auto_stories Quarterly Carbon Market Report June Quarter 2023

Solar photovoltaic (PV) on track for at least 3 GW in 2023

In the first half (H1) of 2023, 1.4 GW rooftop solar PV capacity was installed. This is 21% more than the first half of 2022. We usually see installed capacity increase over the year (see Figure 3.1). If this typical trend continues, we could beat the 3.2 GW record set in 2021. We will provide a progress update in the Q3 2023 QCMR.

In H1 2023, an estimated 160,000 rooftop solar PV systems were installed, a 14% increase on the 140,000 systems installed in H1 2022. The average system size also grew year on year, from 8.7 kilowatts (kW) in Q2 2022 to 9.3 kW in Q2 2023. New STC supply was up 8% year on year to 17.7 million in H1 2023.

Several factors are contributing to the continued growth of solar PV installations and installed capacity. Cost of living concerns, in particular rising energy bills among residential customers, have seen more households looking to solar as a medium-term cost savings measure. With a typical 4 year payback period. On 25 May 2023, the Australian Energy Regulator (AER) released the final determination for the  2023-24 Default Market Offer. This revealed from 1 July 2023 residential customers could see price increases of up to 25%, depending on their region.

In Q2 2023, almost half of small-scale solar PV systems installed were greater than 10 kW. This resulted in a Q2 average system size record of 9.3 kW. Systems in the 5 kW to 10 kW band remain the largest proportion of installs under the Small-scale Renewable Energy Scheme (SRES). Yet, the share of installed capacity from this band has decreased from its peak of 67% in Q3 2020 to 49% in Q2 2023. The share of systems in the 10 kW to 15 kW band has increased from 12% to 32% over the same period (see Figure 3.2).

Households are likely installing larger systems in preparation for electrification. The annual State of Electric Vehicles Report shows that 8.4% of all new cars sold in Australia in H1 2023 were electric vehicles (EVs). This is a material increase from 3.8% in the whole of 2022. It is likely many households are installing larger solar PV systems to power their EVs using renewable energy directly from their roofs. Recent modelling commissioned by Energy Consumers Australia has quantified the average cost savings between energy efficient and typical fossil fuel households. The findings suggest that by 2030, annual energy bills for an all-electric home would be around $2,250 less, on average. As households and businesses look to switch to electric alternatives for heating, cooling, cooking and water heating, solar PV is a complementary purchase to further reduce energy bills.

Commercial and industrial customers are also affected by increasing input costs, including higher energy prices. AER’s final determination for the 2023-24 Default Market Offer reports small business customers are facing increases of 14.7% to 28.9%, depending on their region. This may encourage future installation of rooftop solar PV, as well as air source heat pumps, to reduce operating expenses. However, we are yet to see a material increase in the total capacity for systems in the 15 to 100 kW range. The International Energy Agency Australia 2023 Energy Policy Review notes, ‘the economic fundamentals for residential and commercial PV are outstanding’ and expects growth in commercial and industrial installations in 2023. Industry insights suggest some installers have refocused their business towards commercial installations, in response to the opportunities presented by this market segment.

Anecdotally, installers are reporting that commercial customers are also purchasing battery systems in conjunction with their solar PV installations. This is a way of managing their costs and strengthening their energy security. This is supported by data voluntarily reported to the CER which shows that in H1 2023, batteries were installed with more than 9% of systems larger than 15 kW, up from 7% in the same period last year. These figures likely underrepresent the true battery installation rates as reporting is voluntary.

Based on current installation trends, we expect more than 3 GW of additional rooftop solar PV capacity will be installed in 2023. We typically observe an uptick in installations and installed capacity in H2 each year as households and businesses look to lock in the current year deeming period. We also see increased demand for larger systems in Q4, when commercial and industrial systems (above 15 kW) typically represent more than 20% of installed capacity. We believe it is most likely this trend will continue. How strongly this trend plays out will determine whether the 3.2 GW record will be reached in 2023.

It is possible that households and businesses that were able to do so, installed solar prior to 1 July in anticipation of rising energy bills. This potentially brought forward investment that may otherwise have occurred in H2. Additionally, cost of living pressure in the form of lagged effects of interest rate rises affecting mortgage and rental payments may moderate demand in H2 2023. We will report on any changes in the Q3 2023 QCMR.

Air source heat pumps continue upward trend

Strong growth in air source heat pump (ASHP) installations continued in H1 2023, with an estimated 60,000 installed under the SRES. This represents a 70% increase on the 36,000 installs in H1 2022. More than 1.1 million STCs were created from ASHP installations in H1 2023. This represented 8% of total STC creations. In addition to the SRES, state-based incentives have contributed to growth in ASHP installations in Victoria and New South Wales (see Figure 3.3).

Victoria experienced a decline in ASHP installations from 24,000 installations in H1 2022 to 18,000 in H1 2023. NSW became the leading state for new ASHP installations in H1 2023. An estimated 30,000 ASHPs were installed in NSW in H1 2023, 13 times the 2,300 installed in H1 2022. This increase was due to the introduction of Peak Reduction Certificates (PRCs) in November 2022. Industry intelligence suggests that NSW incentives, including the ability to stack certificates such as energy savings certificates (ESCs) and PRCs, are driving a boom in commercial air source heat pump installations. If NSW follows a similar trend to Victoria, we may see demand stabilising over the next few quarters. As discussed in the Q1 2023 QCMR ASHP installations can help households and businesses reduce energy costs. For households and businesses that are looking to manage energy bills but are not in a position to install solar PV, efficient air source heat pumps may be an attractive option.

STC market dynamics

Twenty-eight point five million STCs need to be surrendered to meet the 2023 Small-scale Technology Percentage (STP) requirement of 16.29%. This means about 661,000 STCs are required to be created per week to meet this year’s STP and address the cumulative shortfall from previous years. In H1 2023, weekly STC supply exceeded this requirement by an average of 21,000 STCs per week (see Figure 3.4). However, STP liability is acquitted quarterly. The first quarter is ‘front-loaded’ at 35%, and Q2 represents 25% of demand. This meant some liable entities needed to source STCs from the Clearing House to meet their STP requirements.

The STC Clearing House deficit increased to 4.3 million certificates immediately after the Q2 surrender on 28 July 2023. As at 15 August 2023 the deficit has decreased to 2.9 million. This reflects STC sales into the Clearing House in recent weeks. The deadline to surrender STCs for Q3 liability is on 28 October 2023. It is likely the STC Clearing House will return to surplus by the end of the 2023 compliance year. This is based on current and expected creation rates, and the fact that the Q4 surrender on 14 February 2024 is only 15%.

Supplementary figures