Renewable Fuel Scheme FAQs

The Renewable Fuel Scheme (RFS) is a key action in the NSW Hydrogen Strategy to increase green hydrogen production in NSW. It was established under the NSW Energy Security Safeguard in the Electricity Supply Act 1995 (the Act) and operates as a market-based certificate scheme.

Under the scheme, renewable fuel producers can create a certificate for every gigajoule (GJ) of renewable fuel they produce. Liable parties (currently gas retailers and large gas users who do not use a retailer) must obtain and surrender certificates to meet their share of the RFS's renewable fuel production target or pay a penalty for a certificate shortfall. This creates a financial incentive to produce renewable fuel and supports projects to become commercially viable.

Currently only green hydrogen is eligible for certificate creation. The RFS's annual green hydrogen target is set in the Electricity Supply (General) Regulation 2014. The target gradually increases to 8 million GJ in 2030.

At this stage, the RFS only supports the production of green hydrogen. In August 2024, we sought feedback on whether the RFS should be expanded to additional renewable fuels and liable parties. 

We intend to lodge legislative amendments in 2025 so the RFS can commence in 2026, aligning with industry developments. These amendments are subject to government and Parliamentary processes.

The RFS target for green hydrogen in each compliance period is set out in Part 7A of the Electricity Supply (General) Regulation 2014 (see table below).

* Estimated assuming 140 tonnes per year per megawatt electrolyser capacity.

Liable parties are natural gas retailers and large users that do not purchase gas through a retailer. 

Liability towards the scheme target in a year is allocated between liable parties based on their share of total liable gas use in NSW in the previous year. Liable gas use is defined in clause 154 of Schedule 4A to the Electricity Supply Act 1995. For example, if total liable gas use in NSW in 2026 was 100 PJ and a gas retailer sold 10 PJ of gas that year, its liability would be 10% of the 2026 scheme target (i.e. 89,000 certificates, being 10% of 890,000 GJ target). 

Liable parties must comply with the obligations outlined in Part 3 of Schedule 4A to the Electricity Supply Act 1995. We intend to lodge amendments so the RFS can commence in 2026. Accordingly, the scheme regulator (IPART) does not intend to enforce compliance against the 2024 and 2025 targets.

The following timeline provides an indication of liable parties’ obligations in 2026:

• by 30 September 2026 at the latest, liable parties must report their liable gas use over the 2025 calendar year
• by 15 November 2026, IPART will sum these reported values and publish the total NSW liable gas use
• by 1 March 2027, liable parties lodge annual statements and surrender certificates.

Liability is based on gas consumption from the previous year so they can be calculated in a timely manner. There is a delay between gas use and the final reporting of gas data, with revisions occurring up to 9 months later. Using the previous year’s usage data ensures liability can be calculated within a reasonable time frame.

A penalty rate of $17.50 has been set for 2026 to 2036. We are investigating limiting this penalty rate to a green hydrogen early-mover target of up to 1 million GJ. Eligibility for this target could also be limited to projects that can start producing green hydrogen by 2028.

Policy and legislation for an early-mover target for the penalty rate and eligibility for creating certificates are expected to be announced by mid-2025 and are subject to government and Parliamentary processes. 

If a liable party does not surrender enough certificates to meet its liability, it will have a certificate shortfall. The shortfall is the difference between the party’s individual certificate target and the number of certificates it surrenders against this target. Liable parties can elect to carry forward a shortfall to the next compliance period or pay a penalty. The legislated maximum shortfall that can be carried forward is currently 10% of a liable party’s annual liability. Penalties are calculated by multiplying the number of certificates in the shortfall (after accounting for carry forwards) by the penalty rate. 

The Act allows the Government to set higher or lower carry forward percentages in the regulations. We are committed to ensuring that RFS targets are aligned with projected green hydrogen production in NSW.

To enable existing liable parties to plan for their scheme obligations, we propose to have no exemptions for 2025. In August 2024, we sought feedback on whether the RFS should have exemptions from 2026. 

Green hydrogen producers who comply with the scheme rule are eligible to create certificates. The draft scheme rule and consultation paper can be reviewed for further detail.

Certificates can be sold by accredited certificate providers, through bilateral arrangements with liable parties, or through the services of a third party. Whenever a sale or trade occurs the transfer of ownership must be registered on IPART’s online system TESSA, in accordance with the requirements of the Electricity Supply Act 1995 and the Electricity Supply (General) Regulation 2014. More information on the Registry of Certificates is available on IPART’s transferring certificates webpage.

No, there is no minimum price for RFS certificates. However, the penalty rate will act as a maximum price.

Renewable fuel certificates can only be used to meet liabilities under the RFS. They cannot be used to claim the purchase or use of green hydrogen. This eliminates the potential for double counting environmental benefits by end users and liable parties who purchase certificates for compliance purposes.

Renewable fuel certificates expire three years from the date of creation. This ensures targets are met from recently created renewable fuel certificates and provides an ongoing incentive for renewable fuel production.