Snowy Hydro makes more money by failing to meet the RET

“Snowy Hydro chose to help lower energy prices and household bills by using the Clean Energy Regulator’s existing REC shortfall mechanism to save our customers around $20 million in green costs in the first year,” Mr Broad said.

Snowy, whichmay have paid a penalty of about $73 million for the shortfallbased on the tax-effective penalty of $92.46 per certificate, appears to be betting that it will be able to make good on its obligation in future years by buying LGCs at a lower price, as is allowed for under the regulations, traders say.

But at the same time, its retailing businesses, Red Energy and Lumo Energy, will have been charging customers for compliance with the scheme over 2018, leaving Snowy – and its government shareholder – open to charges it is gaming the RET system.

Prices of LGCs, each of which represents one megawatt-hour of renewable energy generation, have more than halved in the past 12 months to just under $40 now as the 2020 target gets close to being met and look set to fall to $10.50 by 2022, according to forward prices.


Large-scale Generating Certificate prices have fallen in the last 12 months. Demand Manager

Snowy’s behaviour has sparked criticism within the market of hypocrisy by the federal government, given Energy Minister Angus Taylor’s recent scathing attack on “massive” profits and unacceptable practices by the integrated generator-retailers, with households and businesses paying the price.

The two biggest gentailers – AGL Energy and Origin Energy – both surrendered LGCs accounting for more than 90 per cent of their liability for 2018, according to traders, meaning they are not liable for a shortfall charge.

EnergyAustralia, the third biggest, advised last week it had handed over only 78.5 per cent of its LGC obligations for 2018, but said it would use the estimated $15 million profit from selling the LGCs at higher prices to fund a charity program and wouldn’t itself see any commercial benefit.

The Clean Energy Regulator wouldn’t comment ahead of a statement it intends to release next week on compliance under the LGC scheme for 2018. Mr Taylor noted Snowy operates at arm’s length from the government and said its actions had lowered energy prices and household bills.

Snowy Hydroin November demonstrated its support for the renewable energy sector, contractingto buy electricity from 888 megawatts of new renewables projects to be built across NSW and Victoria. Mr Broad said Snowy would use the certificates generated by these to make up for the shortfall when they come online.

French-owned Engie, the owner of retailer Simply Energy, is the other party with a significant shortfall in its LGC compliance for 2018, according to the traders, who suggest it approaches 500,000 certificates.

Engie said that “due to market and pricing conditions and within the structure of the RET”, Simply would meet its obligations “through a combination of surrendering large-scale generation certificates and paying a shortfall charge for calendar 2018”.

“Simply Energy currently intends to use LGCs obtained in future years to ‘make good’ on this shortfall”, as allowed under the act, a spokesman said.

The issue of the deliberate failure to surrender LGC certificates came to the fore two years ago whenbusiness retailer ERM Power controversially opted to pay $123 million in penaltiesrather than meet all its obligations for 2016.

At the time,Clean Energy Regulator chair Chloe Munro accused ERMof undermining the objectives of the RET scheme and described the practice as “a failure to comply with the spirit of the law”.

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