CER-ORER modelling-report-acil-tasman-0311 by Carlo Botto

Small-scale Technology Certificates Data Modelling Updated projection for calendar years 2011, 2012 and 2013

Prepared for the Office of the Renewable Energy Regulator

March 2011

Reliance and Disclaimer The professional analysis and advice in this report has been prepared by ACIL Tasman for the exclusive use of the party or parties to whom it is addressed (the addressee) and for the purposes specified in it. This report is supplied in good faith and reflects the knowledge, expertise and experience of the consultants involved. The report must not be published, quoted or disseminated to any other party without ACIL Tasmanâ&#x20AC;&#x2122;s prior written consent. ACIL Tasman accepts no responsibility whatsoever for any loss occasioned by any person acting or refraining from action as a result of reliance on the report, other than the addressee. In conducting the analysis in this report ACIL Tasman has endeavoured to use what it considers is the best information available at the date of publication, including information supplied by the addressee. Unless stated otherwise, ACIL Tasman does not warrant the accuracy of any forecast or prediction in the report. Although ACIL Tasman exercises reasonable care when making forecasts or predictions, factors in the process, such as future market behaviour, are inherently uncertain and cannot be forecast or predicted reliably. ACIL Tasman shall not be liable in respect of any claim arising out of the failure of a client investment to perform to the advantage of the client or to the advantage of the client to the degree suggested or assumed in any advice or forecast given by ACIL Tasman.

ACIL Tasman Pty Ltd ABN 68 102 652 148 Internet www.aciltasman.com.au

Melbourne (Head Office)

Level 4, 114 William Street Melbourne VIC 3000 Telephone (+61 3) 9604 4400 Facsimile (+61 3) 9604 4455 Email melbourne@aciltasman.com.au

Brisbane

Level 15, 127 Creek Street Brisbane QLD 4000 GPO Box 32 Brisbane QLD 4001 Telephone (+61 7) 3009 8700 Facsimile (+61 7) 3009 8799 Email brisbane@aciltasman.com.au

Canberra

Level 1, 33 Ainslie Place Canberra City ACT 2600 GPO Box 1322 Canberra ACT 2601 Telephone (+61 2) 6103 8200 Facsimile (+61 2) 6103 8233 Email canberra@aciltasman.com.au

Perth

Centa Building C2, 118 Railway Street West Perth WA 6005 Telephone (+61 8) 9449 9600 Facsimile (+61 8) 9322 3955 Email perth@aciltasman.com.au

Sydney Darwin

GPO Box 908 Darwin NT 0801 Email

darwin@aciltasman.com.au

PO Box 1554 Double Bay NSW 1360 Telephone (+61 2) 9389 7842 Facsimile (+61 2) 8080 8142 Email sydney@aciltasman.com.au

For information on this report Please contact: Guy Dundas Telephone (02) 6103 8213 Mobile 0405 169 116 Email g.dundas@aciltasman.com.au

Contributing team members: Owen Kelp

Small-scale Technology Certificates Data Modelling

Contents 1

Introduction

2 Methodology overview 2.1 Scenarios 2.1.1 SGU scenarios 2.1.2 SWH scenarios 2.2 Analysis of financial returns from SGUs 2.3 SWH projection 2.4 Analysis of historic REC/STC creation data

6 8 8 8 9 9 11 12

3 Analysis of financial return on SGUs

3.1 Government assistance to SGUs 3.1.1 Solar Credits 3.1.2 Feed-in tariffs 3.2 System size 3.3 System costs 3.4 Retail electricity prices

13 13 14 18 19 20

4 SGU projection 4.1 Observed installation rates 4.1.1 Estimations of lag in REC/STC creation 4.1.2 Implied recent installation rates 4.2 Assumed installation rates 4.2.1 New South Wales 4.2.2 Queensland 4.2.3 Victoria 4.2.4 Western Australia 4.2.5 South Australia 4.2.6 System size 4.2.7 Eligibility for Solar Credits 4.2.8 Deeming periods 4.2.9 Location of installations 4.2.10 LGC creation by SGUs 4.3 Results

5 SWH projection 5.1 Trends in recent data 5.1.1 Lag rates 5.1.2 Recent installation rates

22 22 22 24 25 27 28 29 30 31 32 33 34 34 35 35

38 38 38 40 iii

Small-scale Technology Certificates Data Modelling

5.2 Projection assumptions 5.2.1 RECs/STCs per install 5.2.2 Installations in new buildings 5.2.3 Installations of replacement water heaters 5.3 Projection results

6 Conclusion

42 42 43 45 46

A SGU assistance

A-1

B SWH assistance

B-1

List of figures Figure 1 Portion of RECs/STCs created by technology Figure 2 Historic REC prices 2006-2010 Figure 3 System size trends Figure 4 SGU observed and implied installation rates – 2010 Figure 5 NSW installation rates and discounted financial returns: both scenarios Figure 6 Queensland installation rates and discounted financial returns comparison: both scenarios Figure 7 Victorian installation rates and discounted financial returns comparison: FiT continuation and FiT reduction scenarios Figure 8 Western Australian installation rates and discounted financial returns comparison: both scenarios Figure 9 South Australian installation rates and discounted financial returns comparison: FiT continuation and FiT reduction scenarios Figure 10 Installations receiving Solar Credits (by installation date) Figure 11 Observed or implied installation rates – replacement water heaters Figure 12 Observed or implied installation rates – water heaters in new buildings Figure 13 Observed or implied installation rates – all SWH installations List of tables Table 1 Assumed Solar Credits multiplier Table 2 Assumed Solar Credits multiplier Table 3 Major Australian solar PV feed-in tariffs Table 4 Micro-wind, micro-hydro and solar PV comparison, 2001-2010 Table 5 Assumed lag in STC creation by SGUs over projection period Table 6 SGU installations rates Table 7 Assumed system sizes Table 8 Location of 2010 solar PV installations Table 9 Projected STC creation by SGUs – by year of installation Table 10 Projected STC creation by SGUs – by year of certificate creation Table 11 Assumed lag in STC creation by SWHs over projection period – replacement installations Table 12 Assumed lag in STC creation by SWHs over projection period – new building installations Table 13 2010 STCs/SWH installation – replacement units Table 14 2010 STCs/SWH installation – new buildings

8 14 19 25 28 29 30 31 32 34 40 41 41

9 14 17 22 23 24 33 35 36 37 39 39 43 43 iv

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Table 15 Table 16 Table 17 Table 18 Table 19 Table 20 Table 21 Table 22

Assumed SWH penetration in new separate houses Assumed monthly housing completions Assumed replacement installations/month Projected STC creation by SWHs – by year of installation Projected STC creation by SWHs – by year of certificate creation Projected total STC creation – by year of certificate creation Major Australian solar PV feed-in tariffs State/Territory SWH incentives and rebates

44 45 46 46 47 48 A-7 B-3

Small-scale Technology Certificates Data Modelling

Introduction

ACIL Tasman was commissioned by the Office of the Renewable Energy Regulator (ORER) to update our November 2010 projection of the likely rate of creation of ‘Small-scale Technology Certificates’, or STCs, under the Commonwealth Government’s Small-scale Renewable Energy Scheme (SRES). This analysis focuses on STC creation rates for calendar years 2012 and 2013, but also revisits estimates for calendar year 2011 due to the interaction of STC creation in consecutive years (primarily due to lags between the installation of STC eligible technologies and STC creation by those installations). The SRES commenced operation on 1 January 2011. The SRES supports the take up of ‘Small Generation Units’ (SGUs), particularly solar photovoltaic (PV) systems, and solar water heaters (SWHs) by households and businesses by requiring wholesale purchasers of electricity to purchase and surrender STCs, which can only be created by owners of SGUs and SWHs or agents assigned STC creation rights by the owner. The SRES is an ‘uncapped’ scheme, meaning that the wholesale purchasers of electricity must collectively purchase however many STCs are created in proportion to their overall electricity purchases in a given period (subject to some exemptions and true-up provisions that are not material to this analysis). STCs are available for purchase and sale through a clearing house managed by ORER at a legislated fixed price (presently $40/STC), but do trade bilaterally at prices of slightly less than $40. To ensure that liable entities purchase an appropriate amount of STCs each quarter, the responsible Minister must publish a ‘small-scale technology percentage’ in advance that represents the likely rate of STC creation as a proportion of all sales of electricity that are treated as ‘relevant acquisitions’ (less exemptions) under the SRES. This defines the quantity of STCs that liable parties must surrender at the relevant surrender deadlines. This update differs from the November 2010 analysis in that this projection is intended to assist ORER to satisfy section 40B of the Renewable Energy (Electricity) Act 2001 by publishing a non-binding estimate of the small-scale technology percentage by 31 March 2011 for the following two calendar years. By contrast, the November 2010 projection was an input to ORER advice to the Minister in support of the regulation making process that set the 2011 small-scale technology percentage. The high-level methodology used in this updated projection is set out in section 2. The assumptions used in our analysis of financial returns from SGUs Introduction

Small-scale Technology Certificates Data Modelling

are set out in section 3, whilst our projection for SGUs is set out in section 4. The projection for SWHs is set out in section 5. Overall results are summarised in section 6.

Introduction

Small-scale Technology Certificates Data Modelling

Methodology overview

2.1

Scenarios

2.1.1

SGU scenarios

Recent increases in the uptake of SGUs have dramatically increased the portion of STCs (historically, RECs) from small-scale sources created by SGUs rather than SWHs (see Figure 1). Figure 1

Portion of RECs/STCs created by technology

2008

2009

2010

SGUs SWHs

Note: 2010 REC/STC creation data is complete to early March 2011. Data source: ORER.

In turn, projections of future STC creation rates are strongly driven by outcomes in the SGU market. Accordingly, ACIL Tasman’s projection of STC creation rates by SGUs covers two scenarios to capture the potential for policy changes relating to SGUs to affect overall outcomes. The two scenarios modelled capture different potential applications of feed-in tariff (FiT) policies in various States and Territories, specifically Victoria and South Australia. Whilst the feed-in tariffs in place in those jurisdictions have pre-announced capacity caps (100 MW and 60 MW respectively), these caps are discretionary and may or may not be applied. Therefore, one of the two scenarios considered is a ‘FiT continuation’ scenario capturing the situation where neither of these discretionary caps are applied. However, as both of these schemes are close to reaching their caps, we have also considered the situation where the feed-in tariff is not available to new installations once the capacity installed since the commencement of the feed-in tariff exceeds the pre-announced capacity cap. Whilst these feed-in tariffs are available to systems installed before their start (1 July 2008 in South Australia and 1 November 2009 in Victoria), it was considered impractical for the scheme caps to be strictly enforced at the pre-announced levels given the present levels of installations and the likely delay between announcing the application of a cap and the actual closing of applications. Methodology overview

Small-scale Technology Certificates Data Modelling

This scenario is referred to as the ‘FiT reduction’ scenario. However, we note that it is possible that other jurisdictions will cap or otherwise alter their feed-in tariffs over the projection period, which would be likely lead to projected outcomes different to those considered here. For both scenarios we hold constant the ‘Solar Credits’ multiplier that applies to STCs created by SGUs. Solar Credits are additional STCs (previously RECs) that SGUs can create from their first 1.5 kilowatts of generating capacity. The additional STCs represent an increased up-front subsidy to the installation of SGUs, and therefore a strong support to take-up of these technologies. From the inception of the Solar Credits policy in June 2009 to the present the Solar Credits multiplier has remained at 5 (meaning that SGU capacity up to 1.5 kilowatts creates 5 RECs/STCs for every 1 it would have created in the absence of the policy). However, as announced by the Minister for Climate Change and Energy Efficiency, the Hon Greg Combet MP, on 1 December 2010, the Solar Credits multiplier will reduce to 4 from 1 July 2011 and future policy decisions will affect the rate at which the multiplier reduces from that time. The Solar Credits multiplier assumptions used in both scenarios for this analysis are provided in Table 1 below. Table 1

Assumed Solar Credits multiplier

Assumed Solar Credits Multiplier

To 30 June 2011

1 July 2011 to 30 June 2012

1 July 2012 to 30 June 2013

1 July 2013 to 30 June 2014

1 July 2014 onwards

Data source: Renewable Energy (Electricity) Regulations 2001.

