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STC waiting game: What it could mean for the solar industry

Rob Campbell
10

The next 10 days could be a very interesting time for the residential solar industry. STCs are firming daily, which means that liable entities are getting spooked that the market supply of STCs is shrinking. It is getting more and more likely that, if not this time around, next time a good amount of STCs will come from the clearing house.

Seventy-five per cent of all STCs sitting in the clearing house are from 2011. These are obviously now long-term nest eggs, many belonging to, or held by, ANZ bank. There is a mere 638 STCs sitting in the 2014 pile.

In general, it looks like STCs are being cycled into cash flow immediately by the solar companies. There seems to be a significant delay in approving STCs by the Rec Registry, which leads me to a possible scenario. At this point it is TOTALY HYPOTHETICAL.

This is the scenario:

The Rec-Registry drags their feet in approving STCs, probably due to the holiday season, which creates a perceived throttle in the supply chain when a surrender period is upon us. Where there would be a constant inflow of STCs into the market, there suddenly doesn’t look like there will be enough, so those who usually wait for a peak are now buying up at what they consider a premium.

As these buyers continue to buy at these high prices, the supply remains throttled. Just before the surrender period ends, the buyers find themselves short and hit the clearing house, the clearing house dips into deficit. Instantly, the clearing house is closed by the Abbot government, removing the $40 guarantee on STCs, the government has discharged it’s $40 obligations to those in the clearing house.

Once the clearing house and the ceiling (or floor depending on who you are) is gone, the government announces a moratorium on STC surrender quotas subject to the outcome of the RET review. Those still holding STCs scramble to off-load them and the price plummets, with no guarantee that they will be worth anything in future. Solar companies using STCs as a discounting tool will have no way of knowing what they will get for them, so can’t offer prices as they used to because the market is in complete flux.

This is a way to kill off the residential portion of the renewables market without stopping it overnight. It will basically be a complete gamble for the solar industry, who will cannibalise themselves. This makes way for the government to facilitate the free passage of large-scale developers, who will do exactly what the government instructs them to. Thus, the government can control the whole RET agenda, creating any figures it likes under a veil of secrecy with only a handful of players.

Again this is completely hypothetical, but if I was holding STCs, and they weren’t in the clearing house for safekeeping, I would be putting them in TODAY. Given the Abbott government’s rhetoric on small scale renewables, this scenario may become fact, not from evil intentions, but it seems to be a plausible methodology.

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Comments

10 responses to “STC waiting game: What it could mean for the solar industry”

  1. Anthony Williams Avatar
    Anthony Williams

    The government does not have an option of whether or not they publish the annual target. They are required by legislation to set the STP (Small-scale Technology Percentage) by 31 March each year. If it does not set a target, a default calculation automatically applies, which is based on previous years targets.

    1. Rob Campbell Avatar
      Rob Campbell

      My concern “hypothetically” is that the government can legislate to alter this, they can legislate anything really, the only thing they can’t legislate is something that would bring about sovereign risk. Given the bi-partisan approach to the STC multiplier we have seen in the past, it is not impossible that the STC target could be fiddled with, even if the Labor guys decided to stop everything as they seem to be doing. My point is that the intention, is enough to upset the apple cart, you only have to look at the CEFC which is a lame duck even though it is essentially still as it was legislated by the Labor government and sentiment reflects that. If you can show me how this scenario can’t happen I would be very appreciative, so would everyone who is struggling with the lower Aussie dollar and a much harder market already.

  2. Chris Fraser Avatar
    Chris Fraser

    They were bought in good faith, so there should be some protection in the value of these things. Though at 4c/kWh, it does appear that STCs are going cheap because the market value of PV output is much higher.

  3. RobS Avatar
    RobS

    “This is a way to kill off the residential portion of the renewables market without stopping it overnight.”

