auto_stories Quarterly Carbon Market Report March Quarter 2025

Small-scale technology certificates (STCs)

On this page

• Market dynamics
• Cheaper home batteries to be delivered through the SRES
• Soft start to 2025, with substantial pick-up expected
• Average system sizes continue to increase
• Weaker demand for air source heat pumps continues
• Small commercial solar in the SRES: trends and opportunities
• Supplementary charts

Market dynamics

STC creations exceeded the rate required to meet the 2025 small-scale technology percentage (STP). In Q1 2025, the average weekly STC creation rate was over 509,000. The 2025 STP target is 26.1 million STCs, equivalent to creations of 502,000 STCs per week.

Throughout the quarter, 6.7 million STCs were created and 7.0 million were surrendered to meet the Q4 2024 surrender requirement due 14 February 2025. With a starting Q1 stock of 3.5 million, this left 2.9 million in the REC Registry after the surrender date.

The STC spot price remained at $39.90 for most of Q1 2025. This was due to the Clearing House remaining in deficit for most of the quarter, moving into a surplus toward the end of the quarter.

Shortly after the end of Q1, activity in the market increased as entities prepared for the Q1 surrender deadline on the 28 April. A total of 8.8 million STCs, equivalent to 35% of the annual compliance requirement were surrendered. Immediately following this surrender period, there were 1.4 million STCs remaining in the REC Registry. Between 15 February and the 28 April surrender, 6.6 million STCs were purchased from the Clearing House, pushing it into deficit by 4.6 million. As a result, the STC market price moved closer to the market cap of $40.

Cheaper home batteries to be delivered through the SRES

The Australian Government has announced the Commonwealth Cheaper Home Batteries Program. Batteries installed with new or existing solar PV systems will be eligible to create STCs from 1 July 2025, which will provide a discount of around 30% of the typical battery cost. The program requires regulations being in place. Further details on eligibility and the rate of STCs that may be created per kilowatt-hour of battery capacity are available on DCCEEW’s website – see Cheaper Home Batteries Program.

STCs equivalent to the additional creations for batteries will be regularly purchased by government through the Clearing House. The obligations of liable entities under the SRES – generally electricity retailers – will not be affected, so the cost of the Cheaper Home Batteries Program will not be passed through to electricity prices.

The SRES battery rebate will help to reduce the payback period for batteries. Payback times for home batteries vary based on location, electricity tariff, battery cost and model, and household energy consumption—especially at night. According to market sources, a 10 kWh battery installed for $8,500 after the SRES rebate and paired with a solar system larger than 7kW could deliver around $1,000 in annual savings in Sydney. Under this example, the SRES rebate would reduce the payback period from around 12 years to 8 before any further state government incentives. Payback times will be shorter still where state or territory incentives are available, such as in NSW, NT, WA, and the ACT.

In addition to substantial reductions in household energy bills, batteries can also help improve grid stability. Australia’s world-leading solar penetration can cause events when more rooftop solar generation is exported than there is demand, making the system frequency too high. Storing excess PV output for later use rather than export could mean avoiding the use of backstop mechanisms that temporarily dial down or disconnect rooftop solar systems as a last resort, and charges by some network distributors for households exporting energy to the grid. Increasing volumes of household storage also help reduce the curtailment of other large-scale renewables by network operators to maintain power system security.

The information collected by the CER under the Cheaper Home Batteries Program will allow for a more accurate picture of battery uptake. Data and relevant insights will be included in future QCMRs and published on the CER website.

Soft start to 2025, with substantial pick-up expected

There has been a 4% decline in capacity and a 10% decline in installations when comparing Q1 2025 to Q1 2024. This national result was largely driven by reductions in the 3 states with the largest solar PV markets: NSW, QLD, and Victoria. Several factors may have contributed to the Q1 declines, including severe weather from Cyclone Alfred in southeast Queensland and northern NSW. Based on the experience with severe weather such as localised hailstorms, we expect the bulk of replacement installations from Cyclone Alfred to be creating STCs in Q3 2025.