2.1.2

SWH scenarios

The Solar Credits multiplier does not apply to SWHs but, reflecting the potential for variation in installation and STC creation rates from this technology, ACIL Tasman has made two (upper and lower) estimates for SWHs. Although the two SWH scenarios are largely independent of the SGU scenarios (and may even work in opposing directions, where higher take up of solar PV leads to lower take up SWHs), the ‘upper SWH estimate’ and a ‘lower SWH estimate’ can be considered in combination with the two SGU scenarios to give an indication of the bounds of STC creation outcomes.

2.2

Analysis of financial returns from SGUs

Small-scale Technology Certificates Data Modelling

the full system life for PV systems of various sizes in each State under each scenario. This methodology has been adopted as a means of capturing potential changes in a range of variables that will affect the attractiveness of SGUs to households and businesses, and therefore likely SGU installation and STC creation rates. This analysis requires calculation of, amongst other things: • •

System cost (upfront) Any upfront rebates (e.g. Solar Credits) that reduce the ‘out of pocket’ costs of the system

•

The avoided electricity costs of the system (representing a saving to the owner of the system) Payments for electricity exported to the grid Payments for own consumption of electricity associated with gross feed-in tariffs.

• •

In turn, this financial analysis has required ACIL Tasman to make assumptions relating to, amongst other things: • • • • •

Solar Credits policy settings Feed-in tariff policy settings Electricity prices (including carbon pricing) System costs Trends in relation to system size.

Details about the various assumptions made in this financial analysis are set out in section 3. The authors also note that a range of factors other than those listed above will affect household and business decisions to install solar PV systems. Many of these factors are not easily quantifiable, such as environmental attitudes, marketing and ‘word-of-mouth’ responses to the experiences of friends and family. Nevertheless, it is still reasonable to project future installation rates for this technology as being related to the financial attractiveness of the systems, even if the decision-making process of the households and businesses making the decision is not directly or exclusively financial. A couple of critical assumptions are worth noting here (though they are discussed in more detail in section 3 below). Firstly, unlike in our November 2010 projection, ACIL Tasman has not taken into account the potential for State and Territory governments to apply caps or Methodology overview

Small-scale Technology Certificates Data Modelling

otherwise change feed-in tariff policies compared to the policies as presently in place (other than the variation in the application of pre-announced capacity caps in Victoria and South Australia discussed above). This assumption supports higher overall SGU installation and STC creation rates than in our November 2010 estimation as we do not, for example, consider policy changes to cap the presently uncapped Queensland and Western Australian feed-in tariffs, and less variation between the scenarios than between our higher and lower estimates in the earlier projection. Secondly, we have assumed that retail electricity prices, and therefore the attractiveness of solar PV systems, are affected by the introduction of a carbon price from 1 July 2012, consistent with the 24 February 2011 announcement by members of the Australian Parliament’s Multi-Party Climate Change Committee to this effect. As the level of the announced carbon price is not yet known, we have assumed a carbon price of $20/tonne CO2-e in 2012-13, increasing at 4% above inflation from that point.

2.3

SWH projection

An analysis of the financial attractiveness of SWHs is more complicated than for SGUs. This is for a range of reasons, including: •

A water heater is effectively an essential piece of equipment for each household, meaning that decisions to install a new system are often related to the failure and replacement of an old system, or the construction of a new dwelling

•

A great variety of water heating technologies are available, including traditional electric storage heaters (which in turn may use standard price ‘peak’ electricity or cheaper ‘off-peak’ electricity), gas storage heaters and instantaneous gas heaters (each of which could use reticulated natural gas or bottled liquefied petroleum gas) and either gas or electric ‘boosted’ SWHs. This makes analysing the financial trade-offs available in any given circumstance difficult

•

Unlike electricity, where excess solar generation can be fed back to the grid, there is no accessible ‘market’ for unused solar-heated water: this means that individual user consumption patterns affect the financial attractiveness of these systems substantially.

In light of these considerations, ACIL Tasman has adopted a simpler stock model approach for projecting SWH installation and STC creation rates. This approach attempts to clearly distinguish between new building and replacement water heaters and discern the different driving trends (including construction trends and regulatory measures) affecting these different markets.

Methodology overview

Small-scale Technology Certificates Data Modelling

2.4

Analysis of historic REC/STC creation data

As for our November 2010 projection, ORER has provided ACIL Tasman with access to a comprehensive database of REC/STC creation data at the installation level and including information including REC/STC creation by date, installation date, installation location and system size. This data was current to early March 2011. Whilst there is some difficulty in using recent REC/STC creation data due to the lag between system installation and certificate creation, the authors consider that the extended data set usefully captures a sufficiently extended period of relatively stable policy conditions (i.e. an extended period of NSW, Victorian, Queensland and South Australian feed-in tariffs operating in parallel with the Solar Credits scheme), sufficient to provide a suitable reference point for estimating likely installation rates over 2012 and 2013.

Methodology overview

Small-scale Technology Certificates Data Modelling

Analysis of financial return on SGUs

To analyse the financial attractiveness of SGUs (particularly solar PV systems), ACIL Tasman has estimated the payback period in years, undiscounted financial return over the full system life, and discounted financial return over the full system life for PV systems in each State under the two scenarios. This chapter outlines a range of key assumptions used in this analysis.

3.1

Government assistance to SGUs

Assistance to SGUs has increased significantly over recent years and is a crucial driver of the financial attractiveness of these systems to households and businesses as reflected in our payback analysis. The detailed description of key changes to the various Commonwealth and State/Territory level subsidies to SGUs is provided in Appendix A. 3.1.1

Solar Credits

The Solar Credits policy affects STC creation rates in two important ways. Firstly, the Solar Credits policy affects the rate of STC creation for any given level of SGU installation, as it affects the number of STCs any single installation can create. Secondly, the Solar Credits policy affects the financial attractiveness of SGUs, and therefore SGU installation rates. Given these two interrelated effects, assumptions made in regard to this policy are critical to this projection. The transition from the Solar Homes and Communities Plan (SHCP) cash rebate for solar PV systems to the Solar Credits policy is fully complete. Installations that received the SHCP rebate had to be completed by July 2010 (see Appendix A.1.2 for more detail). Accordingly, almost all installations occurring after this date are eligible to receive Solar Credits (transitional arrangements for the SHCP provided that applications for that program were not also eligible to also create Solar Credits). Consequently our financial analysis has focused exclusively on payback levels for installations receiving Solar Credits (noting that a small portion of installations occurring over the projection period may not receive Solar Credits, and that a portion of installations occurring in the historic analysis period did not receive Solar Credits). As discussed in section 2.1.1 above, ACIL Tasman analysed financial returns (and STC creation rates) under the current Solar Credits multiplier policy sequence, which is set out again for completeness in Table 2. Analysis of financial return on SGUs

Small-scale Technology Certificates Data Modelling

Table 2

Assumed Solar Credits multiplier To 30 June 2011

1 July 2011 to 30 June 2012

1 July 2012 to 30 June 2013

1 July 2013 to 30 June 2014

1 July 2014 onwards

Solar Credits Multiplier Data source: ORER.

Also of importance to analysing the historical financial value of the Solar Credits policy to SGUs is the level of the REC price for the period to 1 January 2011, and its level in comparison with the fixed (legislated) STC price of $40/certificate having effect for installations occurring after 1 January 2011. For simplicity we have assumed that STCs have a value of $40/certificate (nominal dollars) for the entire projection period, although we note that they do trade below this level outside of the ORER Clearing House (NextGen was quoting an STC price of $39.10/certificate on 10 March 20111). REC prices for the period 2008 to 2010 are shown below in Figure 2. This captures the steady decline in the REC price towards the end of 2010 as high levels of solar PV installation tended to exacerbate the existing bank of certificates and depress price expectations. Figure 2

Historic REC prices 2006-2010

$60

$50

Spot REC price

$40

$30

$20

$10

Oct 2010

Jul 2010

Apr 2010

Jan 2010

Oct 2009

Jul 2009

Apr 2009

Jan 2009

Oct 2008

Jul 2008

Apr 2008

Jan 2008

Data source: AFMA Environmental Products Curve (mean of mids, excluding outliers).

3.1.2

Feed-in tariffs

Many State and Territory governments in Australia have implemented â&#x20AC;&#x2DC;feed-in tariffsâ&#x20AC;&#x2122; to support the take-up of small scale solar PV systems. A feed-in tariff entitles a household or business that installs a small-scale PV unit to earn a

www.nges.com.au

Analysis of financial return on SGUs

Small-scale Technology Certificates Data Modelling

premium rate for the electricity they export to the grid (i.e. ‘feed in’ to the grid). This premium rate subsidises the installation of PV units by offsetting the owner’s up-front cost of purchasing a system more rapidly than if they were simply being paid the standard retail rate for electricity for their exported electricity. Some feed-in tariffs work on a ‘gross’ basis, where all electricity generated by the unit receives the premium rate, not just that which is fed in to the grid. This is a more generous arrangement for the owner and results in the unit’s upfront capital cost being paid back faster. More typically feed-in tariffs operate on a ‘net’ basis where the unit owner only receives the feed-in tariff on the amount of electricity exported to the grid (i.e. not including household consumption). Full detail about present feed-in tariff policy settings are provided in Appendix A.2, but some key issues are highlighted below. NSW Solar Bonus Scheme

The original NSW Solar Bonus Scheme, consisting of a 60 cents/kWh gross feed-in tariff, was closed as of 27 October 2010 and replaced with a 20 cents/kWh gross feed-in tariff. However, transitional arrangements provided that customers who had already entered a binding agreement to purchase a system were given until 18 November 2010 to apply to receive the original 60 cents/kWh tariff. In turn, it will take some time for installations that result from these applications to physically occur. As a result, it is likely that elevated installation rates observed in NSW through late 2010 will continue well into 2011 as the backlog of installations is worked through. Based on information released by the NSW Government, we understand that total applications to the Solar Bonus Scheme (both 60 cent and 20 cent tariff rates) have reached 326 MW as of 31 December 2010, whilst installations have reached 163 MW2. This indicates that the total installed capacity in NSW will approximately double over the course of 2011 as this backlog is worked through. As the Solar Bonus Scheme has a total cap of 300 MW, we have interpreted the NSW Government announcements to mean that, assuming 300 MW out of the 326 MW of applications are found to be valid, the scheme is effectively closed to new applicants and the 20 cents/kWh gross feed-in tariff will not be

http://www.industry.nsw.gov.au/energy/sustainable/renewable/solar/solarscheme/faq#Scheme-capacity (accessed 25 February 2011).

Analysis of financial return on SGUs

Small-scale Technology Certificates Data Modelling

available to new applicants beyond those already committed. In turn, this implies that the extremely elevated installation rates of late 2010 will continue only as long as it takes to physically deliver the backlog of Solar Bonus Scheme applications. For this reason, ACIL Tasman’s financial analysis looks at the financial attractiveness of systems receiving the 60 cents/kWh gross feed-in tariff through to around the middle of 2011, by which time we anticipate the backlog will have been largely delivered. Due to the likely closing of the scheme for either the 20 cents/kWh or the 60 cents/kWh tariffs, ACIL Tasman has assumed that installations occurring in NSW after September 2011 will not receive a feed-in tariff, but will instead receive the variable component of the retail electricity price for exports (see section 3.4). Victorian premium feed-in tariff

The incoming Victorian Government has not announced any formal changes to the Victorian premium feed-in tariff, and indicated as part of its election platform that it would ‘strongly support feed-in tariffs that provide a fair reward and encourage the supply of renewable and low emissions energy into the grid’3. In its election policy it also indicated that it would direct the Victorian Competition and Efficiency Commission to inquire into and report on the design and implementation of a gross feed-in tariff scheme. Given the Victorian scheme is nearing its (discretionary) capacity cap of 100 MW, ACIL Tasman has considered two potential policy outcomes in relation to this scheme: • •

The continuation of the feed-in tariff throughout the projection period in the FiT Continuation scenario The closing of the feed-in tariff to new applications once installations since 1 November 2009 reach 100 MW under the FiT reduction scenario (which we project will occur during the fourth quarter of 2011).

