Renewable energy market update: Not so rosy | RenewEconomy

Renewable energy market update: Not so rosy

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A long term solar agreement was a rare bright spot in a lacklustre renewables market, despite a relatively rosy outlook by the Clean Energy Regulator.

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May saw Australia’s Large-scale Generation Certificate (LGC) market edge higher on solid trade volumes. Yet perhaps the most interesting development came early in the month with the announcement of the first long term power purchase agreement for a new project not otherwise underpinned by government funding/feed-in tariffs.

Enhancing the intrigue was the fact that the project was of the solar PV variety. While some hope it is the beginning of a new paradigm, there are other who question the optimism outlined in the Clean Energy Regulator’s Annual Statement on the RET, also released in May

Large-scale Generation Certificate (LGCs)
Large-scale Generation Certificate (LGCs)

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The spot LGC market began May in the low $80s and progressed gradually to a high of $82.00 just before the middle of the month. The steady upward run then stalled and the rest of the month yielded range bound activity in the $81.30-$81.90 range.

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Reported spot trade volumes were up again slightly and were the highest since November 2015 at just north of 770k.

Calendar 17 and Calendar 18 forward markets remained active with plenty of larger volume transactions taking place across the period. The Cal 17s maintained a 2.75-3.00% escalation above the spot. As has repeatedly occurred across the last 6 months, as the spot moves higher, the curve for Cal 18 flattens, with only a modest difference in price between the Cal 17 and Cal 18 vintage prevailing.

Grabbing the headlines early in the month was the announcement of the first long term Power Purchase Agreement for a new project, a 100MW solar farm in Queensland. While the project itself is but a drop in the ocean compared to what is needed over the coming 12 months, it has at least got people talking about the rise of solar, whilst also giving a modicum of hope that a flurry more project commitment activity may be around the corner.

For its part the over-the-counter LGC market barely battered an eyelid at the announcement, with pricing continuing to imply a shortfall of LGCs in either Cal 17 (in terms of a squeeze, if not an actual shortfall) or Cal 18.

May also saw the release of the Clean Energy Regulator (CER)’s 2015 Administrative report and Annual Statement; a report card of sorts on the operation of the RET. The document contains plenty of information however the most interesting part relates to the CER’s assessment of progress toward the achievement of the 2020 target.

Now, it must be noted that the report is for the 2015 calendar year and hence does not include the subsequent 4 months of inactivity that has followed the end of last year. Nonetheless it does appear to overlook a relatively lacklustre six months following the target reduction, using the circa 400MW of new project commitments that followed (all of which having benefitted by either government funding or feed-in tariffs) as evidence of ‘adequate’ progress.

When the time comes for the 2016 Statement, maintaining such a rosy outlook will be significantly harder. Indeed the document appears to recognise this, setting out the requirement for 3000MW of new project commitments as the benchmark across 2016 in order to ensure’ satisfactory progress toward the target’. With almost half of the year already gone and only one 100MW projects down, it’s looking like the next Regulator’s statement will be considerably more grim.

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There was little of note in the STC market across May with the Clearing House remaining in deficit and trade activity modest and remaining just shy of the $40 price.

Perhaps the only thing of note was a forward strip of 10k per month Apr, Jul, Oct and January for the 2017 compliance year at $39.70 which traded later in the month.

Marco Stella is Senior Broker, Environmental Markets at TFS Green Australia. The TFS Green Australia team provides project and transactional environmental market brokerage and data services across all domestic and international renewable energy, energy efficiency and carbon markets.

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6 Comments
  1. Brad Sherman 4 years ago

    Can anyone explain to me why STC and LGC prices differ per MWh? From the atmosphere’s perspective (speaking as a research scientist in this area) what matters is reducing CO2-e emissions. In Australia 1 MWh of coal-fired electricity is pretty much 1 tonne CO2-e (20% more for brown coal, a tad less for black coal).

    Presumably we have STCs and LGCs to reduce the emission of CO2. When direct rebates on residential solar were stopped and a 5:1 multiplier on RECs offered to homeowners (like me) this surely must have distorted the intent of STCs because all the RECs issued after the change notionally represent 1 MWh of renewable power but in fact they only represent 200 kWh over the lifetime of the system.

    If this logic is correct, then a LGC of $80 should correspond to an STC of $16. But that’s in the real world of physics and chemistry. Can anyone explain why STCs are trading so much above what appears to be their underlying value?

    • David Osmond 4 years ago

      Hi Brad, there’s no longer a 5:1 multiplier in the STC market, that was progressively phased out over the last several years. It’s now 1:1. However, unlike large scale renewables, you get the certificate value up-front, up to 15 years worth. Given you get the money all upfront, there’s much less risk in the small scale scheme, plus less discounting of future value. This explains much of the difference in the value of the STC and LGC prices.

      • Giles 4 years ago

        Further to that, the STC’s have a price cap of $40. The LGC have no price cap, the reason they are trading so high at the moment ($80/MWh and above) is that the current target will likely not be met because of the policy uncertainty.

        • Brad Sherman 4 years ago

          Thanks, Giles. I still think it’s a bit weird that 1 MWh, i.e. 1 tonnes CO2-e, is priced so differently on different markets.

          • Giles 4 years ago

            Yep, and if you go overseas the CDM is pricing it at less than $1, but carbon taxes in Europe range from 30 euros to more than 100 euros. depends on the government and the importance of acting or the cost of abatement. or the price signal needed to make things cleaner. In Australia, those prices per MWh were never designed as carbon abatement prices but industry development policies, although both have been badly managed.

  2. neroden 4 years ago

    I think the best way to describe this is that the government is trying to stifle solar but is not able to because solar is cheaper than anything except wind.

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