auto_stories Quarterly Carbon Market Report March Quarter 2023

Solar PV capacity on track to reach an additional 3 GW

Installed rooftop solar PV capacity for Q1 2023 was 681 megawatts (MW), continuing a seasonal trend where Q1 installations are lower than the preceding Q4 (see Figure 3.1). An estimated 80,300 rooftop solar PV systems with an average system size of 8.7 kilowatts (kW) were installed in Q1 2023, representing a 14% increase on the 68,530 systems installed in Q1 2022. STC creations in Q1 2023 totalled 9.2 million, similar to Q1 2022 despite an increase in installed capacity.

Based on current installation trends, we estimate that 3 GW of additional rooftop solar PV capacity should be installed in 2023. Installation numbers are expected to increase throughout 2023 as installations generally pick up towards the latter part of the year. This is confirmed by reports from our compliance activities that indicate continued strong installation of solar PV.

Air source heat pump (ASHP) installations continue to increase

ASHP installations experienced continued strong growth building on from 2022 numbers with an increase of 42% in Q1 2023 compared to Q1 2022. STC and state-based incentives contributed to growth in ASHP installations in Victoria and New South Wales (see Figure 3.2). Victoria has had the highest number of ASHP installations mainly due to state-based incentives. It is unclear what caused the decline in Victorian ASHP installations in Q1 2023. We will continue to monitor the growth of Victorian installations to see if a new trend is forming. ASHP installations in NSW have increased recently due to the introduction of Peak Reduction Certificates (PRCs) in November 2022. As discussed in the Q3 2022 Quarterly Carbon Market Report (QCMR), a combination of STC and state-based incentives can significantly reduce the upfront cost.

Increasing energy prices may have contributed to overall increased installations because ASHPs are more energy-efficient than gas and older electric systems. Consumers are likely installing ASHPs to reduce their energy bills with the assistance of government incentives. ASHPs have been installed to replace mostly electric systems – 67% of ASHP installations are replacing old electric systems. Replacing electric systems is relatively straightforward as it only requires electrical work. However, replacing gas systems requires both gas and additional electrical work and the associated further time and costs. Consumers wanting to replace their old inefficient hot water unit with an efficient ASHP should consider doing so in advance of their old system potentially failing. If they wait until their system fails, they may end up having to accept a less efficient ‘like for like’ replacement which can be done faster than replacing with an ASHP – particularly if they are switching from gas hot water.

STC market dynamics

In the 2023 assessment year, 28.5 million STCs need to be surrendered. This requires about 661,000 STC creations on average each week to provide enough supply to meet the small-scale technology percentage (STP) for 2023 of 16.29%. In Q1 2023, weekly STC supply exceeded the required annual rate by an average of 45,610 STCs per week (see Figure. 3.3). However, STP liability is acquitted quarterly with the first quarter ‘front-loaded’ at 35% which means there is a shortage of 60,160 STCs per week. This shortage means the STC Clearing House is still in material use. The STC Clearing House is currently in deficit of 6.2 million certificates immediately after the Q1 surrender on 28 April 2023. Assuming total installed capacity of 3 GW for the 2023 calendar year, this STC Clearing House deficit is unlikely to clear until early 2024.

STC supply timing is assisted by installers using the Solar Panel Validation (SPV) initiative. Installers using SPV can reduce the time taken to have STCs validated. Currently, 80% of claims are submitted through the SPV suggesting that solar retailers and installers receive a material cash flow benefit by using the service.