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Revenue outlook for renewable energyTristan Edis – Director Analysis & Advisory July 2016
Outline
• Number 1 question – How much money will I make in big solar?
• Answer – its complicated and highly uncertain.• The demand is there for projects via Renewable
Energy Target.• Current market prices for power + renewable
certificates (LGCs) should support projects.• But something odd is going on – high prices are not
stimulating long term contracts or new supply.• How could this unfold: Penalty vs LRMC vs
SRMC(price collapse)2
We need lots of new projects!
• RET market bound for severe shortage by 2018
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Large-scale RET demand-supply balance
We need lots of new projects
• We need an awful lot of capacity and quickly
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Historical MWs committed versus required to meet RET
Current prices support new supply• Prices heading to shortfall penalty ($92.86)
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LGC spot price Jan 2015 – April 2016
Current prices support new supply• The cost of renewables is less than available prices
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• ACT wind auction results (nominal):– Hornsdale I – $92– Hornsdale II – $77– Sapphire – $89.10– Coonooer Bridge – $81.50– Ararat - $87
Combined value Power + LGC
Wholesale power 2019
Plus LGC @ $85
SA $90 $175QLD $60.88 $146NSW $56.50 $142VIC $50.23 $135
Current prices support new supply• The cost of renewables is less than available prices
even according to Origin Energy
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Something odd is going on
• There are plenty of available projects so why so few commitments?
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Megawatts of projects in development versus requirement
Required capacity
Something odd is going on
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Retailers and other liable parties net LGC position to 2020
Searching for explanations
• Forget economics, think fear & power:– Fear of ghost of Abbott– Little finance available for projects w/o PPA.– Some retailers not deemed credit-worthy counter parties
by banks.– Credit worthy retailers not the ones hurt by penalty.– Retailer concern about impact of new supply on their
other generation assets.– Retailer fear they’ll be out of the money as solar costs
drop further.– Even slight oversupply leads to LGC price collapse.
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Searching for explanations
• History illustrates risk
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LGC spot price since June 2003
What’s it mean for $$$
• Bad news if you are expecting a power retailer to underwrite your project
• Great news if you can get finance to go merchant• But how long can it last?
– Can power retailers and bankers constrain supply and hold back fundamental economics?
– Will state governments usurp power retailers providing long-term offtakes.
– Senate make up and role of Xenophon?– Power lobby success in getting media to blame SA power
problems on renewables.– Turnbull commitment to 2030 emission reduction target.
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Some conceivable scenarios
• The love child of Abbott - $40 compensation• Victim of success – price collapse to option on new
policy• Killed by kindness – New non-RET support policy
drives:– Oversupply; or – Increase in wholesale power prices
• Do we need to also shut down coal, not just support renewables?– Theoretically: NO– Practically - maybe
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What would we know?
• Green Energy Markets produces analysis on supply, demand and prices in Australia’s major carbon abatement certificate markets.
• CEO - Ric Brazzale: – Former head of Australia’s industry association for clean
energy sector beginning in the 1990’s when the Renewable Energy Target was conceived.
• Tristan Edis:– Climate Spectator, Grattan Institute, EY, Clean Energy
Council, Australian Government Greenhouse Office• Subscribers include power co’s, developers,
equipment suppliers and government.14
How we can help – market intelligence• Monthly updates on LGC and STC supply and price• Quarterly detailed reviews of committed supply and
demand• Quarterly reviews of who has got the LGCs, who
needs them, who’s buying and who’s selling.• Quarterly review of price drivers and future
pathways for LGCs
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