Small-scale Technology Certificates Data Modelling · 2015-04-18 · Small-scale Technology...

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 Tasman’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 [email protected]

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


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


Darwin GPO Box 908 Darwin NT 0801 Email [email protected]

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


Sydney PO Box 1554 Double Bay NSW 1360


For information on this report

Please contact:

Guy Dundas Telephone (02) 6103 8213 Mobile 0405 169 116 Email [email protected]

Contributing team members: Owen Kelp

http://www.aciltasman.com.au/

mailto:[email protected]







Small-scale Technology Certificates Data Modelling

iii

Contents

1 Introduction 6

2 Methodology overview 8

2.1 Scenarios 8

2.1.1 SGU scenarios 8

2.1.2 SWH scenarios 9

2.2 Analysis of financial returns from SGUs 9

2.3 SWH projection 11

2.4 Analysis of historic REC/STC creation data 12

3 Analysis of financial return on SGUs 13

3.1 Government assistance to SGUs 13

3.1.1 Solar Credits 13

3.1.2 Feed-in tariffs 14

3.2 System size 18

3.3 System costs 19

3.4 Retail electricity prices 20

4 SGU projection 22

4.1 Observed installation rates 22

4.1.1 Estimations of lag in REC/STC creation 22

4.1.2 Implied recent installation rates 24

4.2 Assumed installation rates 25

4.2.1 New South Wales 27

4.2.2 Queensland 28

4.2.3 Victoria 29

4.2.4 Western Australia 30

4.2.5 South Australia 31

4.2.6 System size 32

4.2.7 Eligibility for Solar Credits 33

4.2.8 Deeming periods 34

4.2.9 Location of installations 34

4.2.10 LGC creation by SGUs 35

4.3 Results 35

5 SWH projection 38

5.1 Trends in recent data 38

5.1.1 Lag rates 38

5.1.2 Recent installation rates 40


iv

5.2 Projection assumptions 42

5.2.1 RECs/STCs per install 42

5.2.2 Installations in new buildings 43

5.2.3 Installations of replacement water heaters 45

5.3 Projection results 46

6 Conclusion 48

A SGU assistance A-1

B SWH assistance B-1

List of figures

Figure 1 Portion of RECs/STCs created by technology 8

Figure 2 Historic REC prices 2006-2010 14

Figure 3 System size trends 19

Figure 4 SGU observed and implied installation rates – 2010 25

Figure 5 NSW installation rates and discounted financial returns: both scenarios 28

Figure 6 Queensland installation rates and discounted financial returns comparison: both scenarios 29

Figure 7 Victorian installation rates and discounted financial returns comparison: FiT continuation and FiT reduction scenarios 30

Figure 8 Western Australian installation rates and discounted financial returns comparison: both scenarios 31

Figure 9 South Australian installation rates and discounted financial returns comparison: FiT continuation and FiT reduction scenarios 32

Figure 10 Installations receiving Solar Credits (by installation date) 34

Figure 11 Observed or implied installation rates – replacement water heaters 40

Figure 12 Observed or implied installation rates – water heaters in new buildings 41

Figure 13 Observed or implied installation rates – all SWH installations 41

List of tables

Table 1 Assumed Solar Credits multiplier 9

Table 2 Assumed Solar Credits multiplier 14

Table 3 Major Australian solar PV feed-in tariffs 17

Table 4 Micro-wind, micro-hydro and solar PV comparison, 2001-2010 22

Table 5 Assumed lag in STC creation by SGUs over projection period 23

Table 6 SGU installations rates 24

Table 7 Assumed system sizes 33

Table 8 Location of 2010 solar PV installations 35

Table 9 Projected STC creation by SGUs – by year of installation 36

Table 10 Projected STC creation by SGUs – by year of certificate creation 37

Table 11 Assumed lag in STC creation by SWHs over projection period – replacement installations 39

Table 12 Assumed lag in STC creation by SWHs over projection period – new building installations 39

Table 13 2010 STCs/SWH installation – replacement units 43

Table 14 2010 STCs/SWH installation – new buildings 43


v

Table 15 Assumed SWH penetration in new separate houses 44

Table 16 Assumed monthly housing completions 45

Table 17 Assumed replacement installations/month 46

Table 18 Projected STC creation by SWHs – by year of installation 46

Table 19 Projected STC creation by SWHs – by year of certificate creation 47

Table 20 Projected total STC creation – by year of certificate creation 48

Table 21 Major Australian solar PV feed-in tariffs A-7

Table 22 State/Territory SWH incentives and rebates B-3


Introduction 6

1 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 7

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.


