Current market observations

• The Clean Energy Regulator estimates a record 2200 megawatts (MW) will be installed in 2019, higher than the previous record of 1612 MW installed in 2018.
• There is a continued trend towards the installation of larger small-scale solar PV systems.
• 39 per cent of systems installed are between 6.5-7 kilowatts (kW), compared with 21 per cent in 2018.
• Strong growth is occurring across all regions, particularly Queensland, New South Wales and Victoria (37 per cent, 41 per cent and 62 per cent respectively).
• The market is expected to remain in a material surplus.
• We expect the 2020 small-scale technology percentage (STP) to be higher than the non-binding STP of 14.56 per cent.
• The STC clearing house is unlikely to be used for any material purchases until at least quarter three in 2020.
• Approximately 10.3 million STCs were in the market as at 30 September 2019.
• The STC spot price has remained relatively stable this year with the average price sitting at $37.00. The spot price on 30 September 2019 was $37.85¹.

Quarter two surrender analysis and creation behaviour

Over 4.9 million STCs remained in the market after quarter two surrender on 28 July 2019, with 468,000 STCs pending clearing house sale.

As at 30 September 2019, over 10.3 million registered STCs were in the market with an additional 348,000 pending clearing house sale. This leaves more than enough STCs in the market to meet quarter three surrender liabilities.

The average weekly STC creation rate is currently 700,000, well above the rate required for the 2019 STP of 29.6 million STCs. If this rate continues the surplus against the STP is estimated to be between six and eight million STCs after quarter four surrender in February 2020.

Figure 1: Estimated STC surplus after quarterly surrender

Clearing house activity

The STC surplus in the market affects the length of time it may take for STCs to sell through the STC clearing house. When a surplus of STCs emerges, STCs are purchased primarily from the open market and trade below $40. Low rates of clearing house sales will occur during these periods. The last time material purchases were made through the clearing house was in May 2017.

For 2019 quarter one and two surrender liabilities, 756 STCs were purchased via the clearing house. This is down from over 135,000 STCs purchased from the clearing house for quarter one and two in 2018.

There are currently over 348,000 STCs pending clearing house sale and a further 10.3 million STCs available in the open market. We estimate the current surplus of STCs will remain in the market until quarter three in 2020, if the STC creations in 2020 reflect the estimates set by the STP modellers.

The STP is set by estimating the number of STCs to be created in a year, plus or minus adjustments for differences between previous years’ STCs creations and actual STCs surrendered. The surplus against the 2019 STP is estimated to be between 6 and 8 million STCs. If the STP modellers accurately estimate the creations for 2020 then a level of scarcity may present itself by quarter three; this is because SRES liability is front loaded in quarters one (35 per cent) and two (25 per cent)². Hence, we expect that the clearing house will remain in surplus until at least quarter three in 2020 and potentially longer if creations exceed estimates.

Installation trends

Small-scale solar PV installations continue to accelerate with a 30 per cent increase in installations and 39 per cent increase in capacity as at 30 September 2019, compared with the same period last year. This year the increase in system sizes is driven by a quadrupling of installations sized between 6.5 – 7kW. Systems in this size category represent 39 per cent of systems installed this year.

If current installation rates continue for the remainder of the year, approximately 300,000 solar PV installations with a total capacity of 2200 MW is likely to be installed. New South Wales, Queensland and Victoria continue to lead in installed capacity with the three states expected to account for over 1600³ MW of the total 2200 MW.

Figure 2: NSW, QLD and VIC capacity 2017 - 2019

State schemes are helping to increase installations and capacity, however, they are not the only driver. Short payback periods, electricity prices, low interest rates and strong consumer demand are key drivers. Falling prices reduce upfront system costs and this encourages more homeowners and businesses to choose solar PV to help meet their energy needs. As at 30 September 2019, all states and territories had an increase in installed capacity compared to the same time last year.

More information

For more information on supply and demand dynamics in the Small-scale Renewable Energy Scheme please see previous small-scale technology certificate market updates or the Small-scale Renewable Energy Scheme page.

Footnotes

¹ Data sourced from TFS Green.

² If creations run ahead of estimates then material use of the clearing house could be post-quarter three 2020, conversely if the STP is over-estimated material use of the clearing house could happen earlier in 2020.

³ Note that this estimate may not account for full amount of recent increases in Victorian rebate allocations, this may see Victoria’s share increase further.