Combet's solar subsidy plans

In July it is planned that the number of small-scale Renewable Energy Certificates received by solar PV systems per megawatt-hour (MWh) of generation will be reduced from three to two (where the systems are 1.5 kilowatts or smaller in capacity). These certificates, also referred to as STCs, represent a significant rebate off the cost of a solar PV systems for households.

Based on current spot market prices for STCs of around $28, the level of the rebate for a 1.5kW system is around $1600. With the reduction in the ratio of certificates per MWh to 2, the level of the rebate would reduce to around $1000, provided spot prices remain at $28.

There had been some speculation that the government might reduce the ratio of STCs per MWh to just one for one in order to contain costs. But the Australian Financial Review reports that a spokesman for Climate Change Minister Greg Combet said there were, “no plans to change the scheduled reduction of solar credits support to take effect on July 1 this year”..

This should come as a welcome relief for the Solar PV industry. But some participants, such as COzero's Nick Armstrong believe the market for STCs is headed for a very big over-supply this year compared to the government-set target. From this perspective whatever the government gives to the sector in terms of extra Renewable Energy Certificates, is just taken away through lower prices for STCs.

When the market for small-scale generation was originally separated from the broader Renewable Energy Target, the government set-out a fixed price that would be paid for STCs of $40, known as the ‘clearing house price'. STCs could be lodged with the government by installers of small-scale power systems such as solar PV, and then the government would on-sell these to electricity retailers at $40. 

For the last two years however, the government has massively underestimated the amount of solar PV systems that would be installed, and so set a target for electricity retailers to meet that meant they had no need to purchase STCs from the government's clearing house.

Last year the government missed the mark by 22 million certificates and it's likely to be about 7 million this year. Electricity retailers have therefore been able to obtain STCs via the spot market or direct contracting with solar companies at prices well below $40.

Theoretically solar companies could refuse to sell to retailers and keep their STCs in the clearing house, but in reality they can't be confident the government will set a more realistic target for STCs in the subsequent year that will force retailers to buy from the clearing house.  Also banks have been unwilling to come in as an intermediary to sop up the surplus because they are concerned that government might be tempted to change the rules, such as a the $40 clearing house price.

Nonetheless, the solar PV sector has achieved considerable reductions in system costs so the depressed level of support from STCs has not inhibited ongoing strong sales.

What is concerning however, is that some electricity retailers continue to suggest the cost of the scheme is $40 per STC, when this is plainly false. Those on regulated retail tariffs are clearly paying far more than they should be, when lax regulators such as IPART blindly accept the claim of a $40 price. Also the media and politicians are being misled by such inflated claims of the cost for supporting solar.