Performance-based photovoltaic (PV) Renewable Energy Certificates (RECs) are a simple alternative that could prevent PV system obesity, and have wide ranging industry, environmental, and political benefit, achieving outcomes akin to a national gross feed-in tariff utilising existing legislative frameworks.

Currently, the Renewable Energy Target (RET) provides PV system owners the ability to create RECs based upon 15 years of deemed solar generation. As a consequence of this deeming, systems of the same size attract the same discount, regardless of system performance or longevity.

The Solar Credit Multiplier (which multiplies the number of RECs created by small solar systems) also encourages PV system obesity by disproportionately rewarding smaller systems that have inherently lower efficiencies, further breaking the link between performance and REC creation. By doing so, the scheme provides no incentive for quality, nor reward for superior components or high performance.

A discount that peaks at 1.5 kilowatts (kW) incentivises small systems, yet inverter efficiency increases as system size increases, and larger systems have greater life-cycle and greater environmental benefits. REC deeming kills performance, and REC multiplication buries it.

Unfortunately, far too many underperforming systems have been installed because of skewed incentives. REC deeming allows a fully shaded PV system that is correctly configured and suitably wired to receive the same discount as one that tracks the sun.

Why capacity-based assessments in the first place?

There are sensible reasons for basing PV RECs upon system capacity rather than output. Principally, these relate to transaction costs for the other alternative: metering.

When the RET was originally established, small PV systems might have created one to two RECs per year with an annual value of $30 to $100. The cost of installing a ‘REC meter’ would barely be justified by this paltry sum; nor would the ‘transaction cost’ of reading the meter and reporting it to the Office of the Renewable Energy Regulator.

If the transaction cost of PV REC metering could be addressed, then a performance-based solar incentive scheme would be possible.

And, if New Jersey can successfully run a Small Renewable Energy Certificate market using metered performance, so can Australia.

The argument for performance-based assessment

Creating RECs based upon system production provides superior outcomes, for both the environment and industry reputation. It creates an incentive for good installation of high-quality components, whose superior performance is recognised and rewarded. North-facing unshaded systems with high-performance panels then provide greater financial benefit, both through REC revenue and bill reduction.

Can it be done?

Awarding RECs based upon performance rather than capacity is achievable. One way would be to use the Clean Energy Council's accredited installers performance calculation as the basis for REC creation. Ensuring installer honesty would be the greatest challenge, and though this could be done by greater auditing and enforcement, this carries its own ‘transaction costs’.

Standardised performance-prediction tools that account for the local solar resource, orientation and shade could solve this challenge. However, governments tend to shy away from regulating use of a particular product, and operators would still have the opportunity (and incentive) to manipulate the outcome.

The most accurate way to enable performance-based RECs is to install an inexpensive metal rail to mount the gross meter on the switchboard of every new system (i.e a DIN rail), in addition to the utility’s meter. Meter reading costs could be minimised with the utility’s involvement, or accredited meter readers could read the meter (and provide additional services such as system cleaning and safety checks).

Transaction costs would be justified if there was sufficient financial gain to be obtained by meter reading. Prior to REC multiplication, the value of one or two RECs didn’t justify such meter reading costs, but if spread out over 15 years, the 155 RECs currently created by a 1.5 kW system would represent approximately $400 of annual revenue.

Might existing RET regulations be modified to create an enhanced number of RECs based upon annual yield?

Industry benefits

The prospect of transforming a $6,200 upfront discount based upon deemed production into a performance-based annual incentive with an equivalent value could present significant benefits for the industry. Although upfront costs would increase for the consumer, system financing is already well-established in the industry.

Furthermore, installer’s cash flow constraints wouldn’t be determined by clearing house surrender dates, and the electricity price impact of the Small-scale Renewable Energy Scheme would not be forward weighted as is currently the case.

Performance, quality and longevity would be rewarded, and annual REC payment, when combined with electricity export and offset consumption, would annihilate electricity bills. Thus there are industry, environmental, and political benefits on offer.

Politically speaking...

The prospect of modifying existing legislative framework to achieve these outcomes is elegant and timely, because the ‘enhanced’ RET is already looking unstable. Forecast Small-scale Technology Certificate (STC) creation is clearly exceeding demand, with the danger that the government may intervene with a mortifying solar diet.

When an STC oversupply leads to lower STC spot prices at the same time as a multiplier reduction (announced in December 2010) and the looming end to feed-in tariffs in New South Wales, Victoria and South Australia, the industry may be faced with the prospect of incentive starvation.

Might this prompt an overweight industry to instead wean itself off upfront RECs and develop a true appetite for a performance-based incentive?

“Unfortunately, far too many underperforming systems have been installed because of skewed incentives. REC deeming allows a fully shaded PV system that is correctly configured and suitably wired to receive the same discount as one that tracks the sun.”