Methodology overview 8

2 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

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.

2008 2009 2010

SGUs

SWHs



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

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

Assumed

Solar Credits

Multiplier

5 4 3 2 1

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

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 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



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.



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.


Analysis of financial return on SGUs 13

3 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.



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 5 4 3 2 1

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

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 ‘feed-in

tariffs’ 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

1 www.nges.com.au

$0

$10

$20

$30

$40

$50

$60

Ja

n 2

00

8

Ap

r 2

00

8

Ju

l 20

08

Oct 2

00

8

Ja

n 2

00

9

Ap

r 2

00

9

Ju

l 20

09

Oct 2

00

9

Ja

n 2

01

0

Ap

r 2

01

0

Ju

l 20

10

Oct 2

01

0

Sp

ot R

EC

pri

ce

http://www.nges.com.au/



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 up-

front 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

2 http://www.industry.nsw.gov.au/energy/sustainable/renewable/solar/solar-

scheme/faq#Scheme-capacity (accessed 25 February 2011).

http://www.industry.nsw.gov.au/energy/sustainable/renewable/solar/solar-scheme/faq#Scheme-capacity




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.

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

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



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:

• 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 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 feed-

in tariffs for the financial analysis is provided in Table 3 below.

Table 3 Major Australian solar PV feed-in tariffs

Jurisdiction Basis

Rate

(cents/

kWh) Scheme start

Tariff paid

until

Availability in

FiT continuation

scenario

Availability in

FiT reduction

scenario

NSW

Gross 60 1 January

2010

December

2016

To Q2 2011

inclusive

To Q2 2011

inclusive

Gross 20 28/10/2010 December

2016 Q3 2011 only Q3 2011 only

Victoria Net 60 1 November

2009

October

2024

Available

throughout

projection

Ends in Q4

2011



Jurisdiction Basis

Rate

(cents/

kWh) Scheme start

Tariff paid

until

Availability in

FiT continuation

scenario

Availability in

FiT reduction

scenario

Queensland Net 44 1 July 2008 June 2028

Available

throughout

projection

Available

throughout

projection

South

Australia Net 54 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

Available

throughout

projection

ACT Gross 45.7 1 March 2009

20 years

from

installation

Available

throughout

projection

Available

throughout

projection

* 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 Tasman’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.



Figure 3 System size trends

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

‘normalised’ 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.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Shar

e o

f in

stal

led

cap

acit

y

5 kW or greater

3 to 5 kW

2 to 3 kW

1.5 to 2 kW

< 1.5 kW



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 2010-

2020 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.

4 http://www.industry.nsw.gov.au/__data/assets/pdf_file/0016/360142/AECOM-REPORT-

for-Solar-Bonus-Scheme-Review.pdf

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

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



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.


SGU projection 22

4 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 micro-

hydro 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 16 611 24

Micro-wind 357 14,606 1,003

Solar PV 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 ‘complete’ data set.


SGU projection 23

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 ‘underlying’ 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

Months (n) February 2010

Observed/

inferred 2010

average

Assumed

(smoothed) lag

Assumed lag

(cumulative)

1 56.2% 61.6% 61.5% 61.5%

2 19.6% 18.3% 18.25% 79.75%

3 10.4% 6.8% 6.75% 86.5%

4 5.3% 3.7% 3.75% 90.25%

5 2.6% 2.5% 2.5% 92.75%

6 2.3% 1.6% 1.75% 94.5%

7 0.9% 2.2% 1.75% 96.25%

8 0.5% 1.3% 1.5% 97.75%

9 0.6% 0.6% 0.75% 98.5%

10 0.6% 0.5% 0.5% 99%

11 0.4% 0.4% 0.5% 99.5%

12 0.5% 0.6% 0.5% 100%

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 24

4.1.2 Implied recent installation rates

ACIL Tasman’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 ‘implied’ 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

Month 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

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


SGU projection 25

Month 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

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

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

0

5,000

10,000

15,000

20,000

25,000

Inst

alla

tio

ns

pe

r m

on

th

Installs (RECs created)

Installs (RECs created within 60

days)

Implied underlying installation

rate


SGU projection 26

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 short-

term 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-of-

pocket 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 27

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 ‘out of pocket’ 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 28

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.