South Australian Solar Feed-in Scheme

It is too early to fully assess the impact of the recent increase to the South Australian Solar Feed-in Scheme on installation rates in that State. However, this policy is taken into account in our payback analysis and reflected in our projections.

http://www.vicnats.com/policies/CoalitionPlan/Energy%20and%20Resources.pdf

Analysis of financial return on SGUs

Small-scale Technology Certificates Data Modelling

The South Australian Government has also announced a (discretionary) 60 MW capacity cap on its feed-in tariff scheme. Our analysis of ORER data indicates that this cap is likely to be reached in the near future. Given this, ACIL Tasman has considered two potential policy outcomes in relation to this scheme: â&#x20AC;˘

The continuation of the feed-in tariff throughout the projection period in the FiT Continuation scenario

â&#x20AC;˘

The closing of the feed-in tariff to new applications once installations since 1 July 2008 reach 60 MW under the FiT reduction scenario (which we project will occur during the second quarter of 2011).

Western Australian Feed-in Tariff Scheme

The historical data provided by ORER does not clearly show the impact of the introduction of the Western Australian Feed-in Tariff Scheme on installation rates in that State due to lag effects in the data and the recent (August 2010) introduction of the scheme. However, this effect of this policy is taken into account in our analysis of the financial attractiveness of SGUs over the projection period, and therefore in our STC creation projection. ACT Feed-in tariff Scheme

In March 2011 the ACT Government received advice from the Independent Competition and Regulatory Commission that its present 45.7 cents/kWh gross feed-in tariff should be reduced to 39 cents/kWh. However, the Government has not formally responded to this advice. Accordingly, we have assumed that the present policy settings will remain in place over the projection period. Summary

A summary of assumptions made in relation to major State and Territory feedin tariffs for the financial analysis is provided in Table 3 below. Table 3

Jurisdiction

Major Australian solar PV feed-in tariffs

Basis

Rate (cents/ kWh)

Scheme start

Tariff paid until

Availability in FiT continuation scenario

Availability in FiT reduction scenario

Gross

1 January 2010

December 2016

To Q2 2011 inclusive

Gross

28/10/2010

December 2016

Q3 2011 only

Net

1 November 2009

October 2024

Available throughout projection

Ends in Q4 2011

NSW

Victoria

Analysis of financial return on SGUs

Small-scale Technology Certificates Data Modelling

Jurisdiction

Basis

Rate (cents/ kWh)

Queensland

Net

1 July 2008

June 2028

Available throughout projection

South Australia

Net

1 July 2008

June 2028

Available throughout projection

Ends in Q2 2011

Western Australia

Net

47 or 58.94*

1 August 2010

10 years from installation

Available throughout projection

Gross

45.7

1 March 2009

20 years from installation

Available throughout projection

ACT

Scheme start

Tariff paid until

Availability in FiT continuation scenario

Availability in FiT reduction scenario

* 47 cents/kWh applies for customers in the Synergy supply area; 58.94 cents/kWh applies in the Horizon supply area, consisting of the combined Solar Feed-in Scheme and Renewable Energy Buyback Scheme rates. These rates are subject to change. Note: all feed-in tariff rates are expressed in nominal terms.

3.2

System size

The financial return per kilowatt of installed PV capacity will vary by system size for a range of reasons including variation in installed system cost, the structure of the Solar Credits policy, caps or restrictions on feed-in tariffs, and variations in export rates according to system size. For this reason, assumptions about system size are important to this type of financial analysis. ACIL Tasmanâ&#x20AC;&#x2122;s assessment of the variation of system sizes across recent installations indicates that system size trends have largely stabilised in response to recent policy settings and reductions in system costs. Figure 3 below shows that a distinct change in PV system size emerged around the middle of 2009, with the change from the SHCP to the Solar Credits policy likely contributing to a strong increase in the rate of installation of systems of 1.5 kilowatts or more. The introduction of various feed-in tariffs over that time is also likely to have contributed to an increase in system size. However, Figure 3 also demonstrates that this trend has largely stabilised, with the majority of installed capacity now coming from systems sized between 1.5 and 3 kW.

Analysis of financial return on SGUs

Small-scale Technology Certificates Data Modelling

Figure 3

System size trends

100% 5 kW or greater

Share of installed capacity

90% 80%

3 to 5 kW

70% 60%

2 to 3 kW

50% 40%

1.5 to 2 kW

30% < 1.5 kW

20% 10% 0%

Data source: ORER

Whilst further changes in system size could be postulated over the projection period, we have assumed for simplicity that State-by-State trends in system size will largely remain constant at levels observed over the second half of 2010. A crucial part of the financial analysis of SGUs was to weight the financial variables modelled (e.g. payback period, discounted financial return and undiscounted return) in accordance with the proportion that these systems are installed in any given location. The discounted and undiscounted return for PV systems of a given size were â&#x20AC;&#x2DC;normalisedâ&#x20AC;&#x2122; to a per kilowatt financial return estimate. These normalised per kilowatt financial returns were then weighted according to the proportion of total installed capacity in that location that is of a comparable size. This weighting approach ensures that financial return estimates are appropriately driven by changes to the cost and return of the most common system sizes.

3.3

System costs

The scope of this financial analysis did not provide for a detailed analysis of PV system cost trends. Accordingly, the authors have drawn on publicly available sources where possible to inform the likely financial return of PV systems over time.

Analysis of financial return on SGUs

Small-scale Technology Certificates Data Modelling

A comprehensive review of system cost trends was undertaken in 2010 by AECOM for the NSW Government’s Solar Bonus Scheme review4. ACIL Tasman inferred a broad cost trend from Figure 3.8 in this report, whilst adjusting for likely variations in system size (with smaller systems incurring higher installation costs per kW and minimum inverter costs) and the effects of inflation. Installation costs were differentiated slightly by State, with WA incurring higher installation costs due to higher labour costs in that State.

3.4

Retail electricity prices

To estimate the value of retail electricity charges avoided by owners of PV systems, this financial analysis has required detailed examination of network cost trends, the level and incidence of costs associated with the LRET and SRES, wholesale energy costs, retail portfolio hedging costs, retail operating costs, unique charges (e.g. the Victorian smart meters charge) and retail margins. As noted in section 2.2, ACIL Tasman has assumed the introduction of a $20/tonne CO2-e carbon price in 1 July 2012, escalating at 4% in real terms per year. The effect of this carbon price on wholesale electricity prices was not explicitly modelled, but rather translated through assumed ‘pass-through’ factors estimated at a State level. ACIL Tasman has drawn on the study of pass-through rates undertaken by the Department of Climate Change and Energy Efficiency in the 2008 Carbon Pollution Reduction Scheme White Paper. For the period 2012-2020, ACIL Tasman has adopted the average 20102020 pass-through rates set out in Table 12.2 of that document, with these pass-through rates declining at 2% per year after 2020. Retail portfolio hedging costs were estimated from analysis of volatility in price trends in each energy market region, and the correlation of small customer load profiles (based on analysis of historic ‘net system load profiles’ published by the Australian Energy Market Operator) with price in each market region. Network costs materially affect future retail price trends. The allocation of costs between customer classes in each State or network region was estimated through analysis of published network tariffs for different user types in each location. Cost increases were estimated from revenue allowances and load growth trends set out in network determinations approved by the Australian Energy Regulator or the Economic Regulatory Authority of Western Australia.

http://www.industry.nsw.gov.au/__data/assets/pdf_file/0016/360142/AECOM-REPORTfor-Solar-Bonus-Scheme-Review.pdf

Analysis of financial return on SGUs

Small-scale Technology Certificates Data Modelling

A portion of the bills of energy consumers takes the form of a fixed supply charge, and so cannot be avoided by producing electricity on-site using solar PV. For modelling purposes we have estimated the financial return to PV owners as amounting to 90% of their retail cost in any given period, based on analysis of the typical ratio of fixed to variable bill components for small customers (this ratio would be significantly different for larger energy users). We note that whilst the true variable portion of the cost of supplying small electricity consumers is likely to be far smaller than this, and therefore the economic benefit of substituting grid supplied electricity for distributed PV generation is likely to be over-estimated by this approach, it is a reasonable approximation of the financial benefit to customers based on present bill structures. Finally, it is worth noting that we have assumed that, where a feed-in tariff is not available, consumers are paid the full variable component of their retail electricity tariff for any electricity they export to the grid. Given that much of the cost of supplying a consumer is effectively fixed, this approach may not reflect the true economic benefit of own-generation, but appears a reasonable assumption given the recent efforts of governments to ensure a return to owners of PV systems. At this time it seems unlikely that governments would allow retailers to pay substantially less than the variable component of the retail price of electricity for PV exports. For example, jurisdictions such as Victoria and Tasmania have introduced mechanisms that effectively guarantee that PV exports will earn the variable component of the retail tariff. In effect we have assumed that other jurisdictions will introduce similar mechanisms in the event that their feed-in tariffs cease to be available.

Analysis of financial return on SGUs

Small-scale Technology Certificates Data Modelling

SGU projection

As for our November 2010 projection, this update examines likely STC creation by all SGUs. However, the historic portion of REC creation by microhydro and micro-wind generators is sufficiently small that one can focus entirely on trends in the solar PV sector to discern likely future trends. This is illustrated by comparing the total rate of installations, REC creation and capacity installed by the three SGU types, as set out in Table 4. Table 4

Micro-wind, micro-hydro and solar PV comparison, 2001-2010

Technology

Installations

RECs created

Capacity installed (kW)

Micro-hydro

611

Micro-wind Solar PV

357

14,606

1,003

281,300

24,372,093

509,074

Data source: ORER.

Accordingly, the discussion below generally uses the terms SGU and solar PV interchangeably, and trends analysed are exclusively through reference to solar PV policy settings.

4.1

Observed installation rates

4.1.1

Estimations of lag in REC/STC creation

As noted in our November 2010 projection, one challenge in projecting future STC creation rates is making reliable estimates of recent installation rates and REC/STC creation rates. This is because the primary data source in this area, the database complied by ORER and made available to ACIL Tasman to support this projection, relies on the REC/STC creation process to provide information about installation date, location, size and other factors. The inherent lag between installation and REC/STC creation means that this data set is only complete around one year after a given period has ended. Accordingly, a close analysis of lag rates is crucial to inform both our understanding of recent history and also our projection for 2012 and 2013. Our estimates of lag rates were derived by firstly examining the observed REC creation rate for installations occurring in the most recent month for which complete REC creation data is available, i.e. the installation month ending one year before the data set was finalised. As the data set was current as of early March 2011, we took February 2010 as being this â&#x20AC;&#x2DC;completeâ&#x20AC;&#x2122; data set.

