificates (LGCs) for the electricity they generate, which retailers purchase (based on the volume of electricity their customers consume), to meet the mandated targets under the scheme. The generators gain additional income from selling these certificates, which, above those, a fossil fuel generator can sell.
  Businesses that want to improve their sustainability actions may voluntarily purchase additional LGCs, increasing the demand for these certificates and, subsequently, the price incentive for new renewable generation. SmartestEnergy’s Renewable Energy product helps our customers do this easily and transparently.
  When businesses claim to be powered by 100% renewable energy, they usually refer to LGCs. They can demonstrate their renewable energy action by matching up to 100% of their consumption at a 1 LGC to 1 MWh ratio. Many climate reporting commitments require businesses to demonstrate evidence of these LGC surrenders, and SmartestEnergy provides this reporting as a standard to all customers with 100% Renewable Energy. This evidence is beneficial for Scope 2 emissions reporting. By doing so, businesses like yours indirectly support the growth of Australia’s renewable energy infrastructure.
• Small-scale Renewable Energy Scheme (SRES): Whilst the LRET supports large, grid-scale renewable projects, the SRES encourages installing distributed small-scale renewable energy systems, such as rooftop solar panels. Through this scheme, businesses can generate Small-scale Technology Certificates (STCs) when they install these systems, which retailers then purchase to meet their requirements under the scheme. In residential and smaller businesses these are usually assigned to the installer, which acts as a subsidy to the installation, however some businesses prefer to retain control of the STCs and manage them separately.

The progress to the Clean Energy Target as of July 2024:

How State-Based Schemes Affect Your Energy Costs

In addition to federal initiatives, state-based schemes are designed to reduce energy consumption and emissions at a local level. These programs incentivise businesses to install energy-efficient technologies, reduce consumption, or replace outdated equipment. The specifics vary by state, but all aim to lower energy bills and promote sustainability. Like the Federal schemes, the State-based schemes drive demand for the certificates or activities by requiring retailers to purchase and surrender total demand-proportionate quantities. Each scheme falls under an administrating body that supervises the surrender and management of these certificates

• ACT—Energy Efficiency Improvement Scheme (EEIS): The EEIS is an activity-based (i.e., it does not create tradable certificates) scheme that offers incentives for ACT residents and small businesses to reduce their energy bills by installing specified equipment and appliances. Retailers can fulfil their obligation by providing these activities to customers or directly paying the ACT Government, known as an Energy Saving Contribution (ESC). For more details, visit Energy Efficiency Improvement Scheme | Climate Choices (act.gov.au)
• NSW—Energy Savings Scheme (ESS): The ESS provides financial incentives for NSW businesses to install, improve, or replace energy-saving equipment and appliances. This activity creates certificates that can be sold and traded before retailers buy and surrender the required number of Energy Savings Certificates (ESCs). For more details, visit Energy Security Safeguard | NSW Climate and Energy Action
• NSW—Peak Demand Reduction Scheme (PDRS): Introduced in 2022, the PDRS is the newest scheme and incentivizes businesses to implement measures that reduce energy demand during peak times. These peak times are afternoons in the summer (November to March) when demand on the grid increases due to residential use and increased heat. This peak demand puts pressure on electricity generation and distribution infrastructure, and by encouraging a reduction, this pressure can be relieved, helping to make price spikes and blackouts less likely. Retailers purchase and surrender Peak Reduction Certificates (PRCs) based on their customers' peak demand during this time, so businesses that take action to reduce their demand can contribute to lower costs from this certificate. For more details, visit Energy Security Safeguard | NSW Climate and Energy Action
• SA—Retailer Energy Productivity Scheme (REPS): The REPS is another activity-based scheme similar to the EEIS in the ACT. It offers incentives for South Australian residents and businesses to enhance energy efficiency by installing specific equipment and technologies. Retailers must meet a proportional target of these efficiency improvements, measured in gigajoules (GJ) of energy savings. For more details, visit ESCOSA | REPS
• VIC—Victorian Energy Upgrades (VEU) Program: The VEU program provides financial incentives for Victorian businesses to improve energy efficiency. Each certificate, known as a Victorian Energy Efficiency Certificate (VEEC), represents a reduction of one tonne of CO2 emissions. Retailers must buy and surrender these certificates to meet their obligations. For more details, visit Victorian Energy Upgrades for homes

Decoding Your SmartestEnergy Invoice

When you receive your SmartestEnergy invoice, you’ll notice an 'Environmental Charges' section. Each applicable scheme for your business will have a separate line detailing the contracted rate for those certificates, the volume of electricity used, and any relevant loss or obligation factors. Most customers are eligible for both State and Federal schemes, for example a business in NSW would see their contribution to the LRET, SRES, ESS and PDRS – that’s a lot of acronyms!

Calculating charges example: A business uses 245,000 kWh monthly with a contracted LGC rate of $47.50 / certificate. With loss factors of 1.1 and an obligation factor of 18.48%, their charge for that month would be calculated as follows: (245,000 MWh x $47.50 x 1.1 x 0.1848)/100 = $2,365.67

Key Points to Remember

1. Federal and State Schemes: Both scheme levels drive Australia's renewable energy growth.
2. Impact on Your Business: These charges can influence your energy costs and provide opportunities for cost savings through energy efficiency.
3. Support for Sustainability: By understanding and engaging with these schemes, your business will reduce greenhouse gas emissions and promote renewable energy.