Australia not considering I-RECs for Climate Active

Market: Electricity
22/07/24

The Australian federal government is not considering allowing international renewable energy certificates (I-RECs) issued in Australia for local electricity consumption under its Climate Active voluntary programme, despite requests from market participants.

I-RECs are not eligible to be used by Climate Active reporting businesses to reduce emissions from domestic electricity consumption, with only large-scale generation certificates (LGCs) currently allowed. The Department of Climate Change, Energy, the Environment and Water (DCCEEW) last year launched a consultation with proposals to reform Climate Active and some companies asked for the inclusion of I-RECs. But "the department is not currently considering updating [I-RECs'] eligibility status under Climate Active," the DCCEEW told Argus.

Australian I-REC issuances kicked off in 2022, but just for "below-baseline generation". Under the existing Renewable Energy Target (RET) scheme, renewable plants that came on line after 1 January 1997 can generate LGCs, while those that were operational before then were set an individual baseline based on average output, and can only create LGCs for generation above that.

There are currently 22 hydro plants with a combined capacity of 4.85GW registered for I-REC issuance — all of them commissioned between 1938 and 1996. These include the country's three largest hydropower generators — Australian government-owned utility Snowy Hydro, Tasmanian state government-owned Hydro Tasmania and Queensland state government-owned CleanCo Queensland —according to Angus Rich, executive director at consulting services company Oakley Greenwood, the accredited I-REC issuer in Australia.

Issuances rose sharply to 3.26TWh last year from 468GWh in 2022. Redemptions reached only 60GWh in 2022 and 104GWh in 2023, but the reporting timeline lags between nine and 18 months from the time of generation, I-Track Foundation's standard compliance manager Jos Tuinenburg told Argus. Redemptions in the first six months of 2024 alone were at 873GWh, more than five times all 2022-23 redemptions.

There is potential for up to 16.4TWh of annual generation to issue I-RECs, but these are eligible under Climate Active only for electricity consumption outside Australia, when businesses have operations overseas.

I-REC's recognition

I-Track Foundation has "strongly advised" the Australian government to recognise I-RECs under Climate Active in line with international reporting standards, Tuinenburg said. "I-RECs are already being used by some of the largest government-owned companies on both the generation and consumption side and it runs with the same data quality as the LGC system without any costs for the Australian government," he noted.

Australia's planned guarantee of origin (GOO) programme, which is expected to start from 1 July 2025 with hydrogen, will also need to rely on "robust" electricity tracking. "We see value in having I-RECs for electricity fulfil or complement that role with the future Rego [Renewable Electricity Guarantees of Origin] system, as I-RECs have already proven to be a reliable and affordable complementing instrument for below-baseline generation to the existing LGC scheme", he said.

And Australia could also benefit from I-RECs for its ambitions to become a "green energy superpower" as tracking will become an internationally important topic in terms of export of green products and commodities. "Having the same tracking instrument as countries in Latin America, Asia, the Middle East and Africa will be very beneficial when exporting commodities that will rely on its electricity input being from renewable sources," Tuinenburg added.

Snowy Hydro said in its submissions to the Climate Active and GOO consultations that excluding existing hydro generation from Climate Active "simply because assets were commissioned before 1997" is "arbitrary and does not make sense" for a programme designed to help organisations measure, reduce and disclose their emissions. The utility's retail company Red Energy has experienced strong interest in I-RECs from commercial and industrial customers, but has not been able to certify its 100pc renewable energy product NetZeroMatch.

"The use of baselines in the RET creates a barrier to verifying the provenance of renewable generation created by pre-1997 assets, fails to recognise the ongoing investment required in such assets and establishes an arbitrary and unfair distinction between ‘old' and ‘new' renewable capacity," the utility said.

The lack of local certification backing their use explains why Australian I-RECs have attracted low trading interest in the wholesale market. I-RECs trade at a significant discount to LGCs, with recent values just below A$20/MWh ($13.5/MWh) for vintages 2022 and 2023 compared with spot LGC transactions between A$45.75-46.75/MWh.

Different views

Some companies are against a wider recognition of I-RECs in Australia. According to the GreenPower programme, below-baseline generators should either be ineligible to create Regos — planned to replace the LGCs in 2030 — or be required to immediately surrender all certificates created on behalf of Australian consumers to reduce the emissions intensity of the grid.

This is because the construction of most large below-baseline renewables such as the Snowy Hydro scheme have already been paid for through taxes and energy charges, GreenPower claimed.

Oakley Greenwood's Angus Rich noted that I-RECs are recognised internationally for complying with several scope 2 guidance documents, including the Greenhouse Gas Protocol (GHG Protocol). Global companies that have significant carbon footprints in several countries, many of which operate with I-RECs, are seeking standardisation across their operating portfolios for scope 2 voluntary reporting. "Oakley Greenwood has been having increasing discussions with these global companies that seek I-RECs across their portfolio given their familiarity and trust in the international tracking standard in countries they have operations in," he added.

By Juan Weik

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