At the end of Q2 2022, metrics for Australia's carbon markets generally remained in line with expectations detailed in Q4 2021, apart from voluntary cancellations of ACCUs and LGCs which continue to materially increase. Key H1 (January to June period) metric highlights include:
- ACCU voluntary cancellations 724,155 (up 80% from 401,499 in H1 2021).
- LGC voluntary cancellations 1,572,588 (up 138% from 661,361 in H1 2021, excluding ACT Government cancellations).
- The ACT Government cancelled 2.17 million LGCs against its 100% renewable electricity target in early July 2022 (a similar number to 2021).
- 231 ERF project registrations (up from 91 in H1 2021).
- Renewable projects reaching final investment decision totalled 1.6 GW, putting this metric on track to potentially exceed the 2.9 GW for the 2021 full calendar year.
The ACCU price rose from $30.50 to $35.10 over the quarter on the back of several high-volume trades in the reported spot market. Prices increased $5.50 or 18% on the weekend following the federal election before softening to $27.75 on 3 August 2022. This latter price is still 28% above the spot price at the same time in 2021. More information is available in chapter 1 - Australian carbon credit units (ACCUs).
Stratification and a maturing ACCU market
Some buyers in the reported spot market are increasingly looking to secure a supply of ACCUs with demonstrated co-benefits and are prepared to pay a higher premium for them. This is known as stratification. Savanna fire management with co-benefits for First Nations People and human-induced regeneration (HIR) units have been of particular interest, trading at reported premiums of $9 and $2 per ACCU, respectively. In early August, some Savanna fire-management ACCUs have been reported to have fetched a premium as high as $22.50 over the generic spot price.
Commonwealth fixed contract milestone exit arrangements have led to an increase in available ACCU supply. The secondary market has seen an increase in the volume and parcel size of reported trades during this quarter.
Record ACCU trading volumes in H1
More volume was traded through the ACCU spot market in Q2 2022 than in any previous quarter. More information on the ACCU market is available in chapter 1 - Australian carbon credit units (ACCUs).
Total ACCU transaction volumes throughout H1 2022 were 8.7 million, more than 3 times the previous record of 2.7 million in H1 2021. Reported spot market trades (a modest subset of total transactions) also increased dramatically in H1 to 2.8 million, up 430% from 0.5 million in H1 2021.
Total ACCU transaction volumes throughout H1 2022 were 8.7 million, more than 3 times the previous record of 2.7 million in H1 2021. Reported spot market trades (a modest subset of total transactions) also increased dramatically in H1 to 2.8 million, up 430% from 0.5 million in H1 2021.
Large-scale renewables investment maintains strength
In Q2 2022, 328 MW of additional large-scale renewables capacity reached final investment decision (FID) bringing the total for H1 2022 to 1.6 GW. As explained in the March Quarter 2022 report, commercial processes dictate timing of FID and capacity can be 'lumpy' from quarter to quarter. It is likely total FID for this calendar year could exceed the 2.9 GW reported last year, with 1.6 GW already reaching FID in H1 combined with projects being tracked with strong potential to reach FID in H2.
LGC prices had a strong Q2, briefly passing $50 for the first time since November 2019, before closing the quarter at $49.50. The LGC spot price subsequently increased to $58.75 on 29 August 2022. Sustained high and increasing LGC spot and forward prices signal LGC supply/demand balance remaining tight and further renewables investment is needed. Coupled with the current high wholesale electricity prices, and corporate ambition to use renewable energy and reduce greenhouse emissions, conditions for investing in renewables appear favourable.
There will need to be a step up in annual additional renewables capacity to contribute to meeting the Government's target of 43% reduction in emissions below 2005 levels by 2030. This target should drive further demand for large scale wind and solar generation. Further analysis on how large-scale renewables has and is responding to investment signals is available in chapter 2 - Large-scale generation certificates (LGCs).
New rooftop solar capacity continues at the lower level seen in Q1
There has been no evidence of any upward trend in installed rooftop solar PV capacity in Q2, despite significant increases in wholesale electricity prices during the quarter that generally flowed through to retail prices on 1 July. It appears consumers may be taking a 'wait and see' approach to home improvements with interest rates rising and further increases anticipated.
The reduction in rooftop solar installations seen in Q1, compared to last year, continued in Q2. Installed capacity was 1,144 MW in H1, 27% lower than the same period in 2021. However, this is still higher than the pre-pandemic installed capacity of 935 MW in H1 2019. There has been a reported increase in enquires for rooftop solar that may translate into sales growth. Absent this, the small-scale market remains on track for 2.3 GW for this year compared to 3.2 GW in 2021.
In the lead up to Q2 statutory surrender of 11.9 million STCs on 28 July, the STC Clearing House deficit increased to 5.8 million certificates. The STC Clearing House appears likely to see ongoing material use throughout 2022. More information on the small-scale renewable energy scheme is available in chapter 3 - Small-scale technology certificates (STCs).
| Certificate type | Spot price AUD (30 June 2022) | Change from previous quarter |
|---|---|---|
| ACCU | $35.10 | +$4.60 |
| LGC | $49.50 | +$1.50 |
| STC | $39.95 | +$0.05 |