LGC supply
LGC supply was 9.2 million in Q3, taking total supply for the first three quarters of 2021 to 26.4 million – a 22% increase from the same period in 2020.
Further supply growth is expected with LGC creations typically peaking in Q4 (see Figure 2.1). This is likely due to generators with a baseline creating when they exceed baselines (typically in Q4) and generators creating LGCs before the end of the year enabling these LGCs to be used against the respective year’s liability .
Q4 2021 may also see above usual level of hydro generation with the Bureau of Meteorology forecasting the November 2021 to January 2022 period is likely to be wetter than normal. This may result in increased level of LGC creations from hydro generation in Q4. As such total LGC creations for 2021 is estimated to be at the upper end of the 37 to 40 million range.
A balance of 26.2 million LGCs was held in the REC Registry at the end of the Q3.
Figure 2.1 LGCs validated by technology type (millions), March quarter 2019 to September quarter 2021
Penetration of renewables throughout Australia
While wind continues to be the leading source of renewable energy generation this quarter, the share of utility solar generation saw the biggest year on year growth with a 34% increase from Q3 2020 (see Figure 2.2). Despite this increase in generation, the renewables mix has remained relatively stable with each of the main generation sources contributing the same proportion of generation between 2020 and 2021. Generally, a reasonably even mix of wind and solar allows for less overall variability in generation, as wind often picks up at night and at other periods of poor solar generation.
Figure 2.2 Renewable generation in the NEM over the first three quarters (GWh), 2020 and 2021
Renewable generation achieved 2 significant records in Q3. On 24 September, AEMO recorded the highest level of instantaneous renewable generation ever at 61.4%.24 In addition, electricity from renewable sources accounted for 31.7% of the total NEM generation in Q3. This is the highest quarterly renewable generation on record, beating the previous record of 30.5% from Q4 2020 and more than double the 15% renewable generation from 2017.
With more renewable capacity introduced into the grid, Australia’s emissions intensity of generation is declining. Figure 2.3 shows the impact of the rapid uptake of renewables on the emission intensity of Australia’s electricity generation. During 2018-2020, an average of 6 GW of renewable energy was added to the grid annually, with the emissions intensity (combined NEM and SWIS) falling from 0.79 t CO2-e/MWh in 2017 to 0.66 t CO2-e/MWh in 2021 (as at end of Q3). This decline will continue as more renewable generators come online and as fossil fuel generators exit.
Figure 2.3 Annual renewable generation (TWh) by fuel type against national emissions intensity (t CO2-e/MWh), 2005 to 2021
* as at 18 October 2021
Unlocking future supply
As stated in the Q1 QCMR, Australia led the developed world in renewable energy capacity installed per capita from 2018 to 2020, with Australia’s solar capacity more than double its wind capacity. Australia’s wind uptake ranked 4th globally from 2018 to 2020, with 180W per capita, behind Norway, Sweden and Ireland.
As shown in figure 2.1 above, wind generation accounted for 37% of Australia’s renewable generation in 2021. Nonetheless, there is significant potential to further scale up wind generation with offshore wind currently an untapped resource.25 Globally, the United Kingdom is leading offshore wind uptake with 10.4 GW capacity installed by the end of 2020. China had the largest uptake in recent years, accounting for half of the 6.1 GW of offshore wind added globally in 2020. With Australian wind resources comparable to the United Kingdom and China, there is a lot of potential for a high value offshore wind sector in Australia, particularly along the southern and western coastline. This could help energy security and emissions reductions goals.
To facilitate offshore wind uptake, the Australian Government introduced the
Offshore Electricity Infrastructure Bill 2021 to the Parliament in September. The legislation will streamline the construction, operation, maintenance and decommissioning of offshore energy projects around Australia. This will reduce regulatory burden and help several projects that are already under development to advance, including ‘Star of the South’ off the coast of Gippsland, Victoria and Marinus Link. At its full capacity of 2.2 GW, the ‘Star of the South’ alone could contribute as much as 20% of Victoria’s electricity needs.29
Accreditation - approval for eligibility for LGCs
A total of 603 MW of new large-scale renewable energy capacity has been approved in Q3. Bango wind farm stage 1 (159 MW) located between Yass and Boorowa in New South Wales was the largest power station approved. Stage 2 of Bango wind farm is expected to add another 44 MW capacity, with generation anticipated to begin in early 2022.30
Over the first nine months of 2021, 184 power stations have been approved with a capacity of 1.16 GW (see Table 2.2). In comparison, 2.7 GW were approved over the same period in 2020. This reduction in accredited capacity in 2021 is partly due to the timing of accreditation for several utility scale power stations, which were expected to come online early in 2021, but commenced generation in late 2020.
