Australia’s Renewable Energy Policy Framework

The Large-Scale Renewable Energy Target (LRET)

Australia’s LRET requires electricity retailers to source an increasing share of electricity from large-scale renewable sources (wind, solar, hydro, geothermal). The 2030 target is 82% renewable electricity by 2030 (amended from prior targets), supporting Australia’s 43% emissions reduction commitment.

For organisations, LRET is important because it drives investment in renewable energy infrastructure and lowers renewable energy costs as supply increases. Grid electricity is progressively decarbonising; location-based Scope 2 emissions (using average grid factors) will naturally decline even without direct renewable energy procurement.

Renewable Energy Certificates (RECs)

When a renewable energy generator produces electricity, it receives Renewable Energy Certificates (RECs) in addition to revenue from selling the electricity. One REC = one megawatt-hour of renewable electricity. Retailers must surrender RECs to meet LRET; organisations can purchase RECs to offset grid electricity purchases.

For ESG purposes, purchasing RECs (or their consumer equivalent, GreenPower) allows you to claim renewable energy reduction without a long-term infrastructure commitment.

Small-Scale Renewable Energy Scheme (SRES)

Supports small renewable installations (rooftop solar, small wind, hydro). Small-scale Technology Certificates (STCs) provide upfront cost reduction; available to businesses installing systems up to 100 kW capacity.

For many Australian SMEs, rooftop solar + STCs delivers attractive ROI (3–5 years) and supports ESG commitments.

Renewable Energy Procurement Options

On-Site Renewable Energy (Solar, Wind)

Install renewable generation on your premises. Suitable for organisations with:

• Suitable roof space or land (south-facing, unshaded)
• Daytime energy consumption (solar efficiency depends on load matching)
• Long occupancy horizon (breakeven typically 5–10 years)
• Capital available or finance capacity

Costs: Solar (rooftop or ground-mounted) costs AUD $1–1.5M per MW installed; wind costs AUD $2–3M per MW. Battery storage adds ~AUD $150–300/kWh.

Benefits: Full control over generation; counts toward 100% renewable energy claim; long-term cost certainty (minimal fuel/operational cost).

Drawbacks: High capex; subject to roof condition, planning permissions, and grid connection upgrades; performance variability (weather, season).

Grid connection: Systems >10 kW require standard installation; upgrades to the local network may be required, adding cost and timeline.

Power Purchase Agreements (PPAs)

A PPA is a long-term contract to purchase renewable electricity from a generator (typically a wind farm or solar farm) at an agreed price and quantity. PPAs are the preferred mechanism for larger organisations and are increasingly cost-competitive with grid electricity.

PPA mechanics: You contract directly with a renewable generator (or via a PPA broker/aggregator) to purchase renewable electricity. The generator builds or expands a renewable project; you purchase the output (MWh) at a fixed or indexed price for 10–20 years. Electricity is delivered to you via the grid; a separate renewable energy credit assignment (the REC) substantiates your renewable claim.

Costs: PPAs currently price at AUD $50–$80/MWh (fixed or CPI-indexed) for 15–20-year contracts; this is often cheaper than or competitive with grid electricity (which averaged AUD $70–$100/MWh over recent years).

Benefits: Long-term price certainty; supports renewable infrastructure investment; qualifies for SBTi and Climate Active targets; no capex from your organisation.

Drawbacks: Long-term commitment (30+ years typical); counterparty risk if generator defaults; market-based Scope 2 accounting (requires vintage tracking).

Market maturity: Australia has strong PPA market with multiple aggregators and generators (Origin Energy, AGL, Acciona, Eurus, etc.). PPAs are the preferred mechanism for large organisations pursuing net-zero targets.

GreenPower

GreenPower is a certified renewable energy product available from retailers, allowing you to purchase renewable electricity directly. Unlike PPAs, GreenPower is typically purchased monthly or annually; no long-term contract.

Costs: GreenPower adds 2–5% to your electricity bill (varies by provider and renewable mix).

Benefits: Flexible; no long-term commitment; simple to implement; certified renewable energy backing.

