It's power to the people in balmy Oz

With an average of more than 300 sunny days a year, Australia is a natural hotbed for solar power. Picture / Getty Images

SYDNEY - Australian homeowners are setting the price for the Government's mandate to produce more green energy by snapping up solar water heaters and selling the credit they get to more reticent power firms.

With Australia resisting any cap-and-trade scheme or carbon emissions limits after opting out of the Kyoto Protocol, the US$100 million ($159 million) market in renewable energy certificates (RECs) is the closest the nation comes to trading green power.

About 120,000 Australians have registered solar hot water heaters to earn RECs, which can be sold to power retailers responsible for meeting the Government's mandatory renewable energy target of 9500 gigawatt hours - around 2 per cent of expected generation capacity - by 2010.

The enthusiasm for solar water heaters means the target will be reached well before time, and the growing number of users, usually selling their RECs through agents, have an unusual influence over spot REC pricing, now around A$25 ($30).

"It's quite unique to Australia that you have the small guy involved in driving the price," said David Rossiter, Australia's Renewable Energy Regulator. "They're a fast-growing group and are second only to hydro in terms of REC registration so far."

Spot REC prices have fallen around 30 per cent over the past year as retailers such as Australian Gas Light and Origin Energy invest in their own renewable generation. But analysts say long-term contract prices for RECs still range between A$20 and A$40, depending on volume and timing.

The market is minuscule compared with the multibillion-dollar European carbon credits market, which this week touched record peaks as oil prices hit highs, encouraging generators to burn more emissions-intensive cheap coal and then seek credits to meet more onerous limits than Australia's.

Around 20 per cent of the 15 million RECs generated to date have come from water heaters. But they represent a proportionately higher share of certificates in the market as hydro or wind units tend to be tied to retailers looking to expand their own RECs.

The renewable energy scheme was introduced in 2001, requiring electricity retailers to include renewables in their power portfolios or buy RECs. The value of RECs has supported a mushrooming in wind-powered generation schemes in particular. Australia's sunny days - an average of over 300 per year - and expansive spaces make it a natural hotbed for solar power.

"Our climate is very conducive to solar energy," said Bill Parker of the Australia New Zealand Solar Energy Society.

"There's a lot to be gained from harnessing passive solar potential and using the sun to heat our water and our homes."

New homes in most Australian states must now be fitted with some form of solar hot water technology, while - in addition to RECs - there are state-based price discount incentives for someone looking to install a heater in an older property.

Most systems use unobtrusive solar roof tubes or panels linked directly to hot water storage tanks.

Peter Meloy of New South Wales first fitted his roof with solar tubes, which meet all of his hot water needs, and has since moved up to a more advanced photo-voltaic system that, on sunny days, can help him generate a surplus of electricity, which he sells back to the grid.

"I never expect to pay for power again. Photo-voltaics are more expensive so they're not for everyone, but it's a talking point when you can say to friends that you actually sell electricity back into the grid," said Meloy.

But enthusiasm from homeowners dreaming of self-sufficiency has not been matched by the power industry, which remains deeply tied to dirtier - but cheaper - coal-fired plants to generate more than 80 per cent of Australia's electricity.

Uncertainty about the long-term policy on carbon emission caps as well as volatility in REC pricing can mean buying RECs, rather than directly investing in renewable generation, is the most feasible alternative for all but the largest retailers.

Last year the Government extended its renewable energy target to 2020, but it has been criticised for its refusal to raise the 9500 gigawatt threshold to reflect growing energy demand.

"The mandatory scheme was innovative," said Ian MacGill, senior lecturer at the Centre for Energy and Environmental Markets at the University of New South Wales.

"But higher targets are needed to show real commitment to renewable energy and the environment."

- REUTERS