Climate Change Minister Greg Combet announced late this morning that the government will be phasing out the solar credits multiplier of 2 STCs per megawatt-hour to just one six months ahead of schedule on January 1, 2013.
Currently STCs are trading at around $32. With the current multiplier of 2, for a 1.5 kW system in Sydney, Perth, Brisbane and Adelaide this equates to a rebate of almost $2000 and in Melbourne, it's about $1700. Even if the small scale renewables target is not changed and the STC price consequently rose to $38, the level of the rebate for such a system will drop by around $700 in Melbourne and $800 for the other mainland capitals. However a spokesperson for Minister Combet informed Climate Spectator that the STP would need to be revisited by the regulator in light of this decision meaning it is likely to be reduced. This could mean that the STC price does not noticeably rise above current levels.
It seems hard to believe that such a change wouldn’t hurt sales. In addition, because the change has been announced with such little notice, and going into the slow sales period, the industry will have difficulty responding to any surge in demand to get in before the rebate drops.
According to the government, phasing out the multiplier early will, “strike the appropriate balance between easing upward pressure on electricity prices and supporting households and suppliers who install solar PV”. The government estimates that as a result of this decision there will be an overall reduction in household electricity bills in the order of $80 to $100 million in 2013.
Yet considering solar PV sales are now relatively stable rather than growing explosively, the risk of further cost blowouts seems remote. So it is a little strange that the minister has chosen to make this unscheduled change.
One thing it appears to reinforce is the perception that Combet will act to implement recommendations from the Climate Change Authority on containing the costs of the small-scale Renewable Energy Target (or SRES). At present the solar PV industry is deeply concerned about the current proposal the Authority has put forward for containing costs, worried it is too unpredictable and applies an inequitable benchmark on the kind of financial return investors in solar PV should be entitled to receive.
UPDATE 1:37PM November 16
A spokesperson for Minister Combet confirmed that this decision to alter the solar multiplier will require a resetting by the Clean Energy Regulator of the target for the SRES (the "STP"). While the STP is supposed to be set with regard to achieving a price for STCs close to $40 (the "clearing house price"), to date the STP has been set at levels too low for prices to reach close to $40.
UPDATE 2:15PM November 16
The Government has provided further guidance on the implementation of the solar credit reduction available from: http://www.climatechange.gov.au/en/government/initiatives/renewable-target/need-ret/solar-credits-faq.aspx
The website states,
"Consistent with a previous reduction in the multiplier announced in May 2011, legally binding contracts to install supported systems entered into before 16 November 2012 and made on the basis of the current rules, which include a solar credits multiplier of two, will be preserved."