Pass Go and collect your certificate – Key implications of the Guarantee of Origin Scheme

Background

The Federal Government has passed the Future Made in Australia (Guarantee of Origin) Bill (GO Bill) and related bills to establish the Guarantee of Origin (GO) Scheme. While the GO Scheme is voluntary, it will encourage decarbonisation and investment in Australian industry by providing mechanisms to verify low emissions products and to certify electricity generated by renewable sources.

The GO Scheme sets up two types of certificates:

• Renewable Electricity Guarantee of Origin (REGO) tradable certificates to operate alongside the Renewable Energy Target (RET) certification scheme until December 2030, which will support a variety of claims about renewable energy production in Australia; and
• Product Guarantee of Origin (PGO) non-tradeable certificates that will track and verify the carbon intensity of a specific product – initially for hydrogen and in the future, other low-emissions products such as green metals and low-carbon liquid fuels.

Key implications

• Renewable energy generators: Sellers will be encouraged to invest in low emissions electricity facilities as they will be able to create and sell REGO certificates including after the RET scheme ends.
• Pre-1997 renewable generators: Pre-1997 renewable generators will be able to monetise previously exempt capacity (excluded from the RET scheme) by creating and trading REGO certificates relating to below-1997 baseline generation (albeit in a limited capacity prior to 1 January 2031).
• Standalone storage services providers: Service Providers of standalone storage facilities will be able to create REGO certificates if they can demonstrate that their storage assets have exported electricity from an eligible renewable energy source by “proxy”, through retirement of REGO certificates or LGCs. Due to time stamping of REGO certificates, storage facilities can shift solar generation to create REGOs at more valuable times.
• Hybrid storage systems: Service Providers of hybrid facilitates with storage facilities will be able to create REGO certificates if they have “direct supply relationships” in place with scheme approved generation sources, creating a potential new revenue source for storage services providers.
• Electricity buyers: Buyers will be able to make more informed decisions about their energy due to timestamping requirements for REGO certificates, which will allow buyers to better match renewable generation with consumption patterns.
• Financial markets: Financial market participants, including traders, will be able to trade REGO certificates by holding accounts on the GO Registry.
• Hydrogen value chain: Parties involved in the hydrogen energy value chain will be able to account for the carbon intensity of their products, which will assist in complying with schemes like the Commonwealth government’s Hydrogen Headstart Program and Hydrogen Production Tax Incentive. The internationally aligned nature of the GO Scheme will also enable participants in the hydrogen energy value chain to interact with international schemes, increasing the value of Australian hydrogen exports internationally.
• Impact on LGC market: There might be short-term disruptions to the liquidity of the LGC market, depending on how the regulations associated with the Go Bill are eventually structured.
• Transitionary impacts: Owners of renewable facilities that generate LGCs and offtakers from such facilities will need to consider whether such generation facilities create REGO certificates or LGCs as they are mutually exclusive during the overlap period (prior to 1 January 2031). This decision could be dictated through existing conflicts regimes in offtake arrangements.

REGO certificates

REGO certificates:

• certify that electricity is “renewable” in nature;
• can be traded independently from the physical delivery of electricity;
• can be used to claim the benefits of renewable electricity use; and
• provide information about generation and delivery of electricity, including facility age, fuel source, time of generation and location of facility.

Coverage of REGO certificates

There are several designated sources of electricity that will be capable of creating REGO certificates, with optionality for more being included through the regulations relating to the Go Bill in the future. These are set out in the diagram below:

Creation of REGO certificates

An owner or operator of a renewable electricity facility, including an electricity generation system, energy storage system, or aggregated system, may be registered and create REGO certificates. Third parties such as retailers or market intermediaries who do not own or operate a generation facility may also register a system and create REGO certificates on behalf of an owner/operator of a generation system.

Renewable energy power stations currently accredited under the Renewable Energy (Electricity) Act 2000 (Cth) (REE Act) are automatically eligible to be registered under the REGO stream. These facilities will need to meet the measurement standard made by the Minister (setting out requirements regarding the measuring and metering of electricity).

The GO Scheme expands certification to certain renewable electricity providers which do not create LGCs under the RET. Specifically:

• Pre-1997 generators: The creation of REGO certificates for renewable electricity generation from facilities which generated electricity before 1 January 1997 (mainly hydro generation). While the RET and REGO are both in operation, “below-baseline certificates” will be created for facilities with a legacy baseline and will represent the amount of electricity that is generated during the calendar year before the baseline is exceeded. The rules are expected to restrict the surrender of below-baseline certificates to Emission Intensive Trade Exposed (EITE) entities until the RET ends in 2030. On and from 1 January 2031, facility owners will be able to generate REGO certificates linked to below-baseline generation on an unrestricted basis; and
• Energy storage systems: Standalone energy storage systems will be capable of creating REGO certificates if they are capable of demonstrating that the storage system has exported electricity from an eligible renewable energy source by “proxy”, through retirement of certificates. The precise level of documentary evidence necessary to establish the “proxy” relationship is yet to be detailed, and will be set out in the regulations. Recent amendments to the bill also relieve storage service providers from the need to detail what renewable energy source was used to charge energy storage systems in any REGO certificates produced.
• Hybrid energy storage systems: Hybrid energy storage systems that have behind-the-meter connections with eligible renewable energy sources will be capable of creating REGO certificates if they have a “direct supply relationship” in place demonstrating that the energy stored is referable to renewable generation. This bespoke arrangement has been introduced to reduce the administrative burden in demonstrating the provenance of certificates in hybrid renewable systems that have behind-the-meter connection between a storage facility and an eligible renewable energy source.

