Progress towards the 2020 target

In 2018 it became certain that the Large-scale Renewable Energy Target of 33,000 gigawatt hours will be achieved in 2020.²

Overall findings

At the end of 2018, enough utility-scale renewables capacity was commissioned and generating, or under construction, to meet the Large-scale Renewable Energy Target in 2020.

The portion of household electricity bills attributable to the Large-scale Renewable Energy Target was $9.85 per quarter for the average household electricity bill in 2018.³

The Large-scale generation certificate spot price moderated significantly towards the end of the year from around $85.00 in January to $47.50 in December 2018 and fell further to $31.00 by mid-March 2019. This will moderate the costs to electricity retailers and should be reflected in the pass through cost to electricity bills in 2019.

Capacity

A record 3455 megawatts of constructed projects were accredited in 2018, more than triple the 1113 megawatts accredited in 2017, the previous record.

In 2017, the Clean Energy Regulator stated that 6400 megawatts would need to be commissioned between 2017 and 2019 to meet the target in 2020. This capacity will be accredited and generating ahead of schedule, around mid-2019.

Since 1 January 2016, 11,611 megawatts of new capacity has been firmly announced. Of this, 4474 megawatts has been commissioned⁴ against the 6400 megawatts required to meet the 2020 target. A further 5408 megawatts is under construction and an additional 1729 megawatts of projects hold a power purchase agreement. We would expect these projects to reach financial close and start construction in 2019.

This is due to the higher level of Large-scale renewable energy capacity build by the industry in the three years from 2017 to 2019 than the first 16 years of the scheme.

Certificate prices

Large-scale generation certificate spot prices stayed around the $85.00 mark for most of 2018 before rapidly falling to around $47.50 in December 2018 and further to $31.00 by mid-March 2019.

This fall was likely due to a combination of the market recognising the 2020 target will be materially exceeded and our updated stance on deferral of certificate liability. This position was articulated clearly in our market update published in October 2018.⁵

Once it was clear the 2020 target will be exceeded, the Clean Energy Regulator communicated to the market that we had no objections to the use of shortfall in the expectation that liable entities would true up these positions with Large-scale generation certificates in a subsequent year, as allowed for under the law.

The take up of this option by industry has likely shifted demand for certificates beyond 2020. It also brought forward and smoothed the expected fall in Large-scale generation certificate prices. This will likely reduce the impact of the Large-scale Renewable Energy Target on electricity prices in 2019 and beyond.

As a result, a healthy 7.1 million surplus of certificates remained available in the market following the annual surrender of certificates in February 2019, down from 9.4 million the previous year.

Considering lower forward contract prices, and the large increase in supply expected in 2019, the Clean Energy Regulator expects further declines in the spot certificate price in 2019.

Liability

On-time surrender of Large-scale generation certificates reduced to 86.1 per cent from 93.3 per cent in 2017 as more liable entities chose to utilise shortfall provisions. As certificate prices are falling, there will be a commercial incentive for liable entities who paid shortfall charges in 2018 or earlier to purchase certificates and redeem the shortfall charge within the allowable three-year period.

Household electricity prices

According to the Australian Energy Market Commission, the Large-scale Renewable Energy Target accounted for an estimated 2.9 per cent (or an average $9.85 per quarter) of the average household electricity bill in 2018. The Clean Energy Regulator expects the certificate spot price to continue to moderate as liquidity improves; and this should further reduce the pass through cost to electricity bills in 2019 and beyond.

Looking forward

The Clean Energy Regulator expects approximately 4000 megawatts of Large-scale capacity will be accredited in 2019, taking the total to around 8400 megawatts generating since 2017.

With the capacity of new build commencing generation in 2018 combined with the expected accreditations in 2019 and 2020, we expect generation to step up from around 22,000 gigawatt hours in 2018 to around 30,000 gigawatt hours in 2019 and 40,000 gigawatt hours in 2020.⁶

This additional renewable energy generation will deliver large reductions in greenhouse gas emissions from the electricity sector. Quarterly electricity emissions have already fallen from 53.2 Mt CO ₂-e in September 2008 to 44.1 Mt CO₂-e at end September 2018. This trend is shown in Figure 1.⁷

The current pipeline of projects that the Clean Energy Regulator is tracking suggests that we could see similar levels of capacity commissioned in 2020 and 2021 as we expect in 2019, though with less certainty.

Beyond that, the extent of the likely build is necessarily more uncertain, however, we can make observations on the factors currently at play.

The strong momentum in new firm project announcements continued in 2018 and early 2019 well beyond the point where it was clear the 2020 target would be met. Hence, it is likely that during 2018 the key driver of new announcements shifted from Renewable Energy Target incentive to commercial factors and state procurement processes.

There is evidence of an increasing number of power purchase agreements from both retailers and corporates for commercial reasons.⁸ The record level of new construction over the past two years, combined with ongoing technology cost reductions, contributed to reported costs required for new renewables projects declining materially on a per megawatt hour basis.

There is also greater diversification in the finance models of new project developers, with some international participants not needing to raise debt finance in Australia.

In relation to potential ‘headwinds’, there has been much public discussion on grid and connection constraints in a number of areas as well as changing Marginal Loss Factors⁹ impacting a number of projects as more power stations become connected in constrained parts of the grid.

Although it is clear the 2020 target will be exceeded, we will continue to track and publish the investment pipeline of firm projects to support policy considerations and planning by electricity market bodies to manage the transition. General market feedback is that the data is valued.

Quarter	Total electricity sector emissions (measured in million tonnes of carbon dioxide equivalent)	National Electricity Market emissions intensity (measured in million tonnes of carbon dioxide equivalent)
September 2008	53.2
December 2008	53.7
March 2009	52.0
June 2009	52.1
September 2009	51.0
December 2009	51.6
March 2010	51.4
June 2010	50.4
September 2010	49.4
December 2010	48.5	0.90
March 2011	49.8
June 2011	49.6
September 2011	50.4
December 2011	50.7	0.96
March 2012	50.0
June 2012	48.8
September 2012	46.2
December 2012	47.0	0.90
March 2013	46.3
June 2013	47.0
September 2013	45.6
December 2013	45.0	0.87
March 2014	46.0
June 2014	45.7
September 2014	47.0
December 2014	47.2	0.92
March 2015	47.0
June 2015	47.1
September 2015	48.2
December 2015	48.5	0.92
March 2016	48.5
June 2016	48.6
September 2016	48.1
December 2016	46.1
March 2017	47.8
June 2017	46.1
September 2017	45.2
December 2017	45.0	0.84
March 2018	45.1
June 2018	45.4
September 2018	44.1	0.77