Paying the penalty rather than submitting LGCs is allowable under the RET scheme. But the scale of ERM's penalty is bigger than previous such cases and the strategy is frowned upon by the regulator.
"Intentionally choosing to pay the renewable energy shortfall charge runs counter to encouraging generation of electricity from renewable energy sources within the electricity markets," the Clean Energy Regulator says on its website.
A spokesman for the regulator couldn't immediately comment.
But ERM voiced support for the aims of the RET. The company said it "supports the principles of the scheme and benefits of cleaner energy, having purchased millions of LGCs in recent years and having developed more than 2500 megawatts of low-emission gas-fired power generation, which will prove critical to the transition to renewables."
The RET rules oblige electricity retailers and other liable entities to cover an increasing proportion of their power with renewable energy by surrendering a number of certificates each year to the regulator. Each certificate represents 1 megawatt-hour of renewable power.
ERM's decision is not driven by a shortage of LGCs held by the company, or by a view on where LGC prices are heading, said a spokeswoman, noting that the certificates have a three-year window of life.
"It's not a statement about the RET," the spokeswoman said. "This is just a convergence of events that has led us to exercise this option."
ERM shares were down 10.3 per cent at $1.31 at 1:27 pm AEDT.
ERM said the impact of the move would be a tax charge of $37 million recognised at December 31, 2016. It doesn't change the company's earnings outlook for 2016-17, where earnings will be weighted to the second half, it added.
The company, which sells electricity to business customers, said its 2017-18 earnings outlook does not include any assumptions of a further payment of the LGC shortfall charge
