Total demand in Q3 was 3.7 million ACCUs, 5% higher than Q3 2020 (see Figure 1.6). Commonwealth contracts remained the largest source of demand at 94%. The proportion of voluntary and state and territory demand remained stable with that observed in Q3 2020 at 6%.
The total demand from fixed delivery contracts is not anticipated to increase in line with supply. This will ensure an increasing supply of ACCUs to the secondary market. This is supported by the clear preference of bidders for optional delivery contracts at Auction 13 (see below for more detail).
Figure 1.6: Actual and estimated demand13 for ACCUs (millions), 2019 to 2021
Commonwealth demand
The total demand for ACCUs under Commonwealth contracts immediately after Auction 13 increased to 209 million tonnes. Of this, fixed delivery demand accounted for 188.2 million tonnes, while the balance of 20.8 million tonnes were optional delivery contracts. Although very small volumes of optional deliveries have been made (8,818 tonnes), in general, the Clean Energy Regulator does not expect options to be realised.
Auction 13 awarded 24 optional delivery contracts for 6.8 million ACCUs at an average price of $16.94 per tonne. There were no fixed contracts awarded. In total, 85% of the bids on offer were purchased, demonstrating that scheme participants were bidding competitively with the average price paid well below the spot price. The Clean Energy Regulator’s obligation under the law is to buy at the lowest price and will buy up the long-run supply curve, not the short run supply curve.
Optional delivery contracts de-risk and support investment in projects, while allowing project proponents to contract for delivery at a higher price with others. This can facilitate additional supply in the secondary spot market. The clear preference for optional delivery contracts highlights how Australia’s carbon market is evolving. To date, 70,000 ACCUs from projects with optional delivery contracts with the government have been sold on the secondary market.
Commonwealth demand from contracts is anticipated to consume two-thirds of the total 2021 ACCU supply of 17.3 million. Demand from fixed delivery contracts is set to increase next year. After this, contract deliveries on average remain flat over the 2022 to 2028 period at an average 13.7 million ACCUs/year before dropping significantly and tailing off.
Figure 1.7: Commonwealth delivery for current portfolio of projects (volume of ACCUs, millions), 2015 to 2033
Footnotes
13 Estimated demand is comprised of demand from scheduled delivery against Commonwealth contracts as at 30 September 2021 and estimated voluntary demand. Scheduled delivery against Commonwealth contracts include optional delivery contracts. ACCUs contracted against an optional delivery contract may not be delivered to the Commonwealth.