SGU projection

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For installations that occurred in February 2010, the rate of REC/STC creation for each of the 12 months after installation can be directly observed. However, for installations occurring in more recent months this rate may need to be inferred or assumed from earlier data. For installations that occurred in March 2010, we took the data set for RECs created within 11 months of installation as complete and inferred the likely rate of REC creation in the 12th month from the February 2010 data. To infer April 2010 installation rates we drew on both the observed STC creation rate in 12th month after installation for February 2010 installations, and the observed STC creation rate in the 11th month for March 2010 installations. This process was continued for more recent months to estimate an implied â&#x20AC;&#x2DC;underlyingâ&#x20AC;&#x2122; installation rate for the 2010 calendar year from the REC creation data over the same period. Rates for each of the 12 months were averaged across the observed and inferred 2010 data set and then smoothed. This analysis suggests lag rates as set out in Table 5 below. Table 5

Assumed lag in STC creation by SGUs over projection period SGU installations creating RECs/STCs in the nth month after installation

February 2010

Observed/ inferred 2010 average

56.2%

61.6%

61.5%

19.6%

18.3%

18.25%

79.75%

10.4%

6.8%

6.75%

86.5%

5.3%

3.7%

3.75%

90.25%

2.6%

2.5%

92.75%

2.3%

1.6%

1.75%

94.5%

0.9%

2.2%

1.75%

96.25%

0.5%

1.3%

1.5%

97.75%

0.6%

0.75%

98.5%

0.6%

0.5%

99%

0.4%

0.5%

99.5%

0.5%

0.6%

0.5%

100%

Months (n)

Assumed (smoothed) lag

Assumed lag (cumulative)

Note: Totals may not add due to rounding. Data source: ORER; ACIL Tasman assumptions.

It is worth noting that, after an increase in observed lag rates through 2009, REC creation has tended to follow installation more promptly during 2010. Assuming there have been no rapid changes in lag rates that are too recent to be picked up by the methodology we have adopted, this would indicate that we are able to make more reliable estimates of recent installation rates and therefore of likely installation rates over 2011 and into the projection period.

SGU projection

Small-scale Technology Certificates Data Modelling

4.1.2

Implied recent installation rates

ACIL Tasmanâ&#x20AC;&#x2122;s analysis indicates that installation rates of PV units have increased strongly right up until, and including, the most recent data available (whilst initial data for December 2010 indicates some reduction, this may be compounded by the incomplete nature of the data set and seasonal factors affecting installation rates and REC processing times over this period). To allow for a meaningful analysis of the most recent data available whist allowing for the lag effect noted above, ACIL Tasman has focused on the number of installations where RECs have been created within 60 days of installation. This allows reasonably robust comparisons to be made with data from as late as December 2010 and data from earlier months. Table 6 shows national installation rates for each month since January 2010, both in absolute terms, and comparing installations where RECs were created within 60 days (to allow comparison with more recent months). Finally, the table illustrates an â&#x20AC;&#x2DC;impliedâ&#x20AC;&#x2122; installation rate for recent months based on the assumed lag factors in Table 5 above. The reader may note that the percentage of installations creating RECs within 60 days tends to increase in recent periods: this is because more recent installations that will ultimately create RECs more than, say, 150 days after installation have, by definition, not yet done so. Put another way, when looking at a period of time that started less than 60 days ago, 100% of observed REC creation will occur within 60 days. As further REC creation occurs, this percentage will fall to the true level. Accordingly, the reader should note that the numbers in red in the table below can be misleading: these percentages must decrease as further RECs are created by installations undertaken in those months. Table 6

SGU installations rates

Installs (total)

Installs (RECs created within 60 days)

% of installs with RECs created within 60 days

Assumed % of installs creating RECs within 60 days

January 2010

8,404

6,073

72.3%

72%

8,404

February 2010

10,275

7,785

75.8%

76%

10,275

March 2010

13,127

10,198

77.7%

77%

13,180

April 2010

13,226

10,696

80.9%

80%

13,332

May 2010

16,423

13,245

80.6%

80%

16,626

June 2010

17,213

14,459

84.0%

83%

17,523

July 2010

15,223

13,170

86.5%

84%

15,728

August 2010

15,167

12,947

85.4%

80%

16,141

September 2010

15,417

13,550

87.9%

82%

16,520

Month

SGU projection

Implied install rate

Small-scale Technology Certificates Data Modelling

Installs (total)

Installs (RECs created within 60 days)

% of installs with RECs created within 60 days

Assumed % of installs creating RECs within 60 days

Implied install rate

October 2010

17,488

15,877

90.8%

83%

19,146

November 2010

18,879

16,947

89.8%

80%

21,131

December 2010

12,240

11,425

93.3%

82%

13,984

Month

Note: The red figures for „Installs (RECs created within 60 days)‟ are potentially misleading, as the full year of REC creation data is not available. Data source: ORER.

This same data is illustrated in Figure 4 below. Whilst there is a significant drop off in December 2010 installations, this effect is likely to be at least partly seasonal (i.e. the effect of public holidays and other holiday commitments during this time). Confirming this, January 2011 installation data to date, although not fully comparable to 2010 data and therefore not presented here, indicate strong take up rates closer in magnitude to November 2010 rates. Figure 4

SGU observed and implied installation rates – 2010

Installations per month

25,000

Installs (RECs created)

20,000 15,000 10,000

5,000 0

Installs (RECs created within 60 days) Implied underlying installation rate

Data source: ACIL Tasman manipulation of ORER data.

4.2

Assumed installation rates

Around 97% of SGU installations have occurred in the States of New South Wales, Queensland, Victoria, Western Australia and South Australia since 2001. Accordingly, likely installation rates (and therefore STC creation rates), can be

SGU projection

Small-scale Technology Certificates Data Modelling

analysed substantially through understanding financial returns to potential solar PV system owners in these five States. ACIL Tasman has manipulated payback and financial return estimates over 2010, 2011 and the projection period to infer estimated installation rates in each of these five States. The primary financial return variable analysed was a discounted financial return per kilowatt to system owners. The discounted variable was adopted as it was considered to offer a stronger representation of household responses to shortterm and longer-term incentives for PV installation. Whilst households may not apply a formal process of discounting in any financial analysis, the general desire of this consumer sector for short payback times and reduced out-ofpocket expenses indicates the value of using a discounted rather than an undiscounted financial return as the primary variable for analysis. The financial return was calculated on a per kilowatt basis to allow clearer comparison between jurisdictions (e.g. in the event that average system sizes vary) and to create a single comparable variable to estimate the financial return of a range of system sizes (see section 3.2). To allow a clear visual comparison with assumed installation rates, the figures presented for each State below show an ‘indexed’ discounted financial return series alongside assumed installation rates. The indexing is used to present changes in the discounted financial payback from an index base that is set as equal to the average underlying installation rate for each State over the second half of 2010. It is also important to note that, in some cases (particularly Victoria), discounted paybacks can fluctuate between being slightly negative (i.e. on a discounted basis the system has a negative financial return to the owner) and slightly positive. To prevent small changes in financial return being presented as very significant relative changes, and to capture the fact that some consumers still purchase PV systems when discounted returns are negative (as they were in most locations up until around the end of 2008), the discounted financial return has been set as the return above -$2000 per kilowatt in net present value terms. This value was chosen because a discounted loss of $2000 per kilowatt appears to be around the threshold above which ‘mass market’ PV installations appear to increase rapidly. Based on our analysis of historic financial returns this threshold was reached around the end of 2008 at which time PV installation rates rapidly increased. A final general point about the assumed relationship between financial returns and installation rates is relevant: whilst feed-in tariff eligibility has typically been defined by the time of application to join the scheme (as witnessed by the back SGU projection

Small-scale Technology Certificates Data Modelling

log of applications in NSW), eligibility for a certain number of RECs or STCs under the Solar Credits policy is defined in relation to the date of installation. Accordingly, mass market solar PV suppliers are assumed to react quickly (in practice, through applying foresight) to changes to the Solar Credits multiplier. If solar PV suppliers were to offer pre-determined â&#x20AC;&#x2DC;out of pocketâ&#x20AC;&#x2122; quotes to consumers expressed as a dollar amount, and the installation were to occur after the change in multiplier, the supplier would bear the financial cost of failing to achieve the installation during the period of the higher multiplier. As a result, we would expect to see solar PV suppliers alter their out of pocket quotes to consumers in advance of the change in multiplier taking effect. This being the case, it is reasonable to assume that the installation rate response to changes in the Solar Credits multiplier will be rapid. 4.2.1

New South Wales

Installation rates in NSW are likely to remain elevated throughout much of 2011 as a result of the generous 2010 Solar Bonus Scheme policy settings and the lag between these being committed and installed. As most installations currently occurring can reasonably be assumed to be receiving the 60 cents/kWh gross feed-in tariff, it is somewhat difficult to discern the likely reaction of consumers to the absence of the feed-in tariff in future. For these purposes, we assumed elevated installation rates (and financial returns reflecting the original Solar Bonus Scheme policy settings) until the back log of installations, estimated at around 160 MW as of 1 January 2011, is worked through. It is likely that the industry will operate at close to recent maximum installation rates in NSW until this backlog is worked through. Figure 5 shows the projected installation rate for both the FiT continuation and FiT reduction scenario (as there is no different in NSW policy between these two scenarios, these installation rates stay constant across the two scenarios). The projection suggests sustained high installations rates well into 2011, with a substantial drop in projected installation rates as discounted financial returns decline from the third quarter of 2011. This decline primarily reflects the absence of further installations with the ability to access the 60 cents/kWh feed-in tariff, compounded by the reduction of the Solar Credits multiplier from 1 July 2011.

SGU projection

Small-scale Technology Certificates Data Modelling

NSW installation rates and discounted financial returns: both scenarios

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

Installations per month - both scenarios (LHS)

Indexed discounted financial return both scenarios (RHS)

2013

2012

2011

2010

Index of financial return

Installations per month

Figure 5

Source: ACIL Tasman analysis

4.2.2

Queensland

Unlike New South Wales, we have assumed that the Queensland feed-in tariff remains available throughout the projection period (reflecting its design as an uncapped scheme), supporting sustained financial returns to solar PV owners and therefore high installation rates. However, as in NSW, Solar Credits and feed-in tariff policies do not change between the FiT continuation and FiT reduction scenarios, resulting in the same installation rate projection for each scenario. The maintenance of the feed-in tariff results in only a modest projected reduction in installation rates over the projection period, from a peak of around 6,000/month expected in early 2011 to just over 4,000/month by the end of the projection period. Figure 6 illustrates this trend.

SGU projection

Small-scale Technology Certificates Data Modelling

Queensland installation rates and discounted financial returns comparison: both scenarios

7,000

6,000

5,000

4,000

3,000

2,000

1,000

Installations per month - both scenarios (LHS)

Indexed discounted financial return both scenarios (RHS)

2013

2012

2011

2010

Index of financial return

Installations per month

Figure 6

Source: ACIL Tasman analysis

4.2.3

Victoria

Financial returns to solar PV systems have historically been lower per capita than in other States due to the poorer solar resource, which is reflected in a lower zone rating, reduced REC/STC creation and lower energy production. This means that the discounted financial return fluctuates quite significantly in response to factors such as the REC price (and its transition to the $40/certificate STC price), and changes in Solar Credits policy settings. This sensitivity has led us to project a material reduction in solar PV installation in Victoria over the projection period, particularly in response to the capping of the feed-in tariff under the FiT reduction scenario. From a peak projected installation rate during 2011 of around 3,500/month, Victorian installation rates are projected to decline to under 2,500/month by the end of the projection period under the FiT continuation scenario, or further to around 1,000/month under the FiT reduction scenario. This reduction is illustrated in Figure 7.