Figure 5 NSW installation rates and discounted financial returns: both scenarios

Source: ACIL Tasman analysis

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

20

10

20

10

20

10

20

10

20

11

20

11

20

11

20

11

20

12

20

12

20

12

20

12

20

13

20

13

20

13

20

13

Ind

ex o

f finan

cial retu

rn

Inst

alla

tio

ns

pe

r m

on

th

Installations per month - both scenarios (LHS)

Indexed discounted financial return -both scenarios (RHS)


SGU projection 29

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.

Figure 6 Queensland installation rates and discounted financial returns comparison: both scenarios


0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

20

10

20

10

20

10

20

10

20

11

20

11

20

11

20

11

20

12

20

12

20

12

20

12

20

13

20

13

20

13

20

13

Ind

ex o

f finan

cial retu

rn

Inst

alla

tio

ns

pe

r m

on

th




SGU projection 30

4.2.4 Western Australia

The Western Australian Government’s recent introduction of a 40 cents/kWh

feed-in tariff (in combination with WA’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).

Figure 7 Victorian installation rates and discounted financial returns comparison: FiT continuation and FiT reduction scenarios


0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

20

10

20

10

20

10

20

10

20

11

20

11

20

11

20

11

20

12

20

12

20

12

20

12

20

13

20

13

20

13

20

13

Ind

ex o

f finan

cial retu

rn

Inst

alla

tio

ns

pe

r m

on

th

Installations per month - FiT continuation case (LHS)

Installations per month - FiT reduction case (LHS)

Indexed discounted financial return - FiT continuation case (RHS)

Indexed discounted financial return - FiT reduction case (RHS)


SGU projection 31

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 $30-

35/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.

Figure 8 Western Australian installation rates and discounted financial returns comparison: both scenarios


0

500

1,000

1,500

2,000

2,500

3,000

0

500

1,000

1,500

2,000

2,500

3,000

20

10

20

10

20

10

20

10

20

11

20

11

20

11

20

11

20

12

20

12

20

12

20

12

20

13

20

13

20

13

20

13

Ind

ex o

f finan

cial retu

rn

Inst

alla

tio

ns

pe

r m

on

th




SGU projection 32

This reduction is illustrated in Figure 9.

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.

Figure 9 South Australian installation rates and discounted financial returns comparison: FiT continuation and FiT reduction scenarios


0

500

1,000

1,500

2,000

2,500

0

500

1,000

1,500

2,000

2,500

20

10

20

10

20

10

20

10

20

11

20

11

20

11

20

11

20

12

20

12

20

12

20

12

20

13

20

13

20

13

20

13

Ind

ex o

f finan

cial retu

rn

Inst

alla

tio

ns

pe

r m

on

th

Installations per month - FiT continuation case (LHS)

Installations per month - FiT reduction case (LHS)

Indexed discounted financial return - FiT continuation case (RHS)

Indexed discounted financial return - FiT reduction case (RHS)


SGU projection 33

Accordingly, our STC projection adopted the average system size assumptions

set out in Table 7.

Table 7 Assumed system sizes

Location

% of units

equal to or

above 1.5 kW

Average size

of units equal

to or above

1.5 kW

(kW)

% of units

below 1.5 kW

Average size

of units below

1.5 kW

(kW)

Average unit

size (kW)

NSW 85% 2.4 15% 1.2 2.2

Queensland 75% 2.3 25% 1.3 2.1

Victoria 85% 2.1 15% 1.2 2.0

WA 85% 2.4 15% 1.1 2.2

SA 85% 2.4 15% 1.1 2.2

Tasmania 75% 2.2 25% 1.2 2.0

NT 75% 2.5 25% 1.2 2.2

ACT 85% 2.5 15% 1.1 2.3

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.


