We assess the progress towards the 2020 Large-scale Renewable Energy Target of 33,000 gigawatt hours using five indicators related to project build (construction and capacity of new power stations) and market health (supply and demand for large-scale generation certificates).¹⁴

These indicators guide and support the findings in the annual statement (see Annual statement). While each indicator is presented separately using data from 2017, cumulative findings influence our overall findings in the annual statement.

Build indicators

These are the lead indicators in progress towards the 2020 target because they demonstrate the number of new accredited power stations that can start creating large-scale generation certificates, as well as power stations in the pipeline of construction.

We assess the status of committed and accredited large-scale renewable energy power stations as on track—the indicators are within modelled and acceptable parameters.

Indicator 1: Committed projects—on track

This year has seen an unprecedented level of investment in large-scale renewable energy projects, with more capacity committed in 2017 than in any other year.

In 2016, we said that to meet the 2020 target, 6000 megawatts of new capacity was required. Since then, we have revised the required new capacity to 6400 megawatts following developments in the portfolio where solar—which has a lower capacity factor than wind—increased its market share to about 46 per cent.

Since 2016, 6535 megawatts of new capacity has been firmly announced. Of that, 4927 megawatts is fully financed, under construction or already built. Once all these projects are built, they are expected to generate in excess of 10.8 million megawatt hours per year.

We expect projects that have a power purchase agreement with a strong counterparty, to begin construction on 1608 megawatts of additional capacity in 2018.

Assuming these projects are built and obtain accreditation in 2018 or 2019, the 2020 Renewable Energy Target will be met.

Indicator 2: Accredited projects—on track

More large-scale renewable energy power stations were accredited in 2017 than in any previous year since 2001, with 124 power stations accredited and a combined capacity of 1088 megawatts.

Estimated future annual generation from accredited large-scale renewable energy power stations was 3,033,000 megawatt hours.

Market health indicators

Market health indicators relate to the supply and demand aspects of the Large-scale Renewable Energy Target market. They provide a basis for us to predict future activity based on large-scale generation certificate prices, availability of certificates in the market and the compliance rates of liable entities (electricity retailers). All these factors point to the state of the market and inform our assessment of progress towards the 2020 target.

Indicator 3: Large-scale generation certificate spot price

During 2017 the large-scale generation certificate spot price varied between $76 and $89, finishing the year slightly lower ($85.25) than it started ($86.90). The 12-week average spot price at the end of the year was $84.54.¹⁵

A relatively low proportion of certificates are traded at spot prices through brokers/intermediaries. Other trades occur either through power purchase agreements or directly between buyers and sellers which could be at prices materially differences to publicly disclosed spot prices.

There continues to be a significant difference between spot large-scale generation certificate market prices and recently reported bundled power purchase agreements. We estimate that the market will continue to operate with a surplus during 2018 and 2019, so we expect any price divergence to narrow as the market gains confidence that the 2020 target will be met and exceeded. We regularly supply information to the market to inform decision making.

This data is not publicly available.

Indicator 4: Supply and demand dynamics

Following final surrender of certificates on 14 February 2018, there was a surplus of about 9.4 million large-scale generation certificates. This year’s surplus was partly driven by some liable entities carrying forward less than 10 per cent of their liability to subsequent years. Liable entities have this option available which if fully utilised would represent significant additional supply in 2018 or 2019.

We expect large-scale generation certificate supply to increase to around 24 million certificates in 2018 and then to around 32 million in 2019. This is a significant step up from 16.9 million in 2017.

Given the surge in new project announcements, we estimate the market will continue to operate with a surplus of around five million large-scale generation certificates during 2018 and 2019.
The level of that surplus will be influenced by how quickly projects begin generating to create large-scale generation certificates.

Indicator 5: Shortfall

Similar to previous years, the vast majority of liable entities have complied with the objectives of the Renewable Energy (Electricity) Act 2000. A total of 23,203,396 large-scale generation certificates were surrendered. The on time certificate surrender rate for the Large-scale Renewable Energy Target for 2017 was 93.3 per cent, up from 89.3 per cent in 2016. This increase is a positive development.

The Renewable Energy Target allows some flexibility for electricity retailers to manage their obligations across years, and shortfalls within 10 per cent of their large-scale certificate liability for a year may be carried forward to the next year without incurring a shortfall charge.

Of the 27 electricity retailers who reported a large-scale generation certificate shortfall in 2017, a total of 22 had shortfall of greater than 10 per cent and were required to pay shortfall charges. Under the Large-scale Renewable Energy Target, entities who do not surrender at least 90 per cent of their liability are required to pay a $65 shortfall charge for each certificate not surrendered. A list of electricity retailers that did not meet their certificate surrender obligations is at Appendix C and is published on our website. See more about Renewable Energy Target liability.

Impact on electricity prices

In addition to assessing progress towards the target, we are required to report on the impact of the Large-scale Renewable Energy Target on electricity prices.

The costs of the Renewable Energy Target are imposed on electricity retailers–they are not a levy on electricity bills. The prices at which different retailers can obtain certificates does vary. For example, many large electricity retailers buy large-scale renewable energy certificates over a longer term through power purchase agreements and those are at a much lower price than current certificate spot prices that smaller retailers may purchase at.

Hence, the actual pass through costs to electricity consumers cannot be measured, it has to be modelled. We rely on the modelling undertaken by the Australian Energy Market Commission to provide estimates on the likely impact of the Large-scale Renewable Energy Target on electricity prices.

The target for the number of certificates to be surrendered increases each year until 2020, and then remains the same each year until 2030. Hence, if certificate prices remain constant, the implied cost to electricity prices will increase each year until 2020. At some point in time, spot certificate prices will be much lower than at present and it is reasonable to expect the modelled cost impact will moderate post 2020.

As noted in the annual statement (see Annual statement), according to the Australian Energy Market Commission, the Large-scale Renewable Energy Target accounted for an estimated 2.4 per cent (or an average $8.13 per quarter) of the average household electricity bill in 2017.

We estimate that this is approximately a 12 per cent increase on the previous year.

The Australian Energy Market Commission’s Residential Electricity Price Trends Report showed the additional renewable energy entering the market under the Renewable Energy Target is likely to reduce wholesale electricity costs in the National Energy Market in 2018–19 and 2019–20.

Modelled trajectory to 2020

The model we use to assess the build required to meet the target is updated progressively with the most recent data and analysis. Total supply of certificates is calculated from existing and announced projects. Total demand includes statutory demand under the Large-scale Renewable Energy Target and additional demand related to voluntary surrender of certificates including GreenPower (see Renewable Energy Target liability).

At the end of 2017, sufficient projects had been announced to meet the 2020 target. We projected that at least 1079 megawatts of new capacity was required to be financed in 2018 for the target to be met.

Based on newly updated figures, the continued investment activity we have seen in early 2018 means that generation from existing and announced projects is likely to supply sufficient large-scale generation certificates to maintain a healthy surplus in the market in 2018 and 2019, and to meet the target in 2020.

This data is not publicly available.