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The 2018 Renewable Energy Target Annual Statement – Progress towards the 2020 target

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04 April 2019

The 2018 Renewable Energy Target Annual Statement – Progress towards the 2020 target provides progress towards the 2020 target and its impact on household electricity bills.

The statement has been prepared in accordance with Section 105 of the Act and was tabled in Parliament on 4 April 2019.

Letter of transmittal


The Hon Angus Taylor MP
Minister for Energy
Parliament House
Canberra ACT 2600

I am pleased to submit the 2018 Annual Statement to the Parliament on the progress towards the 2020 Large-scale Renewable Energy Target. This statement affirms the certainty that the Large-scale Renewable Energy Target of 33,000 gigawatt hours will be met in 2020.

This statement is submitted earlier than the 2018 Renewable Energy Target Administrative Report to allow for the Parliament to be informed of this important milestone in a timely manner.

As set down by Minister Hunt in his second reading speech on the Renewable Energy (Electricity) Amendment Bill 2015, the Clean Energy Regulator provides to the Parliament an annual statement on progress towards meeting the 2020 Large-scale Renewable Energy Target and its impact on household electricity bills.

Yours sincerely

David Parker's signature

David Parker AM
Chair, Clean Energy Regulator
22 March 2019

2018 Annual Statement – Progress towards the 2020 target

In 2018 it became certain that the Large-scale Renewable Energy Target of 33,000 gigawatt hours will be achieved in 20201.

Overall findings

At the end of 2018, enough utility-scale renewables capacity was commissioned and generating, or under construction, to meet the Large-scale Renewable Energy Target in 2020.

The portion of household electricity bills attributable to the Large-scale Renewable Energy Target was $9.85 per quarter for the average household electricity bill in 20182.

The large-scale generation certificate spot price moderated significantly towards the end of the year from around $85.00 in January to $47.50 in December 2018 and fell further to $31.00 by mid-March 2019. This will moderate the costs to electricity retailers and should be reflected in the pass through cost to electricity bills in 2019.

A record 3455 megawatts of constructed projects were accredited in 2018, more than triple the 1113 megawatts accredited in 2017, the previous record.

In 2017, the Clean Energy Regulator stated that 6400 megawatts would need to be commissioned between 2017 and 2019 to meet the target in 2020. This capacity will be accredited and generating ahead of schedule, around mid-2019.

Since 1 January 2016, 11,611 megawatts of new capacity has been firmly announced. Of this, 4474 megawatts has been commissioned3 against the 6400 megawatts required to meet the 2020 target. A further 5408 megawatts is under construction and an additional 1729 megawatts of projects hold a power purchase agreement. We would expect these projects to reach financial close and start construction in 2019.

This is due to the higher level of large-scale renewable energy capacity build by the industry in the three years from 2017 to 2019 than the first 16 years of the scheme.

Certificate prices

Large-scale generation certificate spot prices stayed around the $85.00 mark for most of 2018 before rapidly falling to around $47.50 in December 2018 and further to $31.00 by mid-March 2019.

This fall was likely due to a combination of the market recognising the 2020 target will be materially exceeded and our updated stance on deferral of certificate liability. This position was articulated clearly in our market update published in October 20184 .

Once it was clear the 2020 target will be exceeded, the Clean Energy Regulator communicated to the market that we had no objections to the use of shortfall in the expectation that liable entities would true up these positions with large-scale generation certificates in a subsequent year, as allowed for under the law.

The take up of this option by industry has likely shifted demand for certificates beyond 2020. It also brought forward and smoothed the expected fall in large-scale generation certificate prices. This will likely reduce the impact of the Large-scale Renewable Energy Target on electricity prices in 2019 and beyond.

As a result, a healthy 7.1 million surplus of certificates remained available in the market following the annual surrender of certificates in February 2019, down from 9.4 million the previous year.

Considering lower forward contract prices, and the large increase in supply expected in 2019, the Clean Energy Regulator expects further declines in the spot certificate price in 2019.

Liability

On-time surrender of large-scale generation certificates reduced to 86.1 per cent from 93.3 per cent in 2017 as more liable entities chose to utilise shortfall provisions. As certificate prices are falling, there will be a commercial incentive for liable entities who paid shortfall charges in 2018 or earlier to purchase certificates and redeem the shortfall charge within the allowable three-year period.

Household electricity prices

According to the Australian Energy Market Commission, the Large-scale Renewable Energy Target accounted for an estimated 2.9 per cent (or an average $9.85 per quarter) of the average household electricity bill in 2018. The Clean Energy Regulator expects the certificate spot price to continue to moderate as liquidity improves; and this should further reduce the pass through cost to electricity bills in 2019 and beyond.

Looking forward

The Clean Energy Regulator expects approximately 4000 megawatts of large-scale capacity will be accredited in 2019, taking the total to around 8400 megawatts generating since 2017.

With the capacity of new build commencing generation in 2018 combined with the expected accreditations in 2019 and 2020, we expect generation to step up from around 22,000 gigawatt hours in 2018 to around 30,000 gigawatt hours in 2019 and 40,000 gigawatt hours in 20205.

This additional renewable energy generation will deliver large reductions in greenhouse gas emissions from the electricity sector. Quarterly electricity emissions have already fallen from 53.2 Mt CO2-e in September 2008 to 44.1 Mt CO2-e at end September 2018. This trend is shown in Figure 16.

Figure 1: Quarterly electricity emissions and National Electricity Market emissions intensity

Graph showing a decline in electricity emissions and National Electricity Market emissions intensity since 2008

The current pipeline of projects that the Clean Energy Regulator is tracking suggests that we could see similar levels of capacity commissioned in 2020 and 2021 as we expect in 2019, though with less certainty.

Beyond that, the extent of the likely build is necessarily more uncertain, however, we can make observations on the factors currently at play.

The strong momentum in new firm project announcements continued in 2018 and early 2019 well beyond the point where it was clear the 2020 target would be met. Hence, it is likely that during 2018 the key driver of new announcements shifted from Renewable Energy Target incentive to commercial factors and state procurement processes.

There is evidence of an increasing number of power purchase agreements from both retailers and corporates for commercial reasons7. The record level of new construction over the past two years, combined with ongoing technology cost reductions, contributed to reported costs required for new renewables projects declining materially on a per megawatt hour basis.

There is also greater diversification in the finance models of new project developers, with some international participants not needing to raise debt finance in Australia.

In relation to potential ‘headwinds’, there has been much public discussion on grid and connection constraints in a number of areas as well as changing Marginal Loss Factors8 impacting a number of projects as more power stations become connected in constrained parts of the grid.

Although it is clear the 2020 target will be exceeded, we will continue to track and publish the investment pipeline of firm projects to support policy considerations and planning by electricity market bodies to manage the transition. General market feedback is that the data is valued.

Downloadable versions

Documentasset: 2018 LRET Annual Statement

Footnotes

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