SGU projection 34

Figure 10 Installations receiving Solar Credits (by installation date)

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.

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

100%

Jun

e 2

00

9

July

20

09

Au

gust

20

09

Sep

tem

be

r 2

00

9

Oct

ob

er

20

09

No

vem

be

r 2

00

9

De

cem

be

r 2

00

9

Jan

uar

y 2

01

0

Feb

ruar

y 2

01

0

Mar

ch 2

01

0

Ap

ril 2

01

0

May

20

10

Jun

e 2

01

0

July

20

10

Au

gust

20

10

Sep

tem

be

r 2

01

0

Oct

ob

er

20

10

No

vem

be

r 2

01

0

De

cem

be

r 2

01

0

Po

rtio

n o

f al

l in

stal

lati

on

s


SGU projection 35

Table 8 Location of 2010 solar PV installations

Jurisdiction

Zone 1

installations

Zone 2

installations

Zone 3

installations

Zone 4

installations

(%) (%) (%) (%)

New South Wales - 3 95 2

Victoria - - 5 95

Queensland - 2 98 -

South Australia - 1 98 1

Western Australia - 3 95 2

Tasmania - - - 100

Northern Territory 33 67 - -

ACT - - 100 -

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, STC-

eligible technologies that are installed up to and including 31 December 2010

will create RECs prior to 1 January 2011 and ‘Large-scale Generation

Certificates’ 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 36

Table 9 Projected STC creation by SGUs – by year of installation

Jurisdiction

2011 2012 2013

FiT

continuation

scenario

FiT

reduction

scenario

FiT

continuation

scenario

FiT

reduction

scenario

FiT

continuation

scenario

FiT

reduction

scenario

NSW 11,250,000 11,250,000 4,290,000 4,290,000 2,900,000 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 9,580,000 7,000,000 7,000,000 4,730,000 4,730,000

SA 3,520,000 2,780,000 2,680,000 1,790,000 1,860,000 1,220,000

WA 4,370,000 4,370,000 3,390,000 3,390,000 2,300,000 2,300,000

Tasmania 110,000 110,000 70,000 70,000 40,000 40,000

NT 60,000 60,000 50,000 50,000 30,000 30,000

ACT 320,000 320,000 200,000 200,000 100,000 100,000

Australia 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 37

Table 10 Projected STC creation by SGUs – by year of certificate creation

Jurisdiction

2011 2012 2013

FiT

continuation

scenario

FiT

reduction

scenario

FiT

continuation

scenario

FiT

reduction

scenario

FiT

continuation

scenario

FiT

reduction

scenario

NSW 10,680,000 10,680,000 4,540,000 4,540,000 3,020,000 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 8,840,000 7,220,000 7,220,000 4,910,000 4,910,000

SA 3,250,000 2,590,000 2,750,000 1,840,000 1,930,000 1,260,000

WA 4,020,000 4,020,000 3,490,000 3,490,000 2,380,000 2,380,000

Tasmania 110,000 110,000 70,000 70,000 40,000 40,000

NT 60,000 60,000 50,000 50,000 30,000 30,000

ACT 290,000 290,000 210,000 210,000 110,000 110,000

Australia 31,730,000 30,960,000 22,200,000 19,560,000 14,880,000 12,890,000


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.


SWH projection 38

5 SWH projection

5.1 Trends in recent data

ACIL Tasman’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.

5 Data provided by ORER distinguishes between installations of SWHs in new buildings from

those that replace existing units.