More broadly, we expect the introduction of the Cheaper Home Batteries program to increase installations. The CER expects the program will incentivise installation of new PV systems; an uplift in system size for those who were already considering installing PV systems; and replacement systems for older systems. This is supported by current market intelligence suggesting that order books for installers have been improving since the program was announced.

Looking back to 2024, installed capacity looks to be a near record, with more than 3.1 GW of rooftop capacity installed. Given the 12-month period for creating STCs, the CER lag-adjusts actual estimates based on recent historical creation to estimate the final outcomes. Lag adjustments indicate 2024 capacity will reach a record 3.2 GW.

Average system sizes continue to increase

In the past year, the average system size for residential solar installations has grown from 9.3 kW in Q1 2024 to 9.9 kW in Q1 2025. This increase is driven by growth in the number of large residential and commercial installations within the 10-15 kW and 15-40 kW ranges, respectively. Installed capacity remains on track to fall within our projection of 2.9 GW to 3.2 GW.

The Cheaper Home Batteries Program may have an added impact on average system size, as generating extra energy to store and use later can improve the return on investment for larger systems.

Weaker demand for air source heat pumps continues

Data as of 31 March showed that around 18,300 air source heat pumps (ASHPs) were installed Q1 2025. When compared to Q1 2024, installations are down 34% from around 27,800. This decline is wholly attributed to a sharp reduction in NSW installation rates. NSW ASHP installations have fallen to around 1,800, compared to almost 11,500 in Q1 2024. This shift has been attributed to tightening of eligibility requirements for the Household Energy Saving Upgrades scheme as discussed in previous QCMRs.

Small commercial solar in the SRES: trends and opportunities

Solar PV systems between 15 kW and under 100 kW are considered 'small commercial'. While more than 4 million solar PV systems have been installed under the SRES, the overwhelming majority have occurred in the residential sector (15 kW or below). Data from 2024 shows that just 7% of installations and 20% of capacity were in the small commercial range.

Small commercial systems are installed by businesses as well as other entities such as public schools or hospitals. The payback period for commercial systems is typically in the 2-5 year range, making the investment potentially attractive for many entities. As most businesses operate during the day, installing storage is less likely to be cost effective without the emergence of attractive offers to export excess daytime generation for other consumers to use after business hours.

While small commercial PV can be financially attractive, other barriers may contribute to relatively low take-up. The Clean Energy Council identified business ownership as a key barrier, as businesses leasing their properties must negotiate with their landlords. Commercial sites are more complex than residential, requiring licensed EPC (engineering, procurement, and construction) installers to manage larger projects, and meet specific regulatory and compliance requirements for commercial installations including approvals from distribution network service providers.

CER data from 2020 to 2024 show that commercial systems 20 kW, 40 kW and 100 kW are the most likely system sizes to be installed. 20 kW systems typically meet the energy needs of the average small commercial buyer.

The small peak in installation around 35 to 40 kW systems is because these systems were previously at the capacity limit that could be installed without electrical safety requirements that require a grid protection unit to minimise the impacts of fluctuations in voltage, frequency and other parameters on the electrical grid. This extra piece of hardware typically costs an additional $5,000, making this system size range less financially attractive. As a result, historical installations fall sharply after 40 kW. In August 2024, changes to electrical safety standards and guidelines lifted system threshold for a grid protection unit to 200 kW. As such, this barrier to installations above 35 to 40 kW has been removed.

As systems larger than 100 kW must be accredited as renewable energy generators under the Large-scale Renewable Energy Target scheme rather than receiving a rebate via STCs under the SRES, the clustering just under 100 kW is likely influenced by policy as well as economics.

Overall, if barriers can be reduced while maintaining appropriate power system security, the small commercial segment represents an opportunity for businesses to save on energy bills while contributing to reducing Australia’s emissions.

Supplementary charts