Prices hit 5-year high as renewables market votes for certainty over ambition

The Australian renewable energy market may be about to get a massive hair-cut in the form of a reduced target, but the hope of a deal – even if it is a massive compromise – has caused a big rise in the price of renewable energy certificates in the past week.

The Abbott government – through environment minister Greg Hunt and industry minister Ian Macfarlane – have been talking up the prospect of an agreement, possibly by Easter. Any delay beyond that will push the issue into the May budget sitting.

Those comments have helped push prices of LGCs – large scale renewable energy certificates – to a 5-year high of $47/MWh on Tuesday. It is the highest price since June, 2009, when the current RET was being put together – with bipartisan support.

At those prices, combined with futures prices of the energy market spot prices (see chart below), the best and cheapest renewable energy projects will be able to get off the ground after two years of investment stagnation.

Certainly that was the indication of the ACT government auction, which secured 200MW of wind capacity at prices of $81.50/MWh to $92/MWh. South Australia, which already has nearly 50 per cent of Australia’s wind capacity, looks again to be the most promising market, price-wise.

Despite the optimism, there is no sign of compromise between the two major political parties on the main point of difference, the actual numbers for a new target. As RenewEconomy reported in late February – and which was repeated “exclusively” in News Ltd publications this week – the Abbott government has been trying to dress up its position in all sorts of ways, including a return to the old 45,000GWh target.

They arrive this by adding the expected 14,000GWh of certificates to rooftop systems to a reduced large scale target of 31,000GWH (cut from the current target of 41,000GWh).

Hunt describes his government as a “friend” to renewables, and wants to double the amount of renewables in the market. It’s nonsense, because what has not changed is his government’s desire to cut the remaining large scale target by at least 40 per cent – from 25,000GWh to less than 15,000GWh. (Remembering that around 16,000GWh has already been built).

The market response shows how desperate the industry has become for any approval at all. Pressure is coming from the unions, and the few local manufacturers, such as Keppel Prince, which constructs wind turbine towers in Portland. The wind industry is particularly keen for an agreement.

Many of the “peripheral” issues appear to have been resolved, or close to it. These include the lifting of near term targets to soak up the excess of certificates, and put pressure on retailers to lock in power purchase agreements. The aluminium industry also appears certain to get an exemption, although it needs to know by the end of this month before its obligations are locked in for 2015/16 by the industry regulator.

Hunt argued this week that its compromise – presumably on the short term targets, the exemptions, and its move from outright abolition – means that the government has gotten “two thirds” there. Labor, which has held out for at least 35,000GWh, is under pressure to strike a deal.

That’s because Macfarlane made clear that the government would be happy to let the industry stew for another two years in uncertainty, although it would be interesting to see how the politics of that played out.

Meanwhile, the share of renewable energy generation continues to trend at a two-year low, with Green Energy Markets’ latest data showing a share of just 11 per cent (not including rooftop solar).

Just two new systems were registered in February, a 150kW solar system on top of the Kalgoorlie sewerage works, and another 130kW system in the same city. The 106MW Bald Wills wind farm in Victoria, which was financed before the recent capital strike, also began generating in February.