SGU projection

Small-scale Technology Certificates Data Modelling

Victorian installation rates and discounted financial returns comparison: FiT continuation and FiT reduction scenarios

4,000

3,500

3,000

2,500

2,000

1,500

1,000

500

Installations per month - FiT reduction case (LHS)

Indexed discounted financial return - FiT continuation case (RHS)

Indexed discounted financial return - FiT reduction case (RHS)

2013

2012

2011

2010

Installations per month - FiT continuation case (LHS)

Index of financial return

Installations per month

Figure 7

Source: ACIL Tasman analysis

4.2.4

Western Australia

The Western Australian Governmentâ&#x20AC;&#x2122;s recent introduction of a 40 cents/kWh feed-in tariff (in combination with WAâ&#x20AC;&#x2122;s Renewable Energy Buyback Scheme) supports improving financial returns to solar PV systems in that State through 2011. Further, as in Queensland, we have assumed that the WA feed-in tariff remains available in both the FiT continuation and FiT reduction scenarios. Financial returns to solar PV systems decline modestly with the assumed progressive reduction in the Solar Credits multiplier, such that, from an absolute peak of around 2,500 installations per month, WA rates are projected to remain above or around 2,000/month over the entire projection period. This is illustrated in Figure 8 (as Solar Credits policy settings remain constant across the two scenarios, we have projected the same installation rate for both scenarios).

SGU projection

Small-scale Technology Certificates Data Modelling

Western Australian installation rates and discounted financial returns comparison: both scenarios

3,000

2,500

2,000

1,500

1,000

500

Index of financial return

Installations per month

Figure 8

Installations per month - both scenarios (LHS)

Indexed discounted financial return both scenarios (RHS)

500

2013

2012

2011

2010

Source: ACIL Tasman analysis

4.2.5

South Australia

The increase in the South Australian feed-in tariff to 54 cents/kWh as of August 2010, in combination with the late 2010 REC price of around $3035/certificate transitioning to the $40/certificate STC price from 1 January 2011, means that financial returns to solar PV systems in that State peak in early 2011. Accordingly, we project a peak installation rate of around 2,000/month to be reached over coming months. Under the FiT continuation scenario, where the South Australian feed-in tariff remains in operations, financial returns and installation rates are projected to decline only modestly over the projection period, reflecting the progressive reduction of the Solar Credits multiplier. Under this scenario, installation rates remain above 1,500/month for the entire projection period. However, under the FiT reduction scenario, financial returns and installations rates are projected to reduce to a greater extent during 2011 and 2012, resulting in installation rates approaching 1,000/month in late 2013. SGU projection

Small-scale Technology Certificates Data Modelling

This reduction is illustrated in Figure 9. Figure 9

South Australian installation rates and discounted financial returns comparison: FiT continuation and FiT reduction scenarios

2,500

2,500 Installations per month - FiT continuation case (LHS)

2,000

1,500

1,000

500

Index of financial return

Installations per month

2,000

Installations per month - FiT reduction case (LHS)

Indexed discounted financial return - FiT continuation case (RHS)

500 Indexed discounted financial return - FiT reduction case (RHS)

2013

2012

2011

2010

Source: ACIL Tasman analysis

4.2.6

System size

As noted above in section 3.2, the relative portion of system sizes has tended to stabilise under present policy settings. Although future changes to policy settings may cause these to change over the projection period, ACIL Tasman has assumed that recent system size averages will be largely maintained over the projection period. Whilst the progressive reduction of the Solar Credits multiplier tends to reduce the difference in financial attractiveness of systems of above and below 1.5 kW in capacity, any changes resulting from this trend are likely to be offset by reductions in the cost per watt of PV modules, and the corresponding increase in meter, inverter and installation costs as a share of total system cost. This tends to create certain economies of scale and reduce the attractiveness of very small systems over time.

SGU projection

Small-scale Technology Certificates Data Modelling

Accordingly, our STC projection adopted the average system size assumptions set out in Table 7. Table 7

Assumed system sizes

% of units equal to or above 1.5 kW

Average size of units equal to or above 1.5 kW (kW)

NSW

85%

Queensland

75%

Victoria

% of units below 1.5 kW

Average size of units below 1.5 kW (kW)

Average unit size (kW)

2.4

15%

1.2

2.2

2.3

25%

1.3

2.1

85%

2.1

15%

1.2

2.0

85%

2.4

15%

1.1

2.2

85%

2.4

15%

1.1

2.2

Tasmania

75%

2.2

25%

1.2

2.0

75%

2.5

25%

1.2

2.2

ACT

85%

2.5

15%

1.1

2.3

Location

Data source: ACIL Tasman assumptions.

4.2.7

Eligibility for Solar Credits

Our analysis of historic REC creation data supplied by ORER suggests that close to 100% of SGU installations presently receive Solar Credits. Whilst a portion of systems may be ruled to be ineligible (e.g. due to participation in the National Solar Schools Program or the Renewable Remote Power Generation Program), recent data suggests close to 100% access to Solar Credits (as illustrated in Figure 10). Nevertheless, we have assumed 97% eligibility for Solar Credits over the projection period to reflect the potential that over-lapping programs may cause some installations to be ineligible for Solar Credits.

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Installations receiving Solar Credits (by installation date)

December 2010

October 2010

November 2010

September 2010

August 2010

July 2010

June 2010

May 2010

April 2010

March 2010

February 2010

January 2010

December 2009

October 2009

November 2009

September 2009

August 2009

July 2009

100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%

June 2009

Portion of all installations

Figure 10

Data source: ORER.

4.2.8

Deeming periods

Solar Credits are only able to be created once, whether for a deemed period of one year, five years or 15 years, strongly discouraging the use of one year and five year deeming periods. This is reflected in the historical data: since the start of 2010, the portion of all SGUs opting for 15 year deeming periods has averaged 99% in each month. For simplicity we have assumed 100% use of the 15-year deeming period throughout the projection period. 4.2.9

Location of installations

Solar PV locations in areas with different levels of solar irradiation can create STCs at different rates. The Renewable Energy (Electricity) Regulations 2001 provides for four zones, with Zones 1 and 2 having higher solar irradiation, and therefore STC creation per kW installed, than Zones 3 and 4. For the purpose of this analysis ACIL Tasman has assumed that the zonal location of installations in each State remain constant at the observed average 2010 level over the projection period. These assumptions are set out below.

SGU projection

Small-scale Technology Certificates Data Modelling

Table 8

Location of 2010 solar PV installations Zone 1 installations

Zone 2 installations

Zone 3 installations

Zone 4 installations

(%)

New South Wales

Victoria

Queensland

South Australia

Western Australia

Tasmania

100

Jurisdiction

Northern Territory ACT Data source: ORER.

4.2.10

LGC creation by SGUs

STC creation rates over the projection period could also be affected by the transition from the RET to the SRES in this projection. In general, STCeligible technologies that are installed up to and including 31 December 2010 will create RECs prior to 1 January 2011 and â&#x20AC;&#x2DC;Large-scale Generation Certificatesâ&#x20AC;&#x2122; or LGCs after 1 January 2011. LGCs are the equivalent of RECs in the current RET scheme, and all RECs in existence will become LGCs as of 1 January 2011. By contrast, when the same systems are installed after 1 January 2011 they will create STCs. However, transitional rules do blur the boundaries of this distinction to some extent: where contracts for the supply of RECs are in place and extend into 2011, agents will have the option of creating LGCs rather than STCs. ACIL Tasman has ignored the potential for contracts to lead to the creation of LGCs by installations of STC-eligible technologies that occur during the projection period, as the level of this likely activity will be difficult to assess until further into the life of the SRES.

4.3

Results

These assumptions allow a direct calculation of the total pool of STCs that is likely to be created from installations physically occurring in each year of the projection period. However, some of the STCs from 2012 installations will not be created until 2013 and, similarly, some 2011 installations will create STCs in 2012. Our projection of the number of STCs that will ultimately be created by installations that will physically occur in 2012 and 2013 is set out in Table 9 (rounded to the nearest 10,000 STCs).

SGU projection

Small-scale Technology Certificates Data Modelling

Table 9

Projected STC creation by SGUs â&#x20AC;&#x201C; by year of installation 2011

2012

2013

Jurisdiction

FiT continuation scenario

FiT reduction scenario

FiT continuation scenario

FiT reduction scenario

FiT continuation scenario

FiT reduction scenario

NSW

11,250,000

4,290,000

2,900,000

Victoria

4,870,000

4,720,000

3,740,000

1,920,000

2,350,000

1,070,000

Queensland

9,580,000

7,000,000

4,730,000

3,520,000

2,780,000

2,680,000

1,790,000

1,860,000

1,220,000

4,370,000

3,390,000

2,300,000

Tasmania

110,000

70,000

40,000

60,000

50,000

30,000

ACT Australia

320,000

200,000

100,000

34,080,000

33,190,000

21,420,000

18,710,000

14,310,000

12,390,000

Data source: ACIL Tasman analysis.

As noted above, the lag between installation and STC creation means that the rate of STC creation in the projection period (the object of this analysis) is somewhat different from those presented in Table 9. In particular, ongoing high installation rates during 2011 (reflecting the NSW backlog through to mid-2011, and the retention of a Solar Credits multiplier of 5 through to 30 June 2011) will partly flow through to 2012 STC creation rates due to the lag between installation and STC creation. Allowing for lag has the effect that the rate of STC creation is higher in 2012 than would be implied by the rate of installation in that year, reflecting a hangover from the higher rate of installation in 2011. Similarly, the rate of STC creation in 2013 is higher than implied by the installation rate in that year, due to the higher projected installation rate in 2012 than 2013. The lag rates applied for this adjustment are as shown in Table 5, with the results of the overall projection expressed in terms of STC creation by creation date presented in Table 10

SGU projection

Small-scale Technology Certificates Data Modelling

Table 10

Projected STC creation by SGUs – by year of certificate creation 2011

2012

2013

Jurisdiction

FiT continuation scenario

FiT reduction scenario

FiT continuation scenario

FiT reduction scenario

FiT continuation scenario

FiT reduction scenario

NSW

10,680,000

4,540,000

3,020,000

Victoria

4,480,000

4,370,000

3,870,000

2,140,000

2,460,000

1,140,000

Queensland

8,840,000

7,220,000

4,910,000

3,250,000

2,590,000

2,750,000

1,840,000

1,930,000

1,260,000

4,020,000

3,490,000

2,380,000

Tasmania

110,000

70,000

40,000

60,000

50,000

30,000

ACT Australia

290,000

210,000

110,000

31,730,000

30,960,000

22,200,000

19,560,000

14,880,000

12,890,000

Data source: ACIL Tasman analysis.

Unlike our November 2010 projection, ACIL Tasman has not offered a ‘best estimate’ for 2012 and 2013 STC creation rates. This is primarily because the November 2010 analysis included the effect of both potential changes to State and Territory policies (i.e. feed-in tariffs) and to the Solar Credits multiplier, which created a larger bound of variation in the STC creation rate between the upper and lower estimates, necessitating a best estimate. By contrast this projection has a smaller bound of variation reflecting lower underlying variability in installation rates and the fact that the Solar Credits multiplier is held constant across both scenarios. ACIL Tasman emphasises that further changes to feed-in tariff policies (e.g. capping of presently uncapped schemes) can have a material impact on rates of STC creation from SGUs (as illustrated by recent changes in NSW), including variation beyond the bounds established by the two scenarios analysed here. In particular, scaling back of feed-in tariff policies could reduce installation rates and STC creation rates more rapidly than projected here.

