This market update gives the Clean Energy Regulator’s view on progress towards the 2020 target and key factors that may impact future large-scale generation certificate (LGC) supply and demand.
Sufficient projects have now been announced to meet the 2020 Renewable Energy Target. Since 1 January 2016, when the Clean Energy Regulator estimated that 6000 MW in new capacity was required to deliver the Renewable Energy Target, 6532 MW in new capacity is now firmly announced:
The 1608 MW with a PPA needs to be fully financed and built to meet the 2020 Renewable Energy Target3.
Up-to-date information on renewable energy project announcements is provided monthly on the
Large-scale Renewable Energy Target supply data page.
The number of LGCs required for surrender for both 2017 and 2018 is likely to be approximately one million certificates lower in each year than the
legislated headline target in the
Renewable Energy (Electricity) Act 2000 due to the lower than estimated relevant acquisitions (minus any exemptions) and historic exceedance of the cumulative targets by the amount of liability.
Our estimates for relevant electricity acquisitions for both 2017 and 2018 is lower than expected and the cumulative renewable energy target has historically been exceeded by the amount of liability.
After adjusting for these factors, our estimates of LGC surrender obligations for 2017 and 2018 are both approximately one million LGCs lower than the legislated targets of 26 031 GWh and 28 637 GWh for 2017 and 2018 respectively.
The Clean Energy Regulator has recently released detailed guidance on how the recommendation for how the renewable power percentage (RPP) and small-scale technology percentage (STP) will be calculated from 2018.
There will be adequate LGCs in the market to meet all 2017 surrender obligations with around 32 million LGCs registered with a 2017 or earlier vintage in REC Registry accounts by 14 February 2018.
We expect there to be around 33 million LGCs in the REC Registry prior to the 14 February 2018, including registered LGCs with both 2018, 2017 and earlier vintage. It is estimated that surrender obligations for February 2018 will be approximately 25 million LGCs. Hence, following this surrender there is likely to be a surplus of around 8 million LGCs in the market if liable entities fully surrender the estimated number of certificates4.
Liable entities’ primary obligation is to acquit liability through
certificate surrender. With disclosed LGC spot prices at around $855 and still above the shortfall charge of $65, it is possible that some liable entities will carry forward shortfall or pay the shortfall charge in 2017, as occurred in the
2016 assessment year.
Liable entities that do not fully meet their surrender obligations will be in shortfall. For large-scale generation certificates, liable entities may carry forward less than 10 per cent of their liability for a particular year without incurring a shortfall charge. If fully utilised, carry forward shortfall may reduce total aggregate demand from liable entities and increase the surplus by over 3 million LGCs between now and 2020. This demand would also be shifted into future years.
Where a liable entity does not surrender sufficient certificates, a non-tax deductible renewable energy shortfall charge of $65 per certificate not surrendered is applied. There is an option to claim a refund of the shortfall charge within three years subject to certain
If some liable entities elect to carry forward a shortfall of less than 10 per cent of their liability, or pay the shortfall charge for 2017, an equal number of LGCs will remain in the REC Registry. This will increase the level of surplus from 2017 and potentially transfer that demand into later years.
All certificate shortfalls are
published on our website and in the Renewable Energy Target Annual Statement to Parliament.
Considering the above factors, it is our view that the LGC market is likely to continue to remain in surplus through to 2020.
In addition to projects already accredited a further 60 new utility scale renewable energy power stations are expected to start generation before the end of 20196. In 2017, 1054 MW in new capacity was accredited, and based on current announcements, we expect around 2600 MW in 2018 and 2700 MW in 2019. These power stations will supply over 18 million LGCs in total during a full year of generation.
There continues to be a significant difference between spot LGC market prices and recently reported bundled PPAs. We expect this divergence to narrow as the market gains confidence that the 2020 target is on track as new LGC supply comes online in the future.
PPAs allow retailers to lock in supply of both electricity and LGCs over a longer period. The spot market price for LGCs moved within the $76 to $897 during 2017. Published PPA prices that bundle electricity and LGCs have been in the range of $60 to $80; noting that average wholesale electricity prices still seem to be moving in the $80 to $100 range.
Some large corporate energy users are entering into PPAs directly with generators to limit exposure to electricity costs and the high LGC prices passed through within electricity supply contracts with suppliers.
We have released the latest market data on the
Large-scale Renewable Energy Target market data page.
The data includes the latest December 2017 figures for LGC supply and demand.
If you have any questions please contact the
Clean Energy Regulator markets team.
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