Renewable Energy Certificate (REC) prices have tumbled 10% due mainly to the uncertain political environment. This time last week REC prices were trading as high as $41. Today they’re down around $36. Other reasons cited for the fall are an oversupply of RECs coming from residential solar systems.
Posts Tagged ‘Renewable energy certificates’
RECs plummet
Wednesday, August 25th, 2010VIC Feed-in Tariff will unlock commercial solar
Saturday, July 24th, 2010There is no shortage of incentives for small-scale solar, the kind used on the roofs of residential housing. The installations attract Renewable Energy Certificates (RECs). Most installers will deduct the REC rebate from the installation cost, reducing the capital investment required by home owners. Residential solar also attracts feed-in tariffs, payments from your electricity company for any excess power your solar installation makes and feeds back into the grid. In NSW, that feed-in tariff is $0.60c per KWh. Not bad when you consider electricity retails for somewhere around $0.18c per KWh.
Until now, all States have had a cap on the size of solar installations which qualify for incentives. In NSW, only systems up to 100KW can benefit from the feed-in tariff (the average home system is usally around 1.5KW). This has barred business from joining the party. I have always had difficulty understanding the rationale of excluding business from the same incentives to adopt solar which are provided to residential users. After all, business accounts for far more electricity use than residential. Also, businesses are more inclined to make long term investments in infrastructure. Large installations are more efficient too – they attract economies of scale, giving the tax-payer more emission reductions per dollar.
That’s why Victoria’s recent announcement is such good news. VIC is going to provide a feed-in tariff for large scale solar systems. This opens up the logical opportunities for roof-top installations on shopping centres, office blocks and warehouses. The press release is light on detail. They haven’t yet stated the actual feed-in tariff amount or the cap, if any, on system sizes. But the policy direction is certainly heading the right way.
Let’s hope the other States follow suit.
Enhanced RET slips through the Senate
Friday, June 25th, 2010A major development in Australia’s renewable energy future passed quietly through the Senate yesterday, overshadowed by events in the Lower House. The Enhanced Renewable Energy Target (eRET) was unanimously approved with small changes to satisfy the different parties.
This is big news which will unlock a deadlocked development pipeline. Already, AGL has announced that its $800m McCarthur Wind Farm project is back on the table.
Amongst other things, eRET separated small scale renewable energy systems from utility scale systems, correcting a flaw in the REC market which has depressed the prices. RECs have been trading around the high $30′s whilst this issue had hung over the market. Watch them move now it has been corrected.
RECs to the rescue
Friday, April 23rd, 2010After destroying the market for renewable energy certificates (RECs) by including solar hot water installations, the Government has stepped back in. The resulting rise in prices is likely to stimulate demand for renewable energy projects, says Martin Rushe.
A one page press release issued recently from the Minister for Climate Change, Energy Efficiency and Water’s office looks inconspicuous but it could trigger the biggest surge in renewable energy investment yet seen in Australia.
The joint release from Ministers Penny Wong and Greg Combet fixed a long running problem in the renewable energy model. They announced that the Mandated Renewable Energy Target (MRET) will be split into two schemes; one for small scale renewable initiatives like solar roof panels and the other for large scale projects like wind farms and utility scale solar power stations.
The important aspect of this is the impact it has had on the price of Renewable Energy Certificates (RECs). Renewable energy generators rely on RECs to make their projects feasible. For every Mega-watt hour (MWhr) of electricity generated by a renewable energy plant, the generator is given one REC. They sell the power, most usually through the Australian Energy Market, and they also sell the REC. REC futures are now tradable on the ASX.
Wholesale electricity prices are naturally subject to change but the average price in New South Wales for 2009 was just over $50 per MWhr. The average wind farm needs at least $100 per MWhr to be profitable. That’s where the REC comes in. Two years ago RECs were trading at around $60, which means the gross revenue per MWhr for renewable generators was more like $110. Projects work. Everybody happy. Let’s abate some carbon.
But just when it looked like the Australian renewable electricity industry would blossom into life, along come a spook in the form of the appropriately named ‘phantom’ RECs.
The Federal Government, seeking quite properly to drive the small scale renewable market, decided to give RECs to installers of solar hot water heaters. Hence the ‘phantom’ title since no actual electricity is generated by a solar hot water heater.
The scheme went off like a rocket and suddenly hundreds of thousands of new RECs (of the phantom kind) were being issued. And there was the problem; demand for RECs is fixed and the Government had just stimulated supply. It wouldn’t have taken Adam Smith to predict the outcome. Prices dropped like a stone. Only a few weeks ago RECs were trading around the $35 range.
Going back to our wind farm maths; $50 for the electricity plus $35 for the REC equals $85, and we need $100 to break even. Projects don’t work. Everybody unhappy. We’re not abating any carbon.
That intercession in the REC market by the Government led directly to billions of dollars worth of projects being put on hold. Further, it raised within the industry the spectre, or phantom, of a whimsical legislative framework. When you’re building billion dollar assets with a 20-year investment plan the word whimsical is rarely welcome.
That’s why last month’s press release was so important. Remove phantom RECs from the market and logic dictates that the REC price will rise and perhaps stabilise. It also indicates to the market that the Government is watching, mindful of the issues and prepared to take action to assist this industry.
At time of writing RECs are trading around the $45 range, 28% up from the Minister’s press release and getting close to threshold price at which renewable energy projects become viable again. So to summarise the market environment: electricity demand is growing, electricity prices are rising, the requirement for renewable energy is mandated and renewable energy projects are under-supplied.
Which way do you think the value of renewable energy projects is going?