Voluntary private and state and territory government demand

The quarter saw 1.4 million LGCs voluntarily cancelled. Excluding cancellations from the ACT government, this is the highest quarterly cancellation of LGCs since Q3 2014.

The 4.3 million LGCs voluntarily cancelled in 2021 have effectively increased LGC demand by 12% above the legislated target of 32.6 million. The Clean Energy Regulator is now expecting voluntary cancellations for 2021 to pass 5.5 million LGCs. For a detailed breakdown of voluntary cancellations, see Chapter 4 Voluntary market demand.

Removing the tax on shortfall refunds

On 13 September 2021, parliament amended the large-scale generation shortfall charge (LGSC) refunds provisions of the Renewable Energy (Electricity) Act 2000. The amendment ensures that no tax is payable when companies receive a refund of their shortfall charge. The new law categorises LGC shortfall charge refunds as non-assessable non-exempt income for all refunds received after 1 January 2019. This measure applies to refunds relating to all LGC shortfall charges including those charges already paid.

This ensures shortfall and redemption can operate as an effective liquidity mechanism. As discussed in section 2.1, supply and demand is expected to remain tight for some time despite LGC supply this year set to materially exceed statutory demand.

For further information on the process of obtaining LGSC refunds, see Refunds of large-scale generation shortfall charges under the Renewable Energy Target , and the tax treatment on the ATO’s website.

A total of 1.9 million LGCs were cancelled to recoup shortfall charge refunds worth more than $122 million in 2021. This includes 1 million LGCs that were offered to the Clean Energy Regulator before the 14 February legislative surrender. These will not impact the 2021 demand.

A further 1.8 million LGCs are still outstanding for 2018, which are likely be cancelled by February 2022 before exceeding their allowable refund period. The removal of tax on LGSC refunds will provide additional certainty for liable entities cancelling LGCs and claiming a refund.

A minimum of 2.7 million LGCs are expected to be cancelled in the 2021 compliance year to redeem shortfall charges.