SGU projection

Small-scale Technology Certificates Data Modelling

SWH projection

5.1

Trends in recent data

ACIL Tasmanâ&#x20AC;&#x2122;s analysis of ORER data on REC/STC creation by SWHs reveals several key trends in the most recent data (from July 2010) that were not clear at the time of our November 2010 projection. The most important trends evident are a significant weakening in the market for SWHs as replacement water heaters in existing buildings over the second half of 2010 and, by contrast, sustained strength in SWH installations in new buildings5. However, there was no clear evidence of increasing SWH installation rates in new buildings in response to measures effectively banning the use of electric resistance water heaters in most new dwellings (see Appendix B for more detail). As for our November 2010 projection, where historical data is compared with present data this is done on the basis of excluding data relating to all installations creating 60 RECs or above to control for June 2010 changes to the RET legislation that prevent the creation of RECs/STCs by air source heat pump water heaters of over 425 litres capacity. 5.1.1

Lag rates

ACIL Tasman has used the same methodology for estimating lag rates for SWH REC/STC creation as was outlined in section 4.1.1 for SGUs. In essence, for installations occurring 11 months ago, the lag rate for the 12th month is implied from data from that observed for installations occurring 12 months ago or earlier. The lag rate for the 11th month is implied from data observed for installations occurring 11 months ago or earlier. This process is continued for more recent months, and the average lags observed or implied over the past 12 months is adopted. Observed lag rates for REC/STC creation for SWHs diverge significantly between the new dwelling and replacement water heater segments of the SWH market, with replacement water heaters displaying significantly shorter average periods between installation and REC/STC creation. This divergence partially explains our interpretation of recent data as displaying a weakness in the replacement water heater market, and greater strength in the new building market.

Data provided by ORER distinguishes between installations of SWHs in new buildings from those that replace existing units.

SWH projection

Small-scale Technology Certificates Data Modelling

The lag rates observed or implied for replacement and new building installations are detailed in Table 11 and Table 12 respectively. Table 11

Assumed lag in STC creation by SWHs over projection period â&#x20AC;&#x201C; replacement installations SWH replacement installations creating RECs/STCs in the nth month after installation

January 2010

Observed/ inferred 2010 average

Assumed (smoothed) lag

Assumed lag (cumulative)

58.0%

67.0%

17.5%

17.6%

17.5%

84.5%

6.9%

6.4%

6.5%

91.0%

6.3%

3.7%

3.75%

94.75%

6.3%

2.3%

2.25%

97.0%

2.3%

1.1%

1.15%

98.15%

1.1%

0.6%

98.75%

0.8%

0.3%

0.25%

99.0%

0.2%

0.25%

99.25%

0.5%

0.3%

0.25%

99.5%

0.2%

0.25%

99.75%

0.1%

0.3%

0.25%

100%

Months (n)

Note: Totals may not add due to rounding. Data source: ORER; ACIL Tasman assumptions.

Table 12

Assumed lag in STC creation by SWHs over projection period â&#x20AC;&#x201C; new building installations SWH new building installations creating RECs/STCs in the nth month after installation

January 2010

Observed/ inferred 2010 average

Assumed (smoothed) lag

Assumed lag (cumulative)

27.6%

27.1%

27.0%

27.4%

24.4%

24.5%

51.5%

13.7%

14.0%

65.5%

9.6%

9.8%

10.0%

75.5%

7.6%

6.3%

6.5%

82.0%

3.4%

3.6%

3.5%

85.5%

2.8%

3.1%

3.0%

88.5%

1.5%

2.5%

91.0%

1.2%

1.9%

2.5%

93.5%

2.2%

3.4%

2.5%

96.0%

1.8%

1.7%

2.0%

98.0%

1.2%

2.1%

2.0%

100%

Months (n)

Note: Totals may not add due to rounding. Data source: ORER; ACIL Tasman assumptions.

SWH projection

Small-scale Technology Certificates Data Modelling

5.1.2

Recent installation rates

These lag factors can be used to estimate â&#x20AC;&#x2DC;impliedâ&#x20AC;&#x2122; installation rates for data as recent as December 2010. Whilst implied installation rates for recent months are not as reliable as implied or observed installation periods from longer ago, the stability of lag rate trends through the REC/STC creation data set makes analysis of this recent data valid for these purposes. Noting the inherent uncertainty in more recent data, observed and implied installation rates over the period since the beginning of 2009 for new building installations, replacement installations and all SWH installations (by State) are presented in the figures below. In particular, Figure 11 shows the significant reduction in replacement SWH installation rates since mid-2009 due to tightening of eligibility criteria, reduction in government cash grants operating in parallel with the REC/STC subsidy and, potentially, a shift of attention by households to solar PV installations at the direct expense of SWHs. Figure 11

Observed or implied installation rates â&#x20AC;&#x201C; replacement water heaters

Installations per month (observed or implied)

25,000

20,000

ACT

15,000

NT TAS SA

10,000

QLD VIC 5,000

NSW

Note: Implied installation rates estimated for 2010 using ACIL Tasman assumed lag rates. Historic data captures installations creating less than 60 RECs only to control for 2009 eligibility changes. Data source: ORER

SWH projection

Small-scale Technology Certificates Data Modelling

Figure 12

Observed or implied installation rates â&#x20AC;&#x201C; water heaters in new buildings

4,500

Installations per month (observed or implied)

4,000 3,500 3,000 ACT 2,500

NT TAS

2,000

SA WA

1,500

QLD VIC

1,000

NSW

500

Figure 13

Observed or implied installation rates â&#x20AC;&#x201C; all SWH installations

Installations per month (observed or implied)

30,000

25,000

20,000 ACT NT 15,000

TAS SA WA

10,000

QLD VIC NSW

5,000

SWH projection

Small-scale Technology Certificates Data Modelling

The recent data clearly shows a weakening in replacement unit installation rates, not just in comparison with the extremely high installation rates of mid2009, but also since the middle of 2010. This reduction in installation rates may be explained in part by reductions to Commonwealth and NSW rebates for SWHs that took effect in early 2010, taking into account that there will be a lag between a household or business’ commitment to install a unit and the time at which the actual installation occurs. However, the spike in replacement installations in June 2010 and subsequent decline appears to be too late to be explained by rebate changes. A supporting explanation is that the rapid increase in solar PV installations over the second half of 2010 has ‘crowded out’ SWH installations. This could occur because of the competing demands of marketing and installing these two products for companies that operate in both markets, and because households that concentrate effort and money towards the decision to install a solar PV system may be less likely to do the same to install a SWH in parallel. In effect, the rapid growth of the solar PV market may have turned consumer attention away from the SWH market, at least temporarily. In some cases a further physical constraint may be the lack of sufficient roof space to host both a SWH and a solar PV system, though this will not apply for all houses or all system configurations (e.g. heat pump water heaters tend to be groundmounted rather than roof-mounted). By contrast, new regulations in effect from January 2010 affecting the installation of electric resistance water heaters in most dwellings in all States and Territories (other than Tasmania) appear to have protected the new building installation market from the same ‘crowding out’ effect. However, there is no clear evidence in the data of an acceleration of installation rates for SWHs in new buildings.

5.2

Projection assumptions

5.2.1

RECs/STCs per install

The number of RECs created per installation has stayed fairly constant within the historical data set, particularly when large systems (over 60 RECs/installation) are excluded. Accordingly, ACIL Tasman has adopted the average RECs/install for SWHs producing less than 60 RECs over the 2010 calendar year as the likely number of STCs per installation over the projection period. There are subtle differences in the average RECs/STCs per installation for new buildings and replacement water heaters, and so average 2010 REC creation SWH projection

Small-scale Technology Certificates Data Modelling

rates by installations in these two categories are considered separately in this analysis. Our assumptions in this regard are set out in Table 13 and Table 14. Table 13

2010 STCs/SWH installation – replacement units

Jurisdiction

Average RECs/install

New South Wales

31.0

Victoria

29.8

Queensland

30.0

South Australia

27.9

Western Australia

27.7

Tasmania

25.5

Northern Territory

27.1

Australian Capital Territory

29.9

Note: Data captures installations creating less than 60 RECs only to control for 2009 eligibility changes. Data source: ORER.

Table 14

2010 STCs/SWH installation – new buildings

Jurisdiction

Average RECs/install

New South Wales

30.4

Victoria

24.6

Queensland

28.9

South Australia

30.0

Western Australia

30.4

Tasmania

24.6

Northern Territory

27.2

Australian Capital Territory

31.4

Note: Data captures installations creating less than 60 RECs only to control for 2009 eligibility changes. Data source: ORER.

5.2.2

Installations in new buildings

As noted above, ACIL Tasman has considered new build and replacement installations separately to identify any underlying trends that may differ between the two. We have used the lag rates specified in Table 12 to derive an implied installation rate for the period January to September 2010 and compared this to ABS data on housing completions over the same period. For simplicity, we have focused on ABS data for separate houses only, even though SWH installations will occur in other dwellings (particularly semi-detached dwellings). These estimates, and ACIL Tasman’s associated assumptions, are set out in Table 15.

SWH projection

Small-scale Technology Certificates Data Modelling

Table 15

Assumed SWH penetration in new separate houses Implied SWH penetration in new separate houses (Jan 2010 to Sept 2010)

ACIL Tasman upper estimate assumption

ACIL Tasman lower estimate assumption

New South Wales

24%

35%

25%

Victoria

55%

60%

50%

Queensland

53%

60%

50%

South Australia

15%

25%

15%

Western Australia

31%

35%

25%

Tasmania

14%

20%

10%

Northern Territory

70%

80%

70%

Australian Capital Territory

12%

20%

15%

Jurisdiction

Data source: ABS Building Activity publication (catalogue number 8752.0), various editions; ORER.

ACIL Tasman’s lower estimates of SWH penetration in new buildings are generally similar to or higher than historic numbers, reflecting the potential impact of regulations banning the use of electric water heaters in most new detached houses. However, in some jurisdictions the bounds of the upper and lower assumptions vary either side of recently observed rates. These cases are explained below: •

In Victoria the wide availability of reticulated natural gas in that State creates the potential for gas water heating to substitute for solar water heating in many new dwellings

•

In Western Australia, the existence of mandatory standards banning the use of electric water heaters since September 2008 implies that the penetration rate of solar water heating in new houses may have stabilised, and therefore could increase or decrease over the projection period

•

In Tasmania, penetration of solar water heating could vary either side of recent installation rates as electric water heaters are not banned in that State.

Future new build rates in each State/Territory were then estimated by reference to ABS housing completions and housing approvals data. Housing commencement data over the June and September 2010 quarters was used to give an indication of the likely rate of housing completions over early 2011. However, given the potential for actual completion rates to vary materially over the projection period, upper and lower estimates of housing completions were adopted based on the range suggested by data since October 2007. ACIL Tasman’s new build assumptions (and ABS housing data for comparison) are outlined in Table 16.

SWH projection

Small-scale Technology Certificates Data Modelling

Table 16

Assumed monthly housing completions

Jurisdiction

ABS average house commencements (private houses) – six months to September 2010

House commencements (September 2010 quarter)

Maximum

New South Wales

1,432

1,403

Victoria

3,164

Queensland

1,833

South Australia

House completions (October 2007 to September 2010)

Minimum

ACIL Tasman upper estimate assumption

ACIL Tasman lower estimate assumption

1,553

992

1,500

1,000

3,319

3,642

1,938

3,500

2,250

1,747

2,756

1,633

2,500

1,600

865

840

870

649

850

700

Western Australia

1,524

1,476

1,664

1,119

1,600

1,300

Tasmania

186

194

235

160

220

160

Northern Territory

Australian Capital Territory

185

166

232

200

100

Note: Building completions data was converted from a quarterly figure to a monthly figure by dividing quarterly figures by three. House refers to the ABS definition of a „separate house‟. Data source: ABS Building Activity publication (catalogue number 8752.0), various editions; ABS Building Approvals publication (catalogue number 8731.0), various editions; ORER.

5.2.3

Installations of replacement water heaters

ACIL Tasman’s analysis of lag factors and recent REC creation data suggests a clear decline in replacement water heater installations over the second half of 2010. Whilst this trend may change and installation rates may strengthen over the projection period, this process is likely to take much of 2011 to occur under even relatively optimistic assumptions. In turn, the lag in STC creation means that these depressed installation rates are likely to have some impact on 2012 STC creation rates. Further, to take into account the potential for SWH installation rates to increase as solar PV installations decline, the upper estimate assumptions for all jurisdictions (other than the Northern Territory) include an increase beyond 1 July 2012, at which point solar PV paybacks tend to decrease due to the reduction in the Solar Credits multiplier. In particular, installation rates in NSW could increase towards levels observed in late 2009 and early 2010, in response to the closure of the Solar Bonus Scheme and the likely reduced level of solar PV installations through the second half of 2011. The rate of installation for replacement units is presented in Table 17 below.

