Many solar businesses have been wondering whether the Small-scale Renewable Energy Target (RET) Clearing House will finally come into play this year. Solar businesses and system owners alike have been waiting for the day they can finally get the promised $40 for their solar rebate certificates or ‘STCs’. Indeed a thousand sellers have been waiting for over two years.
Earlier this year it looked like the Clearing House may finally come into play.
Yet it didn’t and this was in fact evident from our ClearView analytical service. This showed:
1) The Quarter 3 requirement for STCs had been met by the liable companies’ (those firms obligated to buy STCs to meet the Small-scale RET - largely electricity retailers) holdings of STCs – meaning there was excess amount of STCs available on the market for this quarter. In particular it was important to recognise that:
a) the Clearing House volume of STCs was inflated by the holdings of a single bank - ANZ;
b) the bank was likely to sell these STCs back to liable companies;
c) the Liable companies therefore already held sufficient STCs to not touch the Clearing House
2) As a consequence of this point above the STC price would therefore reflect expectations for Quarter 4:
a) you could see that the required amount of STCs for 2013 have been already created.
b) therefore unless STC creation ceased immediately, any new STC creation would displace the need to surrender STCs from the Clearing House.
c) you could see the STC creation rate was almost keeping track with the Q4 effective surrender rate.
d) using our ClearView projection you would also know the excess at the years end.
Unfortunately, there is minimal chance the Clearing House will be drawn upon this year. Though the STC target was almost accurate this year, the required surrender volume for 2013 has already been created. If STCs ceased being created overnight, that would mean the Clearing House would clear, but ongoing creation in Quarter 4 is certain to create an excess larger than the current Clearing House volume. Only if some deep-pocketed liable companies forward-buy all the excess STCs would other liable companies be forced to purchase from the Clearing House. However, there is little likelihood that the big-three electricity retailers would have any appetite for such a bold move.
The amount of excess STCs at year's end is therefore mostly determined by the fourth-quarter creation compared to its surrender volume. The volume of STCs created over the coming quarter is likely to be substantially higher than the 1.3M currently held in the Clearing House, particularly as Queensland’s STC creation has stopped declining and SA’s is increasing – indeed STC creation rose last week in Queensland, SA, NSW, and Victoria (See image below). Worse, the year’s total surrender will be somewhat less than the 35.1M target, if the Liable Entities have sold less electricity than anticipated (excess STCs will be absorbed into next year’s target). This appears likely and we’re already 2.4% (740k) behind the 30.3M that should have been surrendered by the end of Q3.
The market only just came to realise the forthcoming excess. The start of October saw 2.3M STCs in the Clearing House – a volume that could have entirely changed the dynamic just described. But outside of subscribers to ClearView (which reveals the STC holdings of every party in the REC Registry), few people knew that ANZ was holding 43% of the STCs in the Clearing House. So on October 16 when ANZ sold their STCs to liable companies, the volume of ‘available’ STCs on the market increased by 1M. This quashed any likelihood of sales via the Clearing House and STC prices fell by $1 or more.
For those who don't use ClearView, the following information on the Clearing House may be of interest:
- At its peak in early 2012, the Clearing House held 7.2m STCs. At that point there were 24M excess STCs – almost double the required 28M required for surrender in 2011.
- Since then 158k of STCs have been withdrawn from the Clearing House each month to February 2013; the exit rate doubled to 357k/month between February and September 2013.
- Most parties hold very small quantities of STCs in the Clearing House. At present, there are 2559 distinct sellers holding STCs in the Clearing House. Keppel Prince’s 88k holdings are now the largest individual seller, but this represents only 7% of current holdings. This is a different story to last month, when ANZ held 43% of STCs in the Clearing House – a situation that changed when they were pulled out and sold to liable entities (indicating that they were probably held there on behalf of the liable entities, and simply placed into the Clearing House as insurance in case the liable entities were in breach of contract).
- At present, the Clearing House holds 1.3m STCs. 50% of STCs currently in the Clearing House were deposited there before September 2011.
- There have been no sizeable purchases from the front of the Clearing House queue. Indeed, the only small purchases from the Clearing House occurred in early 2011. The only way people have moved closer to the front of the queue is when someone ahead of them bailed out. But to no avail, as the front of the queue hasn't shifted.
- Who’s left in the clearing House? Many shifted a long way forward when ANZ pulled out. But Keppel Prince, Renewable Energy Traders have some of the largest holdings, and SolarGain are one of the best positioned.