Emissions in the electricity sector are declining quickly due to rapid renewables deployment displacing thermal generation. A record 32% of electricity generated in the NEM in Q3 2021 was from renewable energy. The 2021 calendar year is likely to average around 30%, double the 15% share in 2017.

Results from the September 2021 quarter (Q3) confirm total emissions reduction from the ERF and RET schemes remain on track for an estimated 57 million tonnes carbon dioxide equivalent (CO2-e) for the calendar year - approximately 17 million tonnes from ERF and 40 million tonnes from the RET - using the conservative method that calculates the implicit avoided carbon content of renewable generation.¹

A less conservative estimate of avoided emissions from RET incentivised generation, based on estimates of the intensity of thermal generation displaced² would put total emissions reduction from the ERF and RET for this year at around 75 million tonnes CO2-e.

The 13th ERF auction held on 13 and 14 October 2021 resulted in 6.8 million ACCUs contracted under optional delivery contracts at an average price of $16.94 per ACCU. There were no fixed delivery contracts.

This confirms the market sees value in optional delivery contracts to underwrite projects while providing the flexibility to sell the ACCUs to those who need them for voluntary emissions reduction ambition or statutory obligations.

Ahead of COP26 in Glasgow, the Government announced a commitment toward net zero emissions by 2050.

ACCU supply continues to grow

New supply of ACCUs was 4.8 million units in Q3 – nearly double the supply in Q3 2020. This took total supply for the first 9 months of 2021 to 13.6 million, a 25% increase over the same period in 2020. Supply is now likely to exceed 2021 expectations of 17 million units.

The outlook for ACCU supply is positive. This quarter saw 54 new projects registered in the ERF bringing the total for the year to 145 projects, 67% higher than for the same period last year.

Two significant milestones were also achieved in Q3 – the registration of the 1000th ERF project and the issuance of the 100 millionth ACCU.

On 29 September, the new carbon capture and storage (CCS) method was made available following approval by the Minister for Industry, Energy and Emissions Reduction. The Minister also announced the 2022 priorities for ERF method development which included transport (including EV charging), hydrogen (including injection of clean hydrogen into the gas network), an integrated farm method, carbon capture use and storage, and savanna fire management.

Further information is available in Chapter 1.

Investment in large-scale renewables is trending up

As predicted in the Q2 report, Q3 was a very strong result for final investment decisions (FID) with 1.1 GW of capacity announced. This brings the 2021 total to 1.9 GW. The Clean Energy Regulator is expecting a similar level of capacity to achieve FID in Q4, likely bringing the full year total to the high end of its original 2 to 3 GW estimate and potentially exceeding the 2.7 GW from 2020.

See chapter 2 for more information.

Rooftop solar remains resilient despite Covid-19 lockdowns

Added rooftop solar capacity from the SRES for 2021 is expected to set a new record at approximately 3.2 GW as installations are expected to rebound in Q4 following easing Covid-19 restrictions.

Despite extended Covid-19 lockdowns in New South Wales, Victoria and the ACT, small-scale solar system installation held ground in Q3 with total installed capacity on par with Q3 2020.

As stated in the Q2 report, total added capacity could have exceeded 3.6 GW this year in the absence of Covid-19 lockdowns.

The Integrity Review of the Rooftop Solar PV Sector was released on 16 September 2021, along with the Government response. The report recommends major changes to the SRES to lift integrity and accountability in the rooftop solar PV sector, protect consumers and ensure emission reductions occur.

Consultation on draft amendments to regulations is expected to occur in Q4 this year.

LGC supply is strong but market balance remains tight

LGC supply increased by 9.2 million in Q3 and is expected to be in the upper end of the 37 to 40 million estimated for 2021. This means eligible generation will be close to 40,000 gigawatt hours (GWh), well above the 33,000 GWh statutory demand target.

Nevertheless, total supply and demand for LGCs is likely to remain tight to 2023, and possibly beyond, as voluntary cancellation continues to increase and 17 million LGCs are needed to claim $1 billion in shortfall charges from prior years.

LGC supply and demand is discussed further in Chapter 2.

Voluntary demand continues to grow

Total Australian carbon unit and certificate cancellations for 2021 are 2.7 million, up 24% year on year at the end of Q3. The ACT government cancellation of 2.2 million LGCs is an addition to this.

Climate Active participants contributed a significant 20% of the voluntary demand for both LGCs and ACCUs, while cancellation of LGCs for GreenPower also increased by 34% compared to 2020.³

An in-depth look at the voluntary demand market is available at chapter 4.

New carbon market initiatives gain momentum

The Australian Carbon Exchange moves to the procurement stage later this year with 13 parties shortlisted. These entities have been invited to tender for exchange trading and related market services and/or registry related services. Further information can be found on our dedicated Australian Carbon Exchange web page.

Final consultation on the pilot design of the Corporate Emissions Reduction Transparency (CERT) report was completed in October. We expect the CERT report to be launched later this year. CERT provides a framework for Australian companies (above the NGER publication threshold) to publicly report on their net emissions position and emissions reduction commitments, and progress, in a clear and consistent way. It will also support climate-related disclosures by Australian companies and give investors, shareholders and the public a clearer picture of action taken by companies to reduce net emissions.

Unit and certificate prices

ACCU spot prices increased steadily reaching $26, up $7 at the end of Q3. Trades post the end of Q3 saw the reported spot price increase to $37 in early November.

The difference between the average optional delivery contract price and the reported spot price is now around $20.

Reported spot trades during this period of material increase in price have been on relatively small volumes and reflect short term supply/demand dynamics. The Clean Energy Regulator is monitoring those trades closely in the Australian National Registry of Emissions Units (ANREU) as the over-the-counter market is relatively thin. Total ACCU holdings in ANREU accounts increased from 9.6 million at the end of Q2 to 10.9 million at the end of Q3.

Further data and analysis on this can be found in Chapter 1.

During Q3, LGC spot prices increased by $7.15, reaching $40.40—the highest price since January 2021. This matches historical patterns as electricity retailers secure supply in the lead up to the annual statutory surrender on 14 February next year.

Small-scale Technology Certificates (STC) spot prices remained stable for the quarter.

Footnotes

¹ The implicit avoided carbon content approach multiplies estimated small and large scale RET incentivised generation (megawatt hours) multiplied by the rapidly reducing average emissions intensity of all grid generation (tonnes CO2-e per megawatt hour). The avoided carbon content of renewable energy will ultimately decline as thermal generation becomes a smaller part of electricity generation.

² The thermal generation displaced approach multiplies estimated RET incentivised generation by the emissions intensity of average thermal generation (which is higher than the average emissions intensity of all grid generation).

³ This is excluding LGCs cancelled by the ACT government.

⁴ Data sourced from Jarden and TFS Green.