auto_stories Quarterly Carbon Market Report June Quarter 2023

​The ACCU market readies for Safeguard Mechanism demand

In this quarter’s report we provide new insights on holdings of Australian carbon credit units (ACCUs), including cumulative holdings associated with Safeguard Mechanism entities. Many entities are yet to fully develop their compliance strategies. This includes considering opportunities for emissions reduction at source. Some Safeguard Mechanism entities, however, are progressively acquiring ACCUs for their future compliance needs.

Importantly, direct holdings do not provide the full picture. ACCUs can be acquired and held for Safeguard Mechanism compliance in multiple ways. This includes through third parties and intermediaries, longer term offtake agreements and forward contracts.

The generic ACCU spot price trended downwards over the quarter, bottoming out at $24. This price was reported by CORE markets for one single spot trade of 10,000 ACCUs on 10 July 2023. The price then rose and settled at around $32 by mid-August. Transactions during this period indicate the sell-off was largely contained within accounts of intermediaries. There may be ongoing volatility in the reported spot market until there is more substantial and consistent purchasing by (or on behalf of) Safeguard Mechanism entities.

If secondary market ACCU prices remain at these levels, we could see an increase in deliveries under contract to the Commonwealth. Delivered ACCUs are now held in the Commonwealth Emissions Reduction Fund Delivery (CERFD) account and can be purchased through the cost containment measure by Safeguard Mechanism entities for compliance purposes. This account held 1 million ACCUs as at 22 August 2023.

The Government is currently consulting, through the ACCU Review Discussion Paper, on whether the structured pilot exit arrangements for fixed delivery contracts should be made permanent. 

In Q2 2023, we saw the first ACCUs issued for projects registered under the updated soil carbon methods. Two large projects located in high rainfall regions in Queensland were issued a combined 151,000 ACCUs. In total, 4.4 million ACCUs were issued in Q2 2023, up from the 1.8 million in Q1 2023.

We explore these trends in more detail in the ACCU chapter.

Large-scale renewables investment commitments remain modest and voluntary demand for proving renewable energy use increases

It has been a modest first half of 2023 for new renewable energy generation investment commitments with 526 megawatts (MW) reaching a final investment decision. Some of the factors contributing to a lower level of investment include challenges in securing power purchase agreements due to rising component and contractor costs, and delays in connection and permitting processes. 

In the meantime, companies and governments continue to use large-scale generation certificates (LGCs) to prove renewable energy use. Businesses, local, state and territory governments and certification programs drove strong growth in voluntary (or non-Renewable Energy Target (RET)) demand for LGCs in the first half of 2023, with 5.2 million LGCs cancelled. We now expect to exceed our original 8 million estimate for non-RET LGC demand in 2023. This could add almost 30% to the statutory RET.

The Australian Government released its second Consultation Paper on Climate-Related Financial Disclosures in July 2023. The paper sets out the proposed design of Australia’s mandatory climate reporting framework. This may drive increased future demand for LGCs to prove the use of renewable energy.

Further discussion on large-scale renewables investment and demand is in the LGC chapter.

Electrification and energy prices drive growth in small-scale renewables

The first half (H1) of 2023 saw continued growth in the small-scale rooftop solar market. More than 1.4 GW of capacity was installed. This is the strongest H1 since 2021. The increased demand from businesses and households highlights that they are seeking ways to manage their energy bills and carbon footprint. If the typical pattern of more capacity being added in H2 compared to H1 occurs this year, it is likely total capacity for the calendar year will exceed 3 GW. This could reach the 2021 record of 3.2 GW. Rooftop solar contributed 10% of total generation in the National Electricity Market (NEM) in H1 2023.

This quarter saw a continuation of growing demand for air source heat pumps (ASHPs) in New South Wales, where a combination of incentives has seen a substantial reduction in upfront cost for these systems. The majority of ASHPs installed across Australia are replacing existing electric water heaters and displacing thermal generation through improved energy efficiency. Australians continue to look at ways to support the electrification of their vehicles, homes and offices while taking control of energy bills. We issue small-scale technology certificates (STCs) which incentivise and support Australians to invest in renewable energy systems.

More analysis on how these trends are driving demand for small-scale renewable energy systems is available in the STC chapter.

Data sourced from CORE markets.