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Small-scale technology certificate market update - October 2018

03 October 2018

Current market observations

  • The installed capacity of small-scale PV systems has continued to accelerate during 2018. Based on current trends we estimate that 1600 megawatts (MW) in total capacity will be installed this year, a 44 per cent increase on 2017 when 1100 MW was installed.
  • Almost 5.3 million small-scale technology certificates (STCs) remained in the REC Registry following quarter two surrender on 28 July 2018. Five million STCs were held in REC Registry accounts and a further 277,000 STCs were pending clearing house sale.
  • If the STC creation rate continues to increase, the surplus is estimated to reach over 10 million following quarter four surrender and remain at a high ​level well into 2019. 
  • STC spot prices have gradually softened since mid-July, closing at $34.551 at 27 September 2018. The STC spot price was $34.902​​ at the same time last year with 5.2 million STCs held in REC Registry accounts and over 467,000 STCs pending clearing house sale​.
  • A number of recent policy announcements by state governments may further accelerate installations.

Analysis

The number and size of small-scale solar PV installations has continued to increase during 2018. Over 135,000 small-scale solar PV systems with a total capacity of 922 MW have been installed as at 27 September 2018. This amounts to a 28 per cent increase in number of installations and a 47 per cent increase in total capacity compared to the same period last year.

Due to these trends we have revised our estimates for the 2018 calendar year. We now estimate that a total capacity of 1600 MW will be installed this year. This is an increase on our May 2018 projection of 1400 MW. If installations continue at the current rate, 2018 will be another record-breaking year for new small-scale solar PV capacity with a 44 per cent increase on the previous record set in 2017. These projections do not take into consideration the potential impact of the recent announcements by state governments. 

There have been over 33,000 solar water heater systems (including air source heat pumps) installed as at 27 September 2018. The overall number of installations in 2018 is expected to remain stable compared with recent years.

Second quarter surrender for 2018 occurred on 28 July 2018, accounting for 25 per cent of the year’s total liability (around 7.3 million STCs). Following surrender, over 5.3 million STCs remained in REC Registry accounts and the clearing house.

The average weekly STC creation rate has consistently been well above the rate required by the 2018 small-scale technology percentage. The current weekly rate of creations is 559,000 STCs, approximately 134,000 above the rate required.

Due to the continued growth in STC creations, a material surplus is likely to remain well into 2019. We expect around 6 million surplus STCs to remain in REC Registry accounts and the clearing house following quarter three surrender and around 10 million STCs following quarter four surrender in February 2019. The graph below shows the estimated STC surplus after quarterly surrender.

Estimated STC surplus after quarterly surrender

Bar graph of estimated STC surplus after quarterly surrender from 2018

When a surplus of STCs in the market emerge​s, STCs are typically bought from the open market and trade below $40. A low rate of clearing house purchases are likely to occur during these periods; a little over 13,000 STCs were purchased via the clearing house to meet quarter two liabilities. Participants who offer STCs for sale in the clearing house should expect a delayed sale, as STCs are likely to remain there for a period of time until the supply in the broader market has diminished.

STC surplus/deficit and spot market prices from 2011

Bar graph of STC surplus/deficit and spot market prices from 2018
STC spot prices are based on end of week closing rates sourced from TFS Green. This view of pricing does not take into account daily price fluctuations.

Market background

The Small-scale Renewable Energy Scheme is a market based scheme. There are two markets for STCs: the open market, and the STC clearing house where certificate prices, for delayed sale,​ are currently set at $40 (GST exclusive). Participants should be aware that STCs are a commodity and prices will fluctuate in the open market based on the balance of supply and demand along with other factors. The Clean Energy Regulator does not regulate the open market.

The Victorian government has announced the Solar Homes program incentivising the installation of 24,000 solar PV and 6000 solar water heater systems for eligible households between 19 August 2018 to 30 June 2019. The program has been announced to extend to 650,000 eligible households over 10 years.

The South Australian government has announced a program that will offer a $100 million state-funded subsidy towards battery installations for up to 40,000 homes via their South Australia Home Battery Scheme.

For more information on supply and demand dynamics in the Small-scale Renewable Energy Scheme please see previous market updates or the Small-scale Renewable Energy Scheme page.

References

1 Data sourced from TFS Green

2 Data sourced from TFS Green

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