Muted LGC price response from RET Review

With the conceptual battle for the future of the Renewable Energy Target playing out in the foreground to the RET Review, the large-scale renewable sector appeared most at risk of potential changes. Hence the relief was palpable when the Climate Change Authority (CCA) recommended that no significant alteration be made to the LRET.

On the major battleground of the overall size and method employed to calculate the LRET, the CCA decided no change was needed. Whilst conceding that the current target would likely result in approximately 25 per cent renewables by 2020 (including small-scale technologies), the CCA's preliminary conclusion was that any possible benefits that would accrue from a reduced target would be outweighed by the increase in risk premiums for those seeking investment associated with another round of regulatory change.

In addition, the CCA stated that any changes that would result in the target becoming more flexible either by changing to a percentage based target or having a gigawatt hour target set each year would also be damaging to potential investment.

Some changes to the LRET were recommended, however. Among the most significant was the position that the current legislated requirement for a biennial review be replaced by one every four years (beginning 2016). This recommendation has been warmly received by those in the market seeking regulatory certainty.

The CCA also recommended that any adjustment to the RET beyond 2020 should be considered as part of the 2016 review.

While a number of the major sources of uncertainty appear to have been removed by the position outlined in the RET Review Discussion Paper, the spot LGC market's reaction has been essentially muted. The run of sporadic and somewhat volatile price movements has continued with the spot market rallying last week to $36.00, yet trade activity remains severely limited. Never-the-less in time, the conclusions of the Review's Final Report, should they be adopted by both sides of politics at some stage next year should provide liable entities with a far greater degree of confidence in the future of the scheme.

Marco Stella is a Senior Broker, Environmental Markets and editor of The Green Room at Nextgen, a wholesale energy and environmental brokerage firm. www.nges.com.au The content above is sourced from excerpts taken from The Green Room