SWH projection 39

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 – replacement installations

SWH replacement installations creating RECs/STCs in the nth month after

installation

Months (n) January 2010

Observed/

inferred 2010

average

Assumed

(smoothed) lag

Assumed lag

(cumulative)

1 58.0% 67.0% 67.0% 67.0%

2 17.5% 17.6% 17.5% 84.5%

3 6.9% 6.4% 6.5% 91.0%

4 6.3% 3.7% 3.75% 94.75%

5 6.3% 2.3% 2.25% 97.0%

6 2.3% 1.1% 1.15% 98.15%

7 1.1% 0.6% 0.6% 98.75%

8 0.8% 0.3% 0.25% 99.0%

9 0.2% 0.2% 0.25% 99.25%

10 0.5% 0.3% 0.25% 99.5%

11 0.2% 0.2% 0.25% 99.75%

12 0.1% 0.3% 0.25% 100%



Table 12 Assumed lag in STC creation by SWHs over projection period – new building installations

SWH new building installations creating RECs/STCs in the nth month after

installation

Months (n) January 2010

Observed/

inferred 2010

average

Assumed

(smoothed) lag

Assumed lag

(cumulative)

1 27.6% 27.1% 27.0% 27.0%

2 27.4% 24.4% 24.5% 51.5%

3 13.7% 14.0% 14.0% 65.5%

4 9.6% 9.8% 10.0% 75.5%

5 7.6% 6.3% 6.5% 82.0%

6 3.4% 3.6% 3.5% 85.5%

7 2.8% 3.1% 3.0% 88.5%

8 1.5% 2.5% 2.5% 91.0%

9 1.2% 1.9% 2.5% 93.5%

10 2.2% 3.4% 2.5% 96.0%

11 1.8% 1.7% 2.0% 98.0%

12 1.2% 2.1% 2.0% 100%




SWH projection 40

5.1.2 Recent installation rates

These lag factors can be used to estimate ‘implied’ 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 – replacement water heaters

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

0

5,000

10,000

15,000

20,000

25,000

Inst

alla

tio

ns

pe

r m

on

th (o

bse

rved

or

imp

lie

d)

ACT

NT

TAS

SA

WA

QLD

VIC

NSW


SWH projection 41

Figure 12 Observed or implied installation rates – water heaters in new buildings



Data source: ORER

Figure 13 Observed or implied installation rates – all SWH installations



Data source: ORER

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Inst

alla

tions

per

mon

th (o

bser

ved

or im

plie

d)

ACT

NT

TAS

SA

WA

QLD

VIC

NSW

0

5,000

10,000

15,000

20,000

25,000

30,000

Inst

alla

tion

s per

mon

th (o

bser

ved

or im

plie

d)

ACT

NT

TAS

SA

WA

QLD

VIC

NSW


SWH projection 42

The recent data clearly shows a weakening in replacement unit installation

rates, not just in comparison with the extremely high installation rates of mid-

2009, 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 ground-

mounted 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 43

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 44

Table 15 Assumed SWH penetration in new separate houses

Jurisdiction

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%

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 45

Table 16 Assumed monthly housing completions

Jurisdiction

ABS average

house

commencements

(private houses) –

six months to

September 2010

House

commence-

ments

(September

2010

quarter)

House completions

(October 2007 to

September 2010)

ACIL

Tasman

upper

estimate

assumption

ACIL

Tasman

lower

estimate

assumption Maximum Minimum

New South

Wales 1,432 1,403 1,553 992 1,500 1,000

Victoria 3,164 3,319 3,642 1,938 3,500 2,250

Queensland 1,833 1,747 2,756 1,633 2,500 1,600

South

Australia 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 45 44 70 36 70 40

Australian

Capital

Territory

185 166 232 92 200 100

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 46

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

New South

Wales 2,819 1,680 4,000 1,750

Victoria 611 537 1,000 500

Queensland 2,028 1,614 2,750 1,500

South Australia 426 315 700 400

Western

Australia 915 810 1,250 750

Tasmania 89 110 150 75

Northern

Territory 68 39 100 50

Australian

Capital

Territory

61 41 100 50

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

5.3 Projection results

Using these assumptions, ACIL Tasman’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 – by year of installation

