Self-fulfilling prophesy or Clearing House Fallacy?
The Clean Energy Regulator recently announced that the 2013 STC Target would be 35.7m, of which 15M was to soak up 2012’s over-creation. The market responded immediately with a $2 increase in the price offered by major aggregators, suggesting it thought this was a higher target than expected. But its not all good news, indeed the target implies a contraction in the solar market by 20-25%, and in the meanwhile there will be new market dynamics to watch out for.
The 2013 STC target implies an expected market contraction for the solar power sector, something foreshadowed when SunWiz & SolarBusinessServices released our Forecast 2012-2017 two weeks ago. Ric Brazzale of Green Energy Markets confirms that the market implication is for 780MW of small-scale PV to be installed in 2013. The reason for the sharp price rise was that October 2012 modelling of the non-binding estimate was for 18.46m, but this prior to the early reduction of the multiplier; hence the 20.7m in the target is substantially higher than the market expected. But the market has over-delivered on the Regulator’s expectations for two years in a row, what’s to say this won’t happen again? So, is the estimate too high, too low, or just right?
Even if the target is out in 2013, it won’t be so far out as in previous years, when it underestimated the market by 50%. In those years, state government policies provided drivers for PV uptake that fuelled early multiplier reductions which only fanned the flames. The price signal provided by a declining STC price was outweighed by the installation incentives provided by pending reduction in feed-in tariffs and solar multiplier. In 2013 there can be no further multiplier reduction, and government policy in states with feed-in tariffs (SA and QLD) is well known, which wasn’t the case in previous years. These have been accounted for in the 2013 STC target, and are remnant parts of a larger market. Thus, the STC price signal should act more effectively to reduce oversupply should it occur; (which could be foreshadowed by unexpected installation volumes in either state).
The feedback loop will compensate for oversupply, but what if there’s undersupply. Its worth remembering that just reaching the target implies a significant contraction for the PV market, complete with margin pain and business exits. Should a market conditions turn unfavourable, the $40 price cap limits the additional incentive available to coax customers out of the woodwork. However, its my opinion that the STC value is now a small component of PV system pricing, and shouldn’t be the sole solar make-or-break factor.
The long-awaited Clearing House will introduce new dynamics to the STC market. The STC market is designed that over the long term demand should equal supply, so the Clearing House should come into play at some stage. Preliminary analysis by SunWiz for its ClearView subscribers shows that this could be as early as Q3, depending upon the installation volumes particularly for Queensland’s remaining Feed-in Tariff applicants, and the timing of sales for the rest of the market. Presently there are some 4.6M STCs in the Clearing House, a volume that decreases marginally each week.
Once the Clearing House queue finally moves, the dynamics get interesting. This might spark a rush to the Clearing House, as STC holders finally cash in (and avoid fees from middle-men). But before that happens, there’d have to be some people waiting at the end of the Clearing House queue who calculate that they’re not going to get to the front this quarter, and who don’t want to risk another year waiting, so they take a price in the high thirties. In doing so they will have jumped the queue, providing a set back those waiting. ClearView shows that a bank is one of the biggest holders of STCs in the Clearing House queue, so their behaviour may be most illustrative to watch. There may be bets placed on how many STCs shift in each quarter; that way those at the back of the line may win even if they lose.
Is the target too low (again)?
Before you get too excited about the prospect of the Clearing House handing out the long-awaited $40, you may want to consult a copy of our recently completed Australian PV Installation Forecast 2012-2017. Firstly, our pessimistic forecast is considerably lower than the target, which would imply an unhappy PV industry (at least in most sectors other than the key areas of opportunity identified in the report). Perhaps more happily, our mid-range scenario exceeds the Regulator’s forecast by a noteworthy margin, though this news may not excite those in the Clearing House. Our most optimistic scenario, driven by key areas of opportunity, shows that there is still some room for growth in 2013 – as much as 1.2GW when large-scale PV is included.
If you want to perform well this year AND get a good price for your STCs, make sure you obtain your copy of Australian PV Installation Forecast 2012-2017 and subscribe to ClearView.
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