Acil Allen Report
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REPORT TO CLEAN ENERGY REGULATOR 14 JANUARY 2016 SMALL-SCALE TECHNOLOGY CERTIFICATES PROJECTIONS: 2016 TO 2018 FINAL REPORT ACIL ALLEN CONSULTING PTY LTD ABN 68 102 652 148 61 WAKEFIELD STREET ADELAIDE SA 5000 AUSTRALIA T +61 (0)412 089 043 LEVEL FIFTEEN 127 CREEK STREET BRISBANE QLD 4000 AUSTRALIA T+61 7 3009 8700 F+61 7 3009 8799 LEVEL TWO 33 AINSLIE PLACE CANBERRA ACT 2600 AUSTRALIA T+61 2 6103 8200 F+61 2 6103 8233 LEVEL NINE 60 COLLINS STREET MELBOURNE VIC 3000 AUSTRALIA T+61 3 8650 6000 F+61 3 9654 6363 LEVEL ONE 50 PITT STREET SYDNEY NSW 2000 AUSTRALIA T+61 2 8272 5100 F+61 2 9247 2455 LEVEL TWELVE, BGC CENTRE 28 THE ESPLANADE PERTH WA 6000 AUSTRALIA T+61 8 9449 9600 F+61 8 9322 3955 ACILALLEN.COM.AU RELIANCE AND DISCLAIMER THE PROFESSIONAL ANALYSIS AND ADVICE IN THIS REPORT HAS BEEN PREPARED BY ACIL ALLEN CONSULTING 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 THE REPORT MUST NOT BE PUBLISHED, QUOTED OR DISSEMINATED TO ANY OTHER PARTY WITHOUT ACIL ALLEN CONSULTING’S PRIOR WRITTEN CONSENT. ACIL ALLEN CONSULTING 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 ALLEN CONSULTING 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 ALLEN CONSULTING DOES NOT WARRANT THE ACCURACY OF ANY FORECAST OR PROJECTION IN THE REPORT. ALTHOUGH ACIL ALLEN CONSULTING EXERCISES REASONABLE CARE WHEN MAKING FORECASTS OR PROJECTIONS, FACTORS IN THE PROCESS, SUCH AS FUTURE MARKET BEHAVIOUR, ARE INHERENTLY UNCERTAIN AND CANNOT BE FORECAST OR PROJECTED RELIABLY. ACIL ALLEN CONSULTING 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 ALLEN CONSULTING. © ACIL ALLEN CONSULTING 2015 CONTENTS EXECUTIVE SUMMARY I 1. INTRODUCTION 3 1.1 Background and policy context 4 1.2 Dataset provided by the Clean Energy Regulator 5 1.3 Structure of this report 5 2. SGU PROJECTIONS 6 2.1 Historic trends 6 2.2 Projection methodology 8 2.3 Projection results 17 3. SWH PROJECTIONS 21 3.1 The market for Solar Water Heaters 23 3.2 Projection results 27 4. PROJECTION SUMMARY 29 4.1 Summary of STC creation by install year 29 4.2 Lag between installation and certificate creation 30 4.3 Projected STC creation 31 EXECUTIVE SUMMARY ACIL Allen Consulting (ACIL Allen) was engaged by the Clean Energy Regulator (CER) to undertake projections of the likely creation of Small-scale Technology Certificates (STCs) under the Commonwealth Government’s Small-scale Renewable Energy Scheme (SRES) over the period 2016 to 2018. It is intended that the projections would be used to inform the setting of the Small-scale Technology Percentage (STP) for the 2016 compliance year, as well as corresponding, non-binding, estimates for 2017 and 2018 compliance years as required under the Renewable Energy (Electricity) Regulations 2001 (the Regulations). As part of the project the CER provided ACIL Allen with two datasets: one pertaining to SGU installations and one pertaining to SWH installations. These datasets cover the period since the beginning of the RET in 2001 through to the 30th November 2015. The data contains information for each installation including: — Date of installation; date of REC/STC creation — Number of RECs/STCs created, passed audit and registered — Installation city/town, state, postcode — Information relating to the installation brand and model (and inverter brand and model for solar PV) — Installation capacity — Several other fields. The datasets show that aggregate solar PV capacity installed in Australia is estimated to be around 4,640 MW by the end of calendar year 2015. The projected rate of installed is projected to have slowed in calendar year 2015 to a total of 699 MW, down from around 800 MW in 2014 (a 13% reduction). This was driven by a 17% decline in residential capacity installed which fell from 670 MW in 2014 to 556 MW in 2015. This was partly offset by increased capacity for commercial installations which were up 10% on the year, albeit from a relatively low base. The overall rate of take-up of STC-eligible technologies is heavily dependent on decisions by many thousands of individual households to spend the time and effort to research the opportunity to purchase such systems. As a result, access to information, perceptions, biases and transaction costs can affect patterns of take-up just as much as the underlying economics of an investment in these technologies. i SMALL-SCALE TECHNOLOGY CERTIFICATES PROJECTIONS: 2016 TO 2018 STC creation by SGUs was modelled using an econometric regression