SWH projection

Small-scale Technology Certificates Data Modelling

Table 17

Assumed replacement installations/month

Jurisdiction

Implied average replacement unit installations per month Jan-Dec 2010

Implied average replacement unit installations per month (Oct-Dec 2010)

ACIL Tasman upper estimate

ACIL Tasman lower estimate

2,819

1,680

4,000

1,750

611

537

1,000

500

New South Wales Victoria Queensland

2,028

1,614

2,750

1,500

South Australia

426

315

700

400

Western Australia

915

810

1,250

750

Tasmania

110

150

Northern Territory

100

Australian Capital Territory

100

Data source: ACIL Tasman analysis and assumptions based on ORER data.

5.3

Projection results

Using these assumptions, ACIL Tasmanâ&#x20AC;&#x2122;s upper and lower projections of STC creation by SWHs according to the date of installation (rather than the date of STC creation) are shown in Table 18. Table 18

Projected STC creation by SWHs â&#x20AC;&#x201C; by year of installation 2011 Lower estimate

Upper estimate

Lower estimate

Upper estimate

Lower estimate

1,180,000

1,170,000

1,580,000

740,000

1,680,000

740,000

660,000

650,000

930,000

510,000

980,000

510,000

Victoria Queensland

2013

Upper estimate

Jurisdiction NSW

2012

1,070,000

1,060,000

1,470,000

820,000

1,510,000

820,000

180,000

300,000

170,000

310,000

170,000

450,000

440,000

570,000

390,000

620,000

390,000

Tasmania

30,000

50,000

20,000

60,000

20,000

30,000

50,000

30,000

50,000

30,000

ACT

30,000

50,000

30,000

60,000

30,000

3,630,000

3,590,000

5,000,000

2,710,000

5,270,000

2,710,000

Australia

Data source: ACIL Tasman analysis.

As noted for SGUs, this underlying projection based on physical installation dates must be adjusted for the lag in STC creation to pick up the effect of both the transition from creating LGCs to STCs, and the delayed effect of changes in installation rates on STC creation rates.

SWH projection

Small-scale Technology Certificates Data Modelling

Our upper and lower projections of likely STC creation by SWHs for the projection period by creation month, taking into account this lag, are set out in Table 19. Table 19

Projected STC creation by SWHs â&#x20AC;&#x201C; by year of certificate creation 2011

2012

2013

Jurisdiction

Upper estimate

Lower estimate

Upper estimate

Lower estimate

Upper estimate

Lower estimate

NSW

910,000

700,000

1,550,000

740,000

1,680,000

740,000

Victoria

740,000

550,000

930,000

530,000

980,000

510,000

1,050,000

740,000

1,440,000

820,000

1,510,000

820,000

210,000

140,000

290,000

160,000

310,000

170,000

470,000

350,000

570,000

390,000

620,000

390,000

Tasmania

50,000

30,000

50,000

20,000

60,000

20,000

30,000

50,000

30,000

50,000

30,000

Queensland

ACT Australia

30,000

50,000

30,000

60,000

30,000

3,490,000

2,570,000

4,930,000

2,720,000

5,270,000

2,710,000

Data source: ACIL Tasman analysis.

SWH projection

Small-scale Technology Certificates Data Modelling

Conclusion

As noted in section 2.1, the two SGU scenarios analysed for this projection can be considered to be effectively independent of the two (upper and lower) estimates made for STC creation by SWHs. Whilst higher estimates of STC creation by SWHs could tend to motivate lower rates of STC creation by SWHs and vice versa (due to the potential competition between these two technologies), the upper and lower estimates from the two SGU scenarios (i.e. the FiT continuation and FiT reduction scenarios respectively) can be combined with the upper and lower estimates from the SWH projection to give an indicative range for total STC creation in each year. With this in mind, Table 20 below presents a range of estimates for STC creation in each year. Table 20

Projected total STC creation – by year of certificate creation 2011

Jurisdiction SGUs

2012

2013

Upper estimate

Lower estimate

Upper estimate

Lower estimate

Upper estimate

Lower estimate

31,730,000

30,960,000

22,200,000

19,560,000

14,880,000

12,890,000

SWHs

3,490,000

2,570,000

4,930,000

2,720,000

5,270,000

2,710,000

Total

35,220,000

33,530,000

27,130,000

22,280,000

20,150,000

15,600,000

Note: “Upper estimate” refers to the FiT continuation scenario for SGUs and the upper estimate for SWHs. “Lower estimate” refers to the FiT reduction scenario for SGUs and the lower estimate for SWHs. Data source: ACIL Tasman analysis.

In comparison to our November 2010 projection, key differences in results in this analysis for 2012 and 2013 include: •

•

A narrower bound of SGU estimates reflecting, in part, the fact that feed-in tariff policies are held constant across the three SGU scenarios (in contrast to our November 2010 methodology) A greater bound and generally lower level of SWH estimates largely reflecting the greater possibility of sustained low replacement installation rates identified in the late 2010 data and that was not evident at the time of the November 2010 projection.

The level of SGU STC creation is generally higher than that projected in November 2010, notwithstanding the lower level of the Solar Credits multiplier assumed in the multiplier reduction scenarios for this analysis. This primarily reflects a combination of strong installation rates in more recent data and the maintenance of feed-in tariffs in Queensland and Western Australia through 2012 and 2013 in this analysis (the ‘lower estimate’ from November 2010 saw these feed-in tariffs capped or withdrawn prior to 2012).

Conclusion

Small-scale Technology Certificates Data Modelling

This observation illustrates the potential for significantly lower STC creation rates by SGUs to occur during the projection period in the event that feed-in tariffs are capped or withdrawn by State governments.

Conclusion

Small-scale Technology Certificates Data Modelling

SGU assistance

A.1

Commonwealth Government assistance

A.1.1

RECs/STCs

The Renewable Energy Target (RET) and its successor scheme the Small-scale Renewable Energy Scheme (SRES) provides up-front assistance to purchasers of small-scale renewable energy technologies. Purchasers of these systems are entitled to create certificates (RECs under the RET and Small-scale Technology Certificates, or STCs, under the SRES) which can be on-sold to recoup some of the cost of purchasing the system. These certificates have value because the legislation underpinning the RET/SRES requires wholesale purchasers of electricity to purchase and acquit a certain number of certificates or pay a penalty. The value of assistance values with the value of a certificate. Whilst the value of a REC is set by the market for these certificates, the Government has effectively fixed the price of STCs by allowing liable entities to purchase them from a Government-run Clearing House at a price of $40 (although STCs will be able to be traded outside the Clearing House, and these prices may vary). RECs/STCs effectively represent a notional amount of renewable electricity generation by a system. Therefore, the number of RECs/STCs that a solar PV system can create is set by reference to its location: where solar irradiation is higher, the level of generation of such a system is assumed to be higher, allowing it to create more certificates. Similarly, larger systems can create more RECs reflecting their greater generation capacity. RECs/STCs can be created for many years in advance when a system is installed, rather than being created gradually over the life of the system. This process, known as ‘deeming’ because certificates are ‘deemed’ in advance in relation to given period of time, effectively turns an ongoing subsidy into an upfront subsidy. Most agents opt for the option of an up-front, once-only 15 year deeming period, but can also use ongoing yearly or five-yearly deeming periods. The RET and SRES also allow owners of SGUs (or agents) to receive a bonus through what are known as ‘Solar Credits’. These credits allow solar PV systems to create five RECs/STCs for each one they would normally be entitled to create, for each unit of capacity of up to 1.5 kilowatts. Units of capacity over 1.5 kilowatts create RECs/STCs at the normal rate. Conclusion

A-1

Small-scale Technology Certificates Data Modelling

A.1.2

The Solar Homes and Communities Plan

In November 2007 the incoming Commonwealth Government changed the then Photovoltaic Rebate Program (later the Solar Homes and Communities Plan) to increase the rebate available from up to $4000 per system to up to $8000 per system ($8/watt for up to 1 kilowatt). Receiving the SHCP rebate did not prevent the agent from also creating RECs for the installation. Unlike the Solar Credits policy, the SHCP rebate was means-tested from 13 May 2008: households with an annual taxable income of greater than $100,000 were not eligible. This rebate was cancelled on announcement of the Solar Credits policy, with no further applications taken after 9 June 2009. However, transitional arrangements meant that system owners continued to receive the rebate for over a year from the policy change. Where applicants had committed to purchase a system prior to 9 June 2009 they continued to be eligible for the rebate regardless of whether the installation occurred after 9 June 2009. The Government implemented a firm deadline for installations of 31 July 2010, meaning that some installations were receiving the SHCP rebate up until July 2010. Installations that received the SHCP rebate were not entitled to create Solar Credits.

A.2

State government assistance

A.2.1

New South Wales

The initial Solar Bonus Scheme commenced on 1 January 2010 and made a feed-in tariff available for 7 years, i.e. until 31 December 2016. It operated as a gross-metered scheme (subject to metering capability) at a fixed (nominal) level of 60 cents/kWh, with eligibility limited to systems of 10 kW or less and organisations that consume 160 MWh per year or less. On 27 October 2010 changes, the NSW Government announced significant changes to the Solar Bonus Scheme. Due to the overwhelming popularity (and associated cost) of the scheme, it was closed to new applicants immediately, other than customers who had already entered a binding agreement to purchase a system. Those customers were given until 18 November 2010 to apply to enter the Solar Bonus Scheme. The 60 cents/kWh gross feed-in tariff was replaced with a 20 cents/kWh gross feed-in tariff.

Conclusion

A-2

Small-scale Technology Certificates Data Modelling

Based on information released by the NSW Government, we understand that total applications to the Solar Bonus Scheme (both 60 cent and 20 cent tariff rates) have reached 326 MW as of 31 December 2010, whilst installations have reached 163 MW6. As the Solar Bonus Scheme has a total cap of 300 MW, we have interpreted the NSW Government’s recent announcements to mean that, assuming that at least 300 MW out of the 326 MW of applications are found to be valid, the scheme is effectively closed to new applicants and will cease to be available to new applicants beyond those already committed. In turn, this implies that the extremely elevated installation rates of late 2010 will continue only as long as it takes to physically deliver the backlog of Solar Bonus Scheme applications. A.2.2

Queensland

The Queensland Government’s feed-in tariff, also known as the Solar Bonus Scheme, commenced on 1 July 2008. The feed-in tariff is legislated to remain available until 2028, and in April 2010 the Queensland Government announced its intention to continue the feed-in tariff in its present form. The Queensland Solar Bonus Scheme operates as a ‘net’ feed-in tariff at a fixed (nominal) level of 44 cents/kWh. Eligibility is limited to systems of 10 kW or less, and organisations that consume 100 MWh per year or less. A.2.3

Victoria

The Victorian Government’s ‘premium’ feed-in tariff commenced on 1 November 2009. The feed-in tariff is legislated to remain available for 15 years from commencement, i.e. until 31 October 2024. The Victorian feed-in tariff operates as a ‘net’ feed-in tariff at a fixed (nominal) level of 60 cents/kWh. Eligibility is limited to systems of 5 kW or less.

http://www.industry.nsw.gov.au/energy/sustainable/renewable/solar/solarscheme/faq#Scheme-capacity (accessed 25 February 2011).

