Renewable energy market update: Not so rosy

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

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.

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.

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.