STC Oversupply: Implications for Solar Businesses

It’s clear: three months into the ‘enhanced’ Renewable Energy Target, Australian solar is in a ‘sticky’ mess. Its official: STC oversupply is occurring, and the market impacts have already started, but only just begun. This brief article will inform solar companies of the associated risks.

Information is drawn from ClearView, SunWiz’s STC Market Intelligence package. Subscribe to keep track of STC creation levels and trading activity, and to be informed of strategic opportunities.

STC creation is occurring at a rate of 1.2 million STCs per week, with 9.4 million already created by the end of March. Considering that only 28 million STCs are required to be surrendered in 46 weeks time (14/2/2012), STC oversupply seems certain to stick around for some time. While reduced STC supply will occur in the second half of the year due to a reduction in REC multiplier and installation caps being reached in NSW, Victoria, and SA – an issue of concern in itself – by that time STC creation levels will likely have exceeded the amount required by years end.

Impacts:

Q1: 1/1/11-28/4/11
As a consequence of the lag in STC validation by ORER, STCs created after 7th of April will certainly be trading against Q2 liabilities of the utilities. The 2.5M STCs that are currently pending registration should be registered by 21st of April, adding to the 0.75M in the Clearing House and 6M registered but not in the Clearing House Queue. That leaves approximately 0.5M STCs that can be created this week before the quarter’s 9.8M STCs are fully allocated.

As a result of this oversupply, expect the spot price of STCs to drop. The price offered by major STC aggregators has already dropped by $1 this week.

But opportunities may still exist to ‘fast-track’ STCs created this week or next.
1.    Some of those 2.5M STCs pending registration will be invalidated upon audit by ORER, creating a gap to fill to reach the 9.8M STCs required this Quarter.
2.    STCs sold direct to liable entities take precedence over STCs bought from the Clearing House queue, meaning that selling direct to liable entities may fetch a better price
3.    There are many liable entities, many of which don’t have sophisticated STC strategies – they may purchase from the Clearing House at $40, or may be open to purchasing ahead of time for a slightly cheaper rate.
4.    Develop a strategic play with SunWiz

Q2: 29/4/11 - 29/7/11
Clearing House Q2 is shorter than Q1, with a backlog of STCs to be validated, and a smaller demand of 7M STCs. As such, expect Q2 to be oversupplied before the quarter is halfway through (16th June). As a consequence:
1.    Expect the spot price of STCs to fall as liable entities start to purchase against Q3 obligations.
2.    There may still be some lee-way to sell direct to smaller liable entities at higher rates, but these players may follow the spot price.
3.    Beware the possibility of the big three utilities wielding their asymmetric market power to drive the STC price down, effectively testing the PV market to find out ‘how cheaply can I purchase STCs for’?

What could you do:
1.    Consider locking-in a STC forward contract as a hedge against STC price drops.
2.    Bypass the Clearing House entirely (if you haven’t already being doing so)
3.    Monitor STC levels with SunWiz ClearView

Q3 & Q4:
In this period, Liable Entities will start to need to purchase against 2012 liabilities. However, uncertainty remains against the 2012 STC price (which can be changed by the minister) and the levels of STC demand to be established. With such risk, it may be possible that the forward purchases dry up, or only proceed at a low price. The issue is compounded by the drop in multiplier, and the end of Feed-in Tariffs in multiple states.
What to do:
1.    Develop a highly-strategic sales approach
2.    Predict your most profitable sales and segments under the new multiplier and pricing
3.    Enlist SunWiz’s assistance to identify your most profitable regions, products, and salespeople.

SunWiz ClearView

CLEARING HOUSE MARKET INTELLIGENCE

STC Oversupply: Know BEFORE it happens, Trade BEFORE the price plunge
• Avoid STC payment delays of 3-6 months.
• Bypass the overflowing queue by going direct to undersupplied liable entities
• Manage Your STC Risks to Help Get a Better STC Price

Broker, Clearing House, or Direct: What’s Best For Your STCs Today? The Clearing House queue is minor when compared to the STCs that will be sold direct to liable entities. In this light, it’s important to know whether you’re better off trading STCs through a REC Aggregator, putting them in the queue, or jumping the queue by selling direct to a liable entity. Your best strategy depends upon ClearView knowledge.

Don’t get caught out. The Clearing House is almost certain to be over-supplied in Q1, 2011. When this happens, those with direct relationships with liable entities will skip ahead of those in the queue, meaning payment may be delayed by 3-6 months for some or all of your STCs.
3 options to suit your needs: ClearView: Q, Foresight, and Trading

ClearView: An Essential Investment for the Protection of Your $10,000s of STCs