Transitioning from LGCs to REGO certificates

Transitional provisions within the GO Bill provide that REGO certificates will initially be available alongside LGCs. REGO certification will then continue beyond 2030 when the RET framework ends, such that REGO certificates will become a substitute for LGCs.

The GO Scheme is designed to avoid the duplication of crediting across multiple schemes – meaning electricity generation can only be applied to create REGO certificates if that electricity has not been used to create an LGC or used in other certification schemes.

Timestamping of REGO certificates

Unlike LGCs, REGO certificates will be time stamped. The default position under the GO Scheme is that each certificate will be time stamped with the hour during which the renewable electricity is generated or dispatched. However, the granularity of time stamping could be altered by way of regulation in the future.

Timestamping means that not all REGO certificates will be equal. We expect for example, that certificates during “peak periods” will be worth more than certificates during the middle of the day where supply of certificates will be high (i.e. when solar generation is high). Stakeholders have expressed that this market separation could reduce market liquidity and increase prices for certain certificates (i.e. during “demand peak periods”).

This intra-day volatility and price separation could make contracting more complex due to matters including the difficulty in matching load profiles to timestamped renewable certificates, and the variability of pricing during certain hours of the day (i.e. during “demand peak periods”).

That being said, timestamping does provide a few new opportunities for entities. For example, storage facilities that demonstrate that they have been charged from eligible renewable sources (i.e. through a proxy relationship or a “direct supply relationship”) could potentially control time-stamping so that they export (and timestamp certificates) from storage facilities during periods where there is greater demand for renewable energy (i.e. “demand peak periods”), presenting a potential arbitrage opportunity. This mechanism could act as a market incentive to the development of further storage in the NEM depending on how certificates are ultimately priced by the market.

The rules and regulations to be consulted on in early 2025 may offer greater flexibility by incorporating alternative time intervals, such as daily, monthly, or yearly timestamps – however, there remains ambiguity in this area as at the date of this publication.

REGO certificates as financial products

The REGO certificate market is slated to be the green product of the future, driven by corporate demand in pursuit of sustainability goals and commitments.

Naturally, the tradable nature of REGO certificates results in the possibility that market participants may wish to enter into a broader range of transactions over these certificates, including forwards, options and swaps.

When transacting in REGO certificates, it will be important to consider the application of Australia’s financial services licensing regime (as well as the regimes which regulate financial markets and clearing and settlement facilities) under the Corporations Act 2001 (Cth) and whether, for example, an Australian Financial Services Licence is required for any particular activity. Further, ASIC has recently updated its guidance on the application of the financial services licensing regime to carbon markets - see ASIC, Regulatory Guide 236: Do I need an AFS Licence to participate in carbon markets, September 2024.

The need for such licences (and application of any exemptions from the requirement to hold a licence) is specific to each entity, their activities and the relevant circumstances, and should be carefully considered before trading in these certificates.

PGO certificates

PGO certificates:

• cannot be traded;
• record and verify the carbon intensity and other attributes of products across each step of a product’s lifecycle;
• capture information on emissions associated with supply of raw materials, production, storage and transport to the point of consumption or international departure;
• use a chain of custody approach to track the physical flow of products through the supply chain; and
• enable robust claims regarding the production and consumption of products.

PGO certificates will provide information about the production profile and specifics related to each batch of product. Certification will be based on methodology determinations made by the Minister in accordance with certain objectives set out in GO Bill, including that PGO certificates must represent an accurate accounting of all emissions without using carbon offsets. The methodology determinations set out the production pathway for that type of product – for example, whether hydrogen can be produced via electrolysis, through gas reformation, or coal gasification. Further requirements, including providing formulas for metering, measuring, and calculating inputs, outputs, and losses relevant to producing a batch of product, will be included in a methodology determination.

PGO certificates will initially apply to hydrogen and hydrogen energy carriers. These participants will be eligible for Australian Government incentive schemes including the Hydrogen Headstart Program, and proposed Hydrogen Production Tax Incentive.

The Federal Government allocated $32.2 million in the 2024-25 Budget to expand the program from hydrogen to include green metals and low-carbon liquid fuels. Consultation on methodology determinations for future products is expected sometime in 2025.

GO Scheme administration (PGO and REGO certificates)

The GO Scheme will be administered by the Clean Energy Regulator (CER), who will register participants and facilities, issue certificates, maintain the new public ‘GO Register’ of certificates and undertake compliance and enforcement actions.

The diagram below sets out how the GO Scheme will be administered:

To-do list

The GO scheme will be launched in 2025. Here’s your to-do list to prepare for the changes:

• Consider taking into account the REGO scheme in future Power Purchase Agreements (i.e. costs associated with the set-up of the REGO Scheme for eligible generators, what product will be created during the overlap period of the scheme).
• Consider including provisions about the creation and treatment of REGO certificates in Storage Service Agreements, noting this new potential revenue source.
• Start the registration process for PGO and REGO accreditation early, as we expect that the initial registration period could take some time for new projects.
• Ensure that you hold adequate licenses or exemptions to trade REGO certificates if trading is part of a financial product.
• Stay tuned for the consultation on draft rules and regulations (including the hydrogen methodology determination and measurement standards) in early 2025.