At the end of Q3, 85 accreditation applications remained on hand with a combined capacity of 1.4 GW. The Clean Energy Regulator still expects approximately 2 GW of large-scale capacity will be approved in 2021. While this is lower than the 4 GW approved in 2020, approved capacity is expected to increase in 2022 and future years as the pipeline of projects with FID remains strong (see next section).
Table 2.2 Power station accreditation capacity (MW) and count by state, 2021 to date
| State | Capacity (MW) | Count |
|---|
| NSW | 437.3 | 62 |
|---|
| VIC | 351.3 | 46 |
|---|
| QLD | 162.7 | 23 |
|---|
| WA | 76.1 | 9 |
|---|
| SA | 67.5 | 31 |
|---|
| NT | 60.8 | 8 |
|---|
| ACT | 1.5 | 2 |
|---|
| TAS | 1.0 | 3 |
|---|
| Total | 1158.2 | 184 |
|---|
Figure 2.4 Wind and solar power stations accredited capacity by location, September quarter 2021 and scheme to-date
Committed and probable projects
Final investment decision expectations for 2021
Q3 saw a total of 1113 MW final investment decision (FID) announcements, an increase from the 725 MW in Q2 and 44 MW in Q1. In 2021, a total of 1.9 GW has reached FID, resulting in a rolling 4-quarter average of 622 MW (see Figure 2.5). This reinforces that no meaningful trend can be drawn from quarterly investment data.
Based on market intelligence, total capacity reaching FID in Q4 is expected to be at a similar level to Q3; and prospects for Q1 next year look positive. Total FID for 2021 is expected to exceed the 2.7 GW achieved in 2020 and 2.1 GW in 2019 and be at the upper end of the 2 to 3 GW range predicted at the start of the year. It does look like an increasing trend may be forming.
However, given the commercial nature of these transactions they are inherently difficult to predict. The Clean Energy Regulator will continue to monitor and report on FID results.
Figure 2.5 Capacity committed per quarter and four quarter moving average (MW), March quarter 2016 to September quarter 2021
Projects with a PPA
While no project was added to the probable (PPA) pipeline in Q3 2021, 607 MW advanced from probable to committed status where the project also has development approvals and has reached FID. The total probable pipeline now stands at 2.9 GW. With a joint probable and committed pipeline of 7.3 GW, prospects for the renewable energy industry over the next few years look positive.
AEMO reports 1GW of NEM registrations in the quarter
The Australian Energy Market Operator (AEMO)
State of the System reports 6 generators with a total capacity of 953 MW were registered on the main grid in Q3.3132This includes 2 big battery storage systems – Neoen and Tesla’s Big Battery in Victoria and the Wandoan battery in Queensland. Installation of these two big battery systems and South Australia’s synchronous condensers will provide a greater level of support for asynchronous generators, such as wind and solar farms, allowing them to generate at a higher capacity. Notably, South Australia’s wind generation has been increased to a maximum of 1900 MW.33 This will facilitate further LGC supply in future years.
Footnotes
22 Liable entities can only surrender certificates that were created in the assessment year or earlier. This is referred to as the vintage rule. To surrender additional certificates related to an amendment of an energy acquisition statement, liable entities will need to ensure the certificates were created in the REC Registry in the year the electricity was acquired (or earlier years).
23Australian climate outlooks (bom.gov.au), statement issued 28 October 2021
24AEMO | Quarterly Energy Dynamics (QED)
25Wind Energy | Geoscience Australia (ga.gov.au)
26Global Wind Report 2021 - Global Wind Energy Council (gwec.net)
27Regulating offshore renewable energy | Department of Industry, Science, Energy and Resources
28Introducing legislation to unlock investment in offshore energy projects | Ministers for the Department of Industry, Science, Energy and Resources
29Benefits — Star of the South
30https://cwprenewables.com/our-projects/bango-wind-farm
31AEMO | State of the System update.
32 Capacity registered with AEMO is different to the capacity accredited by the Clean Energy Regulator as these are separate processes. AEMO registration includes batteries, which are not eligible systems under the LRET.
33AEMO | Market Notices