Your upfront investment in an Southern Green Energy System is significantly reduced as a result of the Federal Government’s Solar Credits Scheme. The Solar Credits Scheme allows owners of solar systems to create Renewable Energy Certificates (RECs), which can be sold to others, including electricity retailers, so that they can meet their carbon targets under the Renewable Energy (Electricity) Act 2000.

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Solar RECs, or Renewable Energy Certificates, are the current form of the Australian Federal Governments renewable energy rebate scheme called “solar Credits”. There have been other schemes in the past, for example the popular Solar Homes and Communities Plan (SHCP) that was phased out from June 2009 to September 2010.

Basically a solar REC is a measurement of renewable energy which can be traded for cash. One solar REC represents one megawatt hour (MWh) of electricity. RECs can be generated from a number of systems, including solar hot water, heat pumps, solar PV and small wind generation units, provided they meet certain conditions.

From 1st January 2011 the RET scheme has changed and solar RECs for small systems changed to effectively be renamed Small-scale Technology Certificates (STCs). Their price is set by the government and may be subject to change over time. Initially it has been fixed at $40 when traded through the government-managed STC Clearing House, in an effort to remove some of the volatility that the REC market experienced.

An important point is 1 STC = 1 REC, they are the same power value. The difference between them is how much that can be sold for.

For more information on the RET, RECs and STCs click on the links below.

The Office of the Renewable Energy Regulator (ORER)

Large-scale Renewable Energy Target (LRET)

Small-Scale Renewable Energy Scheme (SRES).

ORER have a handy on line STC calculator, it used to be a REC calculator, find out how many STCs you are entitled to here!

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Solar Credits?

The way Solar Credits works is, the Australian Government is encouraging the adoption of renewable energy in Australia through a Renewable Energy Target (RET) scheme. The RET guarantees a market for additional renewable energy generation, by using the trade in RECs. The RECs are traded on an open market, but are backed by the Australian Government.

Solar Credits is a method within the overall RET scheme that provides additional support to households, businesses and community groups that install small-scale solar power (PV), wind and hydro electricity systems by multiplying the number of RECs able to be created for eligible installations. The value of the RECs and the multiplication factor is explained below, and is based on the changes announced in December 2010.

The Solar Credits REC multiplier (as it’s become known), applies to “eligible” small-scale solar PV, wind and hydro electricity systems installed between 9 June 2009 and 30 June 2014. From 1 January 2011, the RET scheme has now been split into two parts. The Large scale Renewable Energy Target (LRET) and the Small scale Renewable Energy Scheme (SRES). For small scale renewable energy systems installed from 1 January 2011 under the SRES, the certificates or RECs created will also be referred to as small scale technology certificates or ‘STCs’. Certificates from large scale renewable power generation will also be referred to as large scale generation certificates or ‘LGCs’.

Solar Credits encourage householders to adopt solar power by multiplying the number of certificates that eligible installations can create, which are then converted to cash. Usually the company selling and installing the solar power system converts the RECs created for your system to cash for you, and takes the value off the purchase price of your solar power system. Basically this becomes your rebate.

However Solar Credits applies only to the first 1.5 kilowatts (kW) of capacity installed for systems connected to a main electricity grid and up to the first 20 kW of capacity for off grid systems.

The table below shows the current reduction schedule for the REC Multiplier.

rec table

This was changed on 1st December 2010 to move the multiplier forward by one year due to the widespread adoption of solar power systems. The x5 multiplier was due to last until 30th June 2012, however this will now end a year sooner in 2011. It was always planned that the Solar Credits scheme would be phased out over time, however the uptake of solar power systems in 2010 has driven the government to accelerate the process.

Source – Office of the Renewable Energy Regulator (ORER)

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What about taxation?

There is no specific taxation legislation dealing with income derived from feed in tariffs. Whether it is assessable income depends on the income producing nature of the activity. If it can be demonstrated that the system was installed with a view of making a profit, then receipts under the feed in tariff would be considered assessable income while all expenses associated with the income generating activity would be deductible (for example, depreciation).

In most cases, systems installed at domestic sites would not be taxable as they would be considered personal use / hobby (i.e. not in the nature of a business or profit making scheme). However, system owners should consult their accountant for advice or can also request a private ruling from the ATO. An example of an ATO private ruling result in relation to feed in tariffs can be viewed here

According to a May 2010 Announcement from Centrelink, feed in tariff credits where applied as a credit on an electricity account are not included in Centrelink’s income test for pensioners, but credits converted to cash payments such as a cheque or direct deposit will be. The adjusted policy applies from 14 May 2010 and is relevant to not just pensions, but all Social Security income support payments such as NewStart. We advise people who may be affected to consult with their local Centrelink Office.

Individuals will not need to pay/remit GST from their feed in tariff income. The reason being that selling electricity back to the utility providers is considered an enterprise but you need to receive $75k per annum from this source to be required to register for GST.