Australian carbon credit unit (ACCU) holdings increase with complex market dynamics at play

In the first 3 quarters of 2023, we have issued 13.2 million ACCUs with new supply of 7 million ACCUs in Q3 2023.

On the demand side, in Q3 2023, 0.7 million ACCUs were delivered against contracts to the Clean Energy Regulator (CER) and 0.4 million were non-Commonwealth cancellations, including voluntary.

This saw Australian National Registry of Emissions Units (ANREU) holdings increase by net 5.9 million to 33.5 million.

This quarter we discuss the complex market dynamics between:

  • Safeguard entity holdings growing by 2.3 million ACCUs
  • the cost containment reserve, which now holds 1.2 million ACCUs
  • fixed delivery pilot exit arrangements, which facilitate market liquidity
  • project proponent holdings growing by 2.2 million ACCUs
  • the generic ACCU spot price, which traded between $30.50 and $32.00 for much of the quarter.

Some Safeguard entities continue to buy while most are still working through their compliance strategies. Project proponents are holding for a range of reasons. This includes waiting to see the outcome of the ACCU review discussion paper consultation and anticipation of future demand, such as from Safeguard entities. The discussion paper considered if and how future fixed delivery exit arrangements may work.

The human induced regeneration (HIR) method expired under the standard sunsetting arrangements on 30 September 2023. No new projects can be registered under this method. We registered 75 HIR projects in Q3 2023 and a total of 529 are now registered. These projects will continue to generate ACCUs for the remainder of their individual crediting periods. The reported spot price for HIR ACCUs maintained its premium of about $4 over generic ACCUs during Q3 2023.

We explore these market dynamics and trends further in the ACCU chapter.

The large-scale generation certificate (LGC) market remains tight owing to growing voluntary demand

In the first 3 quarters of 2023, LGC supply was 36.5 million. New LGC supply for Q3 2023 was 12.1 million. We still expect to issue a total of 48 to 50 million LGCs in 2023.

The LGC market has 3 competing sources of demand - the renewable power percentage (RPP), cancellations for shortfall charge refunds and voluntary. To meet the 2023 RPP, 33 million LGCs must be surrendered. Some liable entities may opt to take shortfall, which will lower the number of LGCs surrendered. There are around 14 million LGCs eligible for shortfall charge refunds over the next 3 years. More than 4 million LGCs have been surrendered for refund as at November 2023. We expect about 9.5 million LGCs to be voluntarily cancelled in 2023.

Hence, in 2023 both LGC supply and demand will be at a similar level of about 48 to 50 million and an effective total market deficit of about 14.4 million LGCs remains. The LGC supply/demand balance looks to remain tight for at least the next few years.

The reported spot LGC price peaked in early July at $58.0​0 and then fell steadily to $51.75 by the end of Q3 2023. The price drifted lower to $46.50 in early November 2023.

In Q3 2023, voluntary LGC cancellations (to prove the use of renewable energy) were 2.7 million. In the first 3 quarters of 2023, 8 million LGCs were cancelled, matching our original estimate for 2023. We have now revised our 2023 voluntary cancellations estimate to 9.5 million.

Final investment decisions (FID) remain low, with 170 megawatts (MW) announced in Q3 2023. In the first 3 quarters of 2023, 696 MW reached FID. An announced expansion to the Capacity Investment Scheme (CIS) to support 23 GW of renewables should boost future FID announcements over time.

In the first 3 quarters of 2023, 1.6 GW of renewable power station capacity for LGC creation was approved. In Q3 2023, 95% of the 608 MW newly completed capacity approved was wind. We still expect to approve about 2.5 GW of renewable power station capacity for LGC creation in 2023.

Explore further analysis and insights in the LGC chapter.

Consumers continue to invest in and prepare for electrification

In Q3 2023, 813 MW of rooftop solar capacity was installed, a Q3 record. In the first 3 quarters of 2023, 2.2 GW has been installed compared to 2.3 GW for the same period in the record year of 2021. Typically, the highest capacity is installed in Q4. Hence, the 2023 total could potentially equal the 3.2 GW record set in 2021. Also, the average sized system installed was 9.3 kilowatts (kW) in Q3 2023 compared to 8.7 kW in Q3 2022.

A quarterly record of 40,000 air source heat pumps (ASHPs) were installed in Q3 2023. In the first 3 quarters of 2023, more than 101,000 ASHPs were installed, exceeding last year’s total of 87,000.

This increased number of installations is being supported by state schemes for energy efficient technology uptake in addition to support from the Small-scale Renewable Energy Scheme (SRES). Currently, ACT, NSW, SA​ and Victoria have incentives in place. In September 2023, Queensland also announced a new incentive to further support households install energy efficient systems.

At the end of September 2023, the small-scale technology certificate (STC) clearing house was in surplus of around 290,000. We saw more activity in the STC spot market following the return to surplus, as well as a slightly lower reported spot price of $39.80. Following the Q3 surrender on 28 October 2023, the STC clearing house was in deficit of 1.6 million STCs. This is the smallest post quarter deficit in 2023. We expect the market will move back to a surplus of STCs before the Q4 surrender on 14 February 2024 and will likely remain there in the short to medium term.

Read more in the STC chapter.