Conclusion

A-3

Small-scale Technology Certificates Data Modelling

The feed-in tariff can be closed to new applicants once total applications reach 100 megawatts through a Ministerial declaration7. The incoming Victorian Government has not announced any formal changes to the Victorian premium feed-in tariff, and indicated as part of its election platform that it would â&#x20AC;&#x2DC;strongly support feed-in tariffs that provide a fair reward and encourage the supply of renewable and low emissions energy into the gridâ&#x20AC;&#x2122;8. In its election policy it also indicated that it would direct the Victorian Competition and Efficiency Commission to inquire into and report on the design and implementation of a gross feed-in tariff scheme. In the absence of further detail, ACIL Tasman has assumed that the present net feed-in tariff will continue in operation over the full projection period, noting the potential for the original 100 MW scheme cap (or some higher cap) to be applied during this time. A.2.4

South Australia

The South Australian Solar Feed-in Scheme commenced on 1 July 2008 and will operate for 20 years from that date (i.e. until 30 June 2028). On 31 August 2010, the South Australian Government announced an increase in the feed-in tariff from 44 cents/kWh to 54 cents/kWh (fixed nominal in both cases), effective immediately. These changes also involved limiting the availability of the tariff to only the first 45 kWh exported to the grid on any given day (implying an absolute maximum of 16.425 MWh/year). The South Australian Government also announced a cap on the scheme, such that the feed-in tariff will not be available to new applicants once total applications reach 60 megawatts9. Whilst this cap is likely to be reached in the near future, for consistency across scenarios we have assumed that this cap is not applied during the projection period, i.e. the feed-in tariff remains available to all new installations.

http://new.dpi.vic.gov.au/__data/assets/pdf_file/0008/16289/FiT-Fact-Sheet-Sept-09.pdf; accessed 9 March 2011.

http://www.vicnats.com/policies/CoalitionPlan/Energy%20and%20Resources.pdf

http://www.climatechange.sa.gov.au/index.php?page=sa-s-solar-feed-in-scheme; accessed 9 March 2011.

Conclusion

A-4

Small-scale Technology Certificates Data Modelling

A.2.5

Western Australia

The Western Australian Government’s Feed-in Tariff Scheme commenced on 1 August 2010. The feed-in tariff will be paid for 10 years from installation. The WA feed-in tariff operates as a ‘net’ feed-in tariff at a fixed (nominal) level of 40 cents/kWh. The Feed-in Tariff Scheme operates in combination with the Renewable Energy Buyback Scheme, which ensures that the value of the electricity generated is also paid by the retailer (in addition to the feed-in tariff). The rate offered under this scheme is current set at 7 cents/kWh for customers in the Synergy supply area, and 18.94 cents/kWh for those in the Horizon Power supply area (effectively regional WA). Eligibility is limited to systems of 5 kW or less for Synergy customers and 30 kW for Horizon Power customers. . The WA Government has not announced a cap on the scheme. A.2.6

Australian Capital Territory

The Australian Capital Territory’s feed-in tariff scheme commenced on 1 March 2009. The initial ‘Premium Price’ under the scheme was set at 50.05 cents/kWh for systems of 10 kW or less, fixed for 20 years from installation. The ACT scheme operates on a gross basis, i.e. the Premium Price is earned for every unit of energy generated, not just those units that are exported to the grid. For systems of 10-30 kW, a rate of 40.04 cents/kWh was paid. As of 1 July 2010 the feed-in tariff rate was changed to 45.7 cents/kWh through a determination by the responsible Minister10. This rate will remain in place for two years. On 13 September 2010, the ACT Government announced that it would cap the existing micro-generation category at 15 megawatts. Different arrangements apply for larger scale installations. In March 2011 the ACT Government received advice from the Independent Competition and Regulatory Commission that its present 45.7 cents/kWh gross feed-in tariff should be reduced to 39 cents/kWh. However, the 10

http://www.legislation.act.gov.au/di/2010-42/current/pdf/2010-42.pdf; accessed 9 March 2011.

Conclusion

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Small-scale Technology Certificates Data Modelling

Government has not formally responded to this advice. Accordingly, we have assumed that the present policy settings will remain in place over the projection period. A.2.7

Tasmania

Aurora Energy, the sole supplier of domestic electricity in Tasmania, buys back renewable energy generated by small-scale (less than 3 kW) installations at the retail price of electricity, effectively providing a net feed-in tariff equal to the retail price (presently around 20 cents/kWh). A.2.8

Northern Territory

The Northern Territory Government offers some customers in Alice Springs a special net feed-in tariff to support the Alice Springs Solar City project. However, as the Alice Springs feed-in tariff is only available to existing participants in the Solar City project, its effect on future solar PV uptake rates in the NT is negligible. A.2.9

Summary

A summary of major State and Territory feed-in tariffs is provided in Table 21 below.

Conclusion

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Small-scale Technology Certificates Data Modelling

Table 21 Jurisdiction

Major Australian solar PV feed-in tariffs Basis

Rate (cents/ kWh nominal)

Gross

Availability to new applicants

Scheme start

Tariff paid until

1 January 2010

December 2016

Closed

Gross

28/10/2010

December 2016

Closed once current applications assessed

Victoria

Net

1 November 2009

October 2024

Able to be capped at 100 MW

Queensland

Net

1 July 2008

June 2028

Uncapped

South Australia

Net

1 July 2008

June 2028

Able to be capped at 60 MW

Western Australia

Net

47 or 58.94*

1 August 2010

10 years from installation

Uncapped

Gross

45.7

1 March 2009

20 years from installation

Able to be capped at 15 MW

NSW

ACT

Conclusion

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Small-scale Technology Certificates Data Modelling

SWH assistance

Governments around Australia provide support to the take-up of SWHs in various forms, including: •

Regulations that limit the circumstances under which competing water heating technologies (particularly electric water heating) can be used

• •

RECs/STCs Up-front rebates.

B.1

Regulatory issues

In July 2009 the Council of Australian Governments agreed to phase-out the use of electric resistance water heaters as part of the National Partnership Agreement on Energy Efficiency. Implementation of this measure has been progressed by the Ministerial Council on Energy under the broader National Framework for Energy Efficiency. Implementation of this agreement varies between jurisdictions but broadly involves the banning of the use of electric resistance water heaters in new-build detached or semi-detached dwellings where natural gas is available from 1 January 2010. The state of play at the time of writing is broadly as follows: •

Western Australia has not implemented any new regulatory changes as it had already imposed equivalent standards on water heaters for new buildings from 1 September 2008

•

New South Wales and Victoria have incorporated changes within their respective building codes effectively banning electric water heaters in new buildings from 1 January 2010

•

Queensland and South Australia have made additional changes to their respective building codes, such that the effective ban applies to electric water heaters in new buildings and to replacement water heaters in ‘class 1’ dwellings (i.e. detached or semi-detached dwellings) where reticulated natural gas is available

•

Tasmania is not implementing any changes due to the low greenhouseintensity of its local electricity supply.

SWH assistance

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Small-scale Technology Certificates Data Modelling

B.2

Commonwealth Government assistance

B.2.1

RET/SRES

As for SGUs, the RET and SRES provide up-front assistance to purchasers of SWHs by allowing them to create RECs or STCs which can be on-sold to recoup some of the cost of purchasing the system. These certificates have value because the legislation underpinning the RET/SRES requires wholesale purchasers of electricity to purchase and acquit a certain number of certificates or pay a penalty. The value of assistance values with the value of a certificate. Whilst the value of a REC is set by the market for these certificates, the Government has effectively fixed the price of STCs by allowing liable entities to purchase them from a Government-run Clearing House at a price of $40 (although STCs will be able to be traded outside the Clearing House, and these prices may vary). For SWHs, RECs/STCs effectively represent a notional amount of nonrenewable electricity that will be displaced by installing a system. Therefore, the number of RECs/STCs that a solar PV system can create is set by reference to its location, with local weather conditions causing variations in average water heating loads (colder climates require more energy for water heating) and solar irradiation (sunnier climates reduce the amount of non-solar boosting required to meet household requirements). As for SGUs, RECs/STCs can be deemed over the life of a SWH and created in advance, rather than being created in an ongoing manner. A key recent change to the treatment of SWHs under the RET/SRES was the legislated change in June 2010 preventing air source HPWHs of greater than 425 litres in capacity from creating RECs/STCs. This change has effectively excluded commercial-scale heat-pump systems that were creating large numbers of RECs under earlier arrangements. As noted in the body of the report, ACIL Tasman has controlled for this policy change by focusing almost entirely on installations that create less than 60 RECs, which are effectively household-scale SWHs (including small HPWHs), when analysing the historical data set. B.2.2

Solar Hot Water Rebate

The Commonwealth Government also provides direct assistance to SWHs both through the value its Solar Hot Water Rebate (SHWR). The SHWR has undergone several changes in recent times, particularly: â&#x20AC;˘

In September 2009, the HPWH rebate was reduced from $1600 to $1000

SWH assistance

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Small-scale Technology Certificates Data Modelling

• •

In February 2010 the rebate for HPWHs was further reduced to $600 In February 2010 the rebate for non-HPWHs was reduced from $1600 to $1000.

The SHWR is not means-tested, but is only available where the unit is replacing an electric water heater and where the applicant did not receive assistance under the Commonwealth Government’s Home Insulation Program.

B.3

State and Territory government rebates

A range of State and Territory government rebates are available to SWHs. The State and Territory schemes are briefly summarised in the table below. Table 22

State/Territory SWH incentives and rebates

Jurisdiction

Rebate

Date available

Conditions

$300

15 January 2010 to 30 June 2011

Replace electric hot water system

$1500

Prior to 15 January 2010

As part of NSW Home Saver Rebate package

$600

Since 13 April 2010

Replace electric hot water system

$1000

Since 13 April 2010

For pensioners and lowincome earners

$300-$1600

Rebate depends on system size and varies between Melbourne and regional Victoria.

Variable

Since 1 January 2009

Assistance through Victorian Energy Efficiency Certificates

$500-700

Until 30 June 2013

Applies only to gas or LPG boosted solar systems

South Australia

$500

Since 1 July 2008

System must replace electric hot water system or be gasboosted

Tasmania

N/A

Up to $1000

Timber-trussed roofs that require reinforcement

Up to $400

Where additional plumbing is required

Up to $500

Must replace an electric hot water system and be used in conjunction with other energy saving investments.

NSW

Queensland

Victoria

Western Australia

Northern Territory

Australian Capital Territory

Data source: www.energymatters.com.au; www.environment.nsw.gov.au; www.cleanenergy.qld.gov.au; www.resourcesmart.vic.gov.au; www1.home.energy.wa.gov.au; www.dtei.sa.gov.au; www.powerwater.com.au.

SWH assistance

B-3

Melbourne (Head Office) Level 4, 114 William Street Melbourne VIC 3000 Telephone Facsimile

(+61 3) 9604 4400 (+61 3) 9604 4455

melbourne@aciltasman.com.au

Brisbane Level 15, 127 Creek Street Brisbane QLD 4000 GPO Box 32 Brisbane QLD 4001 Telephone Facsimile

(+61 7) 3009 8700 (+61 7) 3009 8799

brisbane@aciltasman.com.au

Canberra Level 1, 33 Ainslie Place Canberra City ACT 2600 GPO Box 1322 Canberra ACT 2601 Telephone Facsimile

(+61 2) 6103 8200 (+61 2) 6103 8233

canberra@aciltasman.com.au

Darwin GPO Box 908 Darwin NT 0801 Email

darwin@aciltasman.com.au

Perth Centa Building C2, 118 Railway Street West Perth WA 6005 Telephone Facsimile

(+61 8) 9449 9600 (+61 8) 9322 3955

perth@aciltasman.com.au

Sydney PO Box 1554 Double Bay NSW 1360 Telephone Facsimile

(+61 2) 9389 7842 (+61 2) 8080 8142

sydney@aciltasman.com.au

ACIL Tasman Pty Ltd www.aciltasman.com.au