Jurisdiction

2011 2012 2013

Upper

estimate

Lower

estimate

Upper

estimate

Lower

estimate

Upper

estimate

Lower

estimate

NSW 1,180,000 1,170,000 1,580,000 740,000 1,680,000 740,000

Victoria 660,000 650,000 930,000 510,000 980,000 510,000

Queensland 1,070,000 1,060,000 1,470,000 820,000 1,510,000 820,000

SA 180,000 180,000 300,000 170,000 310,000 170,000

WA 450,000 440,000 570,000 390,000 620,000 390,000

Tasmania 30,000 30,000 50,000 20,000 60,000 20,000

NT 30,000 30,000 50,000 30,000 50,000 30,000

ACT 30,000 30,000 50,000 30,000 60,000 30,000

Australia 3,630,000 3,590,000 5,000,000 2,710,000 5,270,000 2,710,000


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 47

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 – by year of certificate creation

Jurisdiction

2011 2012 2013

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

Queensland 1,050,000 740,000 1,440,000 820,000 1,510,000 820,000

SA 210,000 140,000 290,000 160,000 310,000 170,000

WA 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

NT 30,000 30,000 50,000 30,000 50,000 30,000

ACT 30,000 30,000 50,000 30,000 60,000 30,000

Australia 3,490,000 2,570,000 4,930,000 2,720,000 5,270,000 2,710,000



Conclusion 48

6 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

Jurisdiction

2011 2012 2013

Upper

estimate

Lower

estimate

Upper

estimate

Lower

estimate

Upper

estimate

Lower

estimate

SGUs 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.


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 49

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 A-1

A 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-2

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-3

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.

6 http://www.industry.nsw.gov.au/energy/sustainable/renewable/solar/solar-

scheme/faq#Scheme-capacity (accessed 25 February 2011).




Conclusion A-4

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 ‘strongly support feed-in tariffs that provide a fair

reward and encourage the supply of renewable and low emissions energy into

the grid’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.

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

accessed 9 March 2011.

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

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

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

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


Conclusion A-5

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.

http://www.legislation.act.gov.au/di/2010-42/current/pdf/2010-42.pdf


Conclusion A-6

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 A-7

Table 21 Major Australian solar PV feed-in tariffs

Jurisdiction Basis

Rate (cents/

kWh nominal) Scheme start Tariff paid until

Availability to

new applicants

NSW

Gross 60 1 January

2010

December

2016 Closed

Gross 20 28/10/2010 December

2016

Closed once

current

applications

assessed

Victoria Net 60 1 November

2009 October 2024

Able to be

capped at

100 MW

Queensland Net 44 1 July 2008 June 2028 Uncapped

South

Australia Net 54 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

ACT Gross 45.7 1 March 2009 20 years from

installation

Able to be

capped at

15 MW

* 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.


SWH assistance B-1

B 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 greenhouse-

intensity of its local electricity supply.


SWH assistance B-2

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 non-

renewable 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:

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


SWH assistance B-3

• 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

NSW

$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

Queensland

$600 Since 13 April 2010 Replace electric hot water

system

$1000 Since 13 April 2010 For pensioners and low-

income earners

Victoria

$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

Western

Australia $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 gas-

boosted

Tasmania N/A - -

Northern

Territory

Up to $1000 - Timber-trussed roofs that

require reinforcement

Up to $400 - Where additional plumbing is

required

Australian

Capital

Territory

Up to $500 -

Must replace an electric hot

water system and be used in

conjunction with other energy

saving investments.

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.

http://www.energymatters.com.au/

http://www.environment.nsw.gov.au/

http://www.cleanenergy.qld.gov.au/

http://www.resourcesmart.vic.gov.au/

http://www.dtei.sa.gov.au/

http://www.powerwater.com.au/

Melbourne (Head Office)

Level 4, 114 William Street Melbourne VIC 3000

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

Email [email protected]

Brisbane

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



Canberra

Level 1, 33 Ainslie Place Canberra City ACT 2600

GPO Box 1322 Canberra ACT 2601



Darwin

GPO Box 908 Darwin NT 0801


Perth

Centa Building C2, 118 Railway Street West Perth WA 6005



Sydney

PO Box 1554 Double Bay NSW 1360



ACIL Tasman Pty Ltd

www.aciltasman.com.au







http://www.aciltasman.com.au/

Date post:	10-Mar-2020
Category:	Documents
Upload:	others
View:	1 times
Download:	0 times

Small-scale Technology Certificates Data Modelling · 2015-04-18 · Small-scale Technology...

Documents