Drawbacks: More expensive per MWh than PPAs; supports existing generators rather than new capacity; annual purchase requirement.

When to use: GreenPower is appropriate for smaller organisations or as a bridge while exploring PPAs. For large organisations with 100+ MWh annual consumption, PPAs typically offer better value.

Hybrid Approach

Many organisations combine on-site solar (load-matching, cost-effective) with a PPA for baseload renewable energy and GreenPower for residual grid consumption. This portfolio approach balances capex, cost-certainty and ESG ambition.

Example: 30% on-site solar + 50% PPA + 20% GreenPower = 100% renewable energy mix with diversified risk.

Evaluating Renewable Energy Economics

Levelised Cost of Energy (LCOE)

LCOE compares the total lifecycle cost of energy from different sources. In Australia, renewable energy (solar, wind) now has lower LCOE than fossil fuels (coal, gas), making renewable energy the economically rational choice independent of climate concerns.

Current Australian LCOE (AUD/MWh):

• Onshore wind: AUD $40–60
• Solar (utility-scale): AUD $40–70
• Coal (existing, no capex): AUD $50–100 (declining as coal plants age)
• Gas: AUD $60–120 (variable, gas price-dependent)

On-site solar ROI improves as electricity prices rise. Current payback periods (total capex ÷ annual savings) are typically 5–8 years for commercial solar, improving as energy costs rise.

Scenario Modelling

Model renewable energy decisions across scenarios: varying electricity prices, technology cost reductions, generation output (weather risk). Many organisations use 3–5 scenarios to stress-test PPA or capex decisions. Carbon pricing (Safeguard Mechanism) should also be modelled to quantify the financial benefit of decarbonisation.

Renewable Energy and Net-Zero Strategy

Scope 2 Reduction Pathways

For most organisations, Scope 2 is the largest reduction lever. A typical pathway:

• 2025–2030: 50% renewable energy via PPA/GreenPower; on-site solar where viable
• 2030–2040: 100% renewable energy procurement; grid electricity continues decarbonising (LRET to 82% renewable by 2030)
• 2040–2050: Electricity grid fossil-fuel-free; Scope 2 approaching zero through grid decarbonisation alone

By 2030–2035, achieving 100% renewable energy procurement is achievable and cost-competitive for most organisations; this is a primary net-zero lever.

Market-Based vs. Location-Based Scope 2

PPAs and GreenPower reduce market-based Scope 2 (your actual renewable purchase). Location-based Scope 2 (average grid intensity) also declines as Australia’s grid decarbonises. AASB S2 requires both; market-based shows your renewable commitment; location-based shows grid progress.

By 2050, as grid electricity is predominantly renewable, both metrics converge toward zero.

Practical Considerations and Risks

Grid Connection and Network Upgrades

Large on-site renewable installations or PPAs may require grid upgrades. Distribution Network Service Providers (DNSPs) assess impact; upgrades can cost AUD $50K–$500K+. Factor this into financial modelling; timeline can add 6–12 months to project.

PPA Counterparty Risk

Long-term PPAs expose you to generator default risk. Mitigate by selecting creditworthy counterparties (major generators or those with investment-grade backing) and including force-majeure, termination and dispute resolution clauses. Engage a PPA lawyer to review contracts.

Intermittency and Storage

Solar and wind are intermittent. For organisations requiring 24/7 baseload power, combine renewables with energy storage (batteries) or grid supply (which will increasingly be renewable). Battery costs are declining; consider storage if on-site solar is a primary lever.

Vintage and REC Tracking

RECs must be current (produced within the year of use) to be valid. Organisations claiming renewable energy must track REC vintage and retirement; document for ESG reporting and audit.

ESG Messaging Risk

Renewable energy claims can attract greenwashing scrutiny. Avoid overstating impact (e.g., “100% renewable” when you’re only at 70% procurement or when grid electricity is still 20% fossil). Be precise: “100% renewable electricity procurement” vs. “100% renewable energy” (the latter could imply transport, heating, etc.).

Frequently Asked Questions