    Oh god, the melodrama, the current STC rebate works out to around $0.70/kW. In the last 24 months it has been cut ~$1.50, every time a cut has occurred we’ve heard gnashing of teeth and wailing that the industry will never survive. The rebate now on a 3kw system is equivalent to the value of about 1 years generation by that system, unsubsidised pay back times are still only ~7 years. The rooftop market will not be killed of by a 1 year increase in pay back times, will it see a temporary hit? probably. Will it bounce back and continue to grow, undoubtedly.

    A famous quote seems to sum it up nicely
    ” Reports of my death have been greatly exaggerated”

    1. Rob Campbell Avatar
      Rob Campbell

      It doesn’t take a scholar to work out that a $9000 system without STCs will be $3600 more expensive. With the falling Aussie dollar on top and bugger all feed ins it will be a lot more than grinding teeth. We are already struggling with 12% ROI quotes which will fall to just over 8%. It’s a much harder argument for a sale. I guess any argument makes you happy, you start plenty of ’em.

      1. RobS Avatar
        RobS

        I don’t recall starting anything I would call an argument, perhaps we have different ideas about the purpose of a discussion board. I would agree that a 5kw system currently costing ~$9,000 receives a rebate of ~$3,500. I think your quoted 12% roi is pessimistic a recent reneweconomy article suggest 18-22% is routinely achievable in Australia, my system in Tasmania is running at ~17% roi. https://reneweconomy.wpengine.com/2014/graph-of-the-day-rooftop-solar-returns-outstrip-stocks-property-34573 However I would point out that even if returns went to 8% (tax fee of course) a 8% assured return is a significantly better and safer investment than most of the alternatives.

        1. Rob Campbell Avatar
          Rob Campbell

          I agree with the fact that Domestic Solar can stand on it’s own without rebates. I come from a long history of commercial construction and I used to earn a hell of a lot less money turning over a lot more and having much higher risk. So solar as an industry is a good place to be. I just don’t want the whole RET to become the domain of the big players, it seems that if the Feds and the states, who own their distributors had their way, distributed generation would be banned and centralized renewables generation would be the go, thus preserving the the hub and spoke system that guarantees income to the states.Although our distributors are corporatized, I’d be willing to bet that those who disconnect from the grid will be forced to pay an access charge, as we do with water and sewerage, and perhaps even a tax on solar with a change in the NEM legislation.

          With ROI’s yes they are conservative, but I don’t think I am the only one resisting the need to over estimate just to pretty up a sale, I know plenty are. It is a shame that our regulators allow shonks to survive in any industry, at the expense of that industry and the public in general.

          1. RobS Avatar
            RobS

            I think much of the resentment of distributed generation which exists on the right which results in the attitude that perhaps it should be banned comes from the fact that many see it is a government subsidy dependent rort that could never survive on it’s own without the support. Industry insiders do little to minimise that argument when they cry foul about the damage removing the subsidies would do. There are a peculiar breed of righties who will illogically oppose renewables on ideological grounds forever, however I think something on the order of 80% of the opposition would evaporate if the subsidies were phased and ultimately ceased and the market kept on growing without any government dependence. In the end the majority of righties have at least some libertarian bent and as long as the solar is going up without government taxpayer subsidy and is peoples individual choice paid for themselves then the idea of charging them to NOT use a commercial service would be entirely repugnant to them.

  4. Simon Baird Avatar
    Simon Baird

    “Instantly, the clearing house is closed by the Abbot government, removing the $40 guarantee on STCs, the government has discharged it’s $40 obligations to those in the clearing house.”

    What evidence do you have that an Abbot government has the legislative power to “instantly” shut down the clearing house. My understanding is that the scheme is designed to allow the clearing house to go into deficit as a way of effectively capping the maximum value of each STC at $40 ex gst.

    1. Rob Campbell Avatar
      Rob Campbell

      I would love you to show me that it hasn’t! The CEFC has been virtually shut down without any legislation being passed at all. The governments agenda could be anything. This Hypothetical scenario, I would like to think IS impossible, but is it?

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