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ACT Renewable Energy Contract for Difference Costs Drive Substantial Network Tariff Increase

On 1 July 2021, the network tariffs for EvoEnergy will increase on average by approximately 43 per cent.  EvoEnergy is the electricity distribution business in the Australian Capital Territory (ACT).  The one year increase is unparalleled and equivalent to $1,476 (42 per cent) for a small business customer and $241 (36 per cent) for a residential customer

The primary driver for the overall increase is a 133 per cent increase in one of EvoEnergy’s costs related to the administration of the ACT Government’s large scale feed-in tariff scheme.  The scheme is part of the ACT Government’s 100% renewable energy target.  

Under the feed-in tariff scheme, the ACT government ran five reverse auction processes between 2012 and 2020 and awarded 840MW of contracts to the successful generators.  These contracts for difference with large-scale wind and solar generators pay the generator for the difference between an agreed fixed price and the prevailing wholesale price of electricity.  The payment can be viewed as a ‘top-up’ payment to provide the renewable generators with a predictable level of revenue.  

These contracts were entered into at times when wholesale prices were much higher. Given the recent significant reduction in wholesale electricity prices, the payments under these contracts have substantially increased.  EvoEnergy’s payments under these contracts have tripled in one year from $42 million to $127 million.

Under the ACT Government’s renewable energy target legislation, EvoEnergy is required to recover these jurisdictional charges from the ACT community. This is achieved by passing the costs through in their network tariffs.

Should wholesale prices increase, the payments under these contracts will decrease, resulting in a reduction in network tariffs.

The ACT Government is not the only jurisdiction to use contracts for difference to drive renewable energy development.  These contracts are also used in other jurisdictions. 

For example, the New South Wales Government’s Electricity Infrastructure Roadmap released in November 2020 contains an Infrastructure Safeguard scheme that uses contracts for difference, and the net cost of the safeguard will be recovered from distribution businesses in their network tariffs.  This mechanism has yet to be fully designed and is only likely to be operational in the next 12 – 24 months.

Victoria also used a form of contract for difference as part of the first round of reverse auctions in its Renewable Energy Target in 2017/18.  Government agencies and departments administer this scheme, and any costs or revenues from these contracts are ultimately covered through the Victorian Government’s budget rather than via network charges.

If you have any questions or need advice on the impact of the network tariff increase on your business, please contact your Energy Action account manager directly or contact us on 1300 964 589.

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