examining the relationship between historic installation rates for solar PV systems and the discounted financial return available to owners of such systems. By then projecting financial returns for PV installations occurring during the projection period we can estimate SGU installation rates and STC creation rates. The regression model is based on observations for 24 quarters, from the start of 2009 to the quarter ending December 31 2015. Assumptions for the residential model relate principally to either historic uptake of solar PV (the regression model’s ‘dependent variable’) or to the real net financial return to solar PV installations (the regression model’s key ‘explanatory variable’). Our model for the uptake of solar in the commercial sector is similar in nature and relates commercial installation numbers to the financial return of such installations, the number of providers offering solar PPA or leasing arrangements and ultimately, an estimate of the roof space that is available for commercial installations. Figure ES 1 summarises the projected creation of STCs based on the installation year for residential and commercial premises. The projection shows a slight recovery in the residential market in 2016, coupled with continued growth in commercial installations. Whilst install rates in subsequent years are not significantly different, projected STCs created decline due to the reducing deeming period which applies from 2017 onwards. FIGURE ES 1 – PROJECTED STCS CREATED BY SOLAR PV – BASED ON YEAR OF INSTALLATION Residential Commercial 16,000 4,500 14,000 4,000 3,500 12,000 3,000 10,000 2,500 8,000 2,000 STCs (000s) STCs (000s) 6,000 1,500 4,000 1,000 500 2,000 0 0 Actual Estimate Estimate Projection Projection Projection Actual Estimate Estimate Projection Projection Projection 2013 2014 2015 2016 2017 2018 2013 2014 2015 2016 2017 2018 NSW QLD SA TAS VIC WA NT ACT NSW QLD SA TAS VIC WA NT ACT SOURCE: ACIL ALLEN ACIL Allen adopts a stock model approach for projecting SWH installation and STC creation rates as the installation of SWH units. This approach attempts to distinguish between new building and replacement water heaters and discern the different driving trends (including construction trends and regulatory measures) affecting these different markets. This approach captures the key non-economic variables affecting SWH installation rates such as regulatory influences in a manner that a pure financial analysis could not. Figure ES 2 present the projection results for SWH installation and implied STC creation, spliced alongside actuals for previous years. Based on the lag factors, the model shows a slight fall in installations in 2015 relative to estimated actuals for 2014. The projections show subsequent increases to SWH installations in the projection period, driven mainly by installations in new build houses (particularly important in Victoria) and increased demand for replacements of existing SWH units toward the latter part of the projection. This is due to the increasing stock of SWH units – particularly as a result of the boom in installations late last decade which may begin coming up for replacement in coming years. Implied STC creation follows a similar trajectory as shown in the figure on the right. i SMALL-SCALE TECHNOLOGY CERTIFICATES PROJECTIONS: 2016 TO 2018 FIGURE ES 2 – SUMMARY OF SWH PROJECTIONS BY INSTALLATION YEAR SWH installations STC creation 120,000 3,500 31.0 3,000 30.5 100,000 2,500 30.0 80,000 2,000 29.5 60,000 1,500 29.0 STCs ('000) Installations 1,000 28.5 40,000 installSTCs perValid 500 28.0 20,000 0 27.5 2011 2012 2013 2014 2015 2016 2017 2018 0 NSW VIC QLD 2011 2012 2013 2014 2015 2016 2017 2018 SA WA TAS NT ACT Valid STCs per install NSW VIC QLD SA WA TAS NT ACT Note: Installations defined as all those which apply for STCs and have at least one STC pass the CER’s audit process. SOURCE: ACIL ALLEN The relevant number of STCs for the setting of the STP is the number of certificates that are created in each year. As such, the delay between system installation and certificate registration is an important consideration in estimating STCs to be created within a compliance year under the SRES. ACIL Allen has applied historically observed lag factors to derive the final projection for STCs based on the year of creation (the object of this analysis) as shown in Table ES1. The figures show a 12% increase in 2016 to around 17.8 million STCs, followed by 7% declines in 2017 (16.6 